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Australia – Update On Claims Funding.
20 January, 2014

Legal News & Analysis – Asia Pacific – Australia – Dispute Resolution

 

Plaintiff law firm, Maurice Blackburn (MB), has established a funding vehicle, Claims Funding Australia Pty Ltd (CFA) as Trustee of the Claims Funding Australia Trust. MB has controlling and financial links with CFA. CFA is proposing to co-fund the equine influenza class action in the Federal Court of Australia (in which MB acts for the applicant) with litigation funder, Argentum Centaur El Funding Private Limited (Argentum). The class action is being run by MB.

 

On 12 November 2013, CFA’s application to co-fund the class action was referred to the Full Federal Court, and is set to be heard on 24 – 25 February 2014.

 

Background to the relationship between CFA and MB

 

CFA and MB are related in the following ways:

 

  1. CFA has two shareholders, who hold their shares on trust for MB,
  2. one of the shareholders is a principal, director and shareholder of MB, while the other is the CEO of MB;
  3. one of the three directors of CFA is a principal, director and shareholder of MB, and
  4. the beneficiaries of the Claims Funding Australia Trust (Trust) include present and future principals or partners of MB, for the duration they are a principal or partner, or any entity nominated by them to be a beneficiary. The Trust was created for the purpose of funding litigation.

 

Claimants and the co-funding arrangement

 

Interestingly, claimants in the equine flu class action are able to choose between 2 funding arrangements:

 

  1. To have their claim co-funded by both CFA and Argentum and pay only 25% commission – however, claimants must agree to waive any conflict or potential conflict of interest which might arise as a result of CFA being owned by the principals of MB, and
  2. To have their claim funded by Argentum only and pay 27.5% commission.

 

In effect, claimants who choose co-funding receive a discount on the commission payable. Of the 587 claimants, approximately 95.4% have selected this option.

 

Issues to be considered by the Full Federal Court

 

In deciding whether to allow CFA to co-fund the action, the Full Court has been asked to consider, amongst other things, the following issues:

 

  1. whether MB’s interests in the funding arrangements between CFA, Argentum and the claimants would conflict with MB’s duty of loyalty or its duties to the Court as solicitors for the claimants,
  2. whether claimants who selected to have their claim co-funded by CFA and Argentum have waived any conflict or potential conflict of interest,
  3. whether MB would contravene the prohibition against contingency fees under s 325 of the Legal Profession Act 2004 (NSW),
  4. whether CFA has contravened the financial services and managed investment scheme provisions of Chapters 5C and 7 of the Corporations Act 2001 (Cth) and Corporations Regulations 2001 (Cth) Reg 7.6.01AB(1), which requires litigation funders to maintain adequate practices for managing any conflicts of interest, and
  5. whether MB’s interest in the funding arrangements are against public policy or an abuse of process.

 

Implications of the Full Court’s decision

 

If CFA is allowed to fund the equine influenza class action:

 

  1. it will be allowed to proceed with funding 2 other actions, including a shareholder class action against Allco Finance Group2 (co-funded with International Litigation Funding Partners Pte Ltd),
  2. it will change the funding landscape as lawyers will be able to establish a funding arrangement with their clients which does not trigger the prohibition against contingency fees,
  3. it may see the development of new relationships in the funding market, and
  4. it may increase competition in the funding market.

 

The outcome of the special case before the Full Federal Court will no doubt add to the current debate on litigation funding. It is likely to be of interest to the Federal Government as well as the Productivity Commission.

 

 

For further information, please contact:

 

Damian Grave, Partner, Herbert Smith Freehills
[email protected]

 

Jason Betts, Partner, Herbert Smith Freehills
[email protected]

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