Funding Litigation

From Uni Study Guides
Jump to: navigation, search

This topic is within Resolving Civil Disputes.

Contents

Required Reading

Dorne Boniface, Miiko Kumar and Michael Legg, Principles of Civil Procedure in NSW (2d ed 2012) Thomson Reuters, [7.1010]-[7.1050].

M. Legg (ed), Future of Dispute Resolution LexisNexis (2013), Chapters 16, 18 and 19.

Introduction

[1] When a potential plaintiff lacks resources to fund litigation, he can seek litigation funding from commercial entities. An agreement is usually entered into whereby the funder accepts to pay all of the costs of the litigation (including the other party's costs should the claim fail) in exchange for a share in the proceeds should the claim be successful (the funder usually receives 1/3-2/3 of the total money recovered).

  • The funder will obviously need to consider the chances of success and the associated risk involved in order to determine whether it should fund the litigation.
  • Higher risks usually entail larger shares for the funder from the total cost order.
  • Litigation funders play an important role, because they identify potential lawsuits, undertake due diligence to determine the feasibility of the litigation, organise the representative party accordingly, and of course, provide the funding.

Litigation funding was discussed in Campbells Cash and Carry v Fostif:

  • There are two fears usually associated with litigation funding: "fears about adverse effects on the processes of litigation and fears about the "fairness" of the bargain struck between funder and intended litigant."
  • However, "Neither of these considerations...warrants formulation of an overarching rule of public policy..." because such a rule would always end up being too broad.

s 56 (6) of the CPA ensures that litigation funders are also subject to the requirement of the overriding purpose ("just, quick and cheap").

Litigation funding is a relatively new concept (started about 20 years ago) and was pioneered in Australia.[2]

Access to Justice

[3] The main idea behind litigation funding is that it improves access to justice, which has become a central concern in Australia. However, there have also been arguments that litigation funding perhaps does not really improve access to justice as previously thought:

  1. Funders are selective - some cases are rejected because they do not meet investment criteria (such as small claims or claims for non-monetary relief). They also don't allow people who don't sign a cost agreement with them to join an existing claim.
    • Whilst this is true, its hard to imagine it ever being different - obviously some cases will need to be rejected for the business to be maintainable.
  2. The impact of funding is modest at best - ie, litigation funding is actually very rare so it doesn't even have a substantial impact on access to justice.[4]
    • Whilst it is true that the number of cases funded is relatively small, some of those cases involve an incredible number of plaintiffs and incredible amounts of money. Besides, each funded case is obviously very important to the plaintiff bringing it, who would have been unable to do so without funding.
  3. Cases should not be brought to court simply because a trader can make a profit.
    • This depends mainly on individual perspectives of the proper role of the justice system. Besides, this discounts the power of the courts to control their own processes and ignores other important issues.

The Litigation Funding Markets

[5] Litigation funding is growing in both Australia and abroad (particularly in the UK and US). See the FDR textbook, pp. 168-73 for detailed statistics of the performance of litigation funders.

Two accusations have been leveled at litigation funders, and both have been refuted by the two data sets available for litigation funding in Australia:[6]

  1. Funders run litigation primarily for their own benefit and for the lawyers involved.
    • However, the data shows that given the costs, risks, time and other issues at hand, the returns which the funders and lawyers make are by no means excessively high.
  2. Funders unduly delay or prevent the settlement of funded cases.
    • However, the data shows that the settlement rate is actually higher on funded class actions as opposed to non-funded ones. In terms of time or effort taken to pursue a settlement, there is no real difference between funded and non-funded class actions.

Emerging Opportunities for Funders

[7] There are three areas which are thought to have great potential for increased litigation funding:

  1. International arbitrations;
  2. Funding claimants who could actually fund their own litigation anyway;
  3. Funding defendants.

International Arbitrations

There has been a noticeable increase in funding for international arbitrations. See FDR textbook, p. 173-4 for some detailed examples in this area.

  • Factors which make international arbitrations suitable for funding:
    • Usually quicker and more efficient than court process.
    • Claimants usually seek very substantial monetary reward, based on documentary and not oral evidence.
    • Usually final and binding, less risk of appeal and delay.
    • Demand is likely to grow, since international arbitrations are getting popular.
  • Factors which make international arbitrations not suitable for funding:
    • Some jurisdictions have laws against litigation funding.
    • Does not utilise a o precedent system, which means it is harder to assess chances etc.
    • Information might not be as readily available because of the terms of the arbitration agreement.

All in all, it is expected that litigation funding in international arbitrations is going to to significantly increase.

Funding for 'Solvent' Claimants and for Defendants

The corporate environment in the world today is increasingly cost-conscious and risk averse (partly due to the global financial crisis from 2007). As a result, there are now a lot of claimants who may have the resources to fund their own litigation but would still rather minimise their risk by seeking out a funder.

Another market segment expected to experience an increase in litigation funding is funding for defendants, although obstacles exist because it is difficult to identify clear ways to measure success etc.

The Regulation of Litigation Funders in Australia

[8] The regulation of litigation funding is a debated topic. Litigation funding needs to be regulated because of the following reasons:

  • There may be potential conflicts of interests between the funder, claimant and the lawyers.
  • There is a need to keep the lawyers independent from the funder so they could fulfill their fiduciary obligations.
  • Consumers need to be protected from possible exploitation by funders.
  • It must be ensured that funders have enough money to actually fund the claims and possible cost orders.
  • Funders should be licensed and checked out before issued a license.
  • Funding agreements should be disclosed to the courts and other parties.

Background

Initially, there was no regulation of litigation funders. Two court decisions addressed that:

  • Brookfield Multiplex ltd v International Litigation Funding Partners Pte Ltd (' Multiplex ') - ruled that funded class actions constitute an unregistered managed investment scheme (MIS) within the definition of s 9 of the Corporations Act 2001.
    • After the decision, ASIC announced that funded class actions are exempt from MIS requirements.
  • International Litigation Funding Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed) (' Chameleon ') - ruled that the agreement constituted a 'financial product' which therefore required the funder to have an financial services license. Because it didn't have one, the client was able to rescind the agreement.

Current Regulation

The government's response to the calls to regulate litigation funding came in the form of recent Corporations Amendment Regulations 2012 (No 6).

  • The regulations given legislative force to the ASIC order given after Multiplex (ie, no MIS requirements needed for class actions).
  • They also exempt litigation from needing a financial services license so long as they make "adequate arrangements for managing any conflict of interest that may arise..."

The regulations fail to require any sort of license for litigation funding, establish a code of conduct, or address the Chameleon decision.

  • Chameleon was finally addressed in the appeal to the High Court, which was accepted. The High Court overturned the previous decision and adjudged that no financial service license is required.

On the whole, the level of regulation of litigation funding in Australia is deemed unsatisfactory.

Lawyers and Litigation: A Pathway Out to Wealth and Fame

[9] Tennyson’s Aylmer’s Field identifies contradiction between idea of law as noble and learned profession and the material aspirations of its practitioners.

  • The justifications for litigation funding are couched in the language of economists.
  • The Law Council of Australia find that they are an efficient way of dealing with multiple claims and there is clearly a public interest in a robust litigation funding market where sufficient capital is available to underwrite the risks associated with large group claims.
  • If the social purpose is to provide access to justice, Sackville finds it not clear that financing only those groups with demonstrably sound cases will achieve that objective.
  • The forces encouraging the commercialization of legal practice and of litigation appear to be unstoppable.

Pro Bono

[10]Pro Bono works is when legal services are provided for free or for a significantly reduced price. Pro Bono work is currently on the rise, and is becoming more recognised and structured.


Sorry! This section is still incomplete. If you wish to help us, please click here.


End

This is the end of this topic. Click here to go back to the main subject page for Resolving Civil Disputes.

References

BKL refers to Dorne Boniface, Miiko Kumar and Michael Legg, Principles of Civil Procedure in NSW (2d ed 2012) Thomson Reuters.

FDR refers to Michael Legg (ed), The Future of Dispute Resolution (2013) LexisNexis.

  1. BKL, pp. 430-6.
  2. FDR, p. 167.
  3. FDR, p. 167-9.
  4. D Grave, K Adams and J Betts, Class Actions in Australia:, 2nd ed, Thomson Reuters, Sydney 2012, p 802.
  5. FDR, pp. 169-73.
  6. IMF, (Australia) Ltd, 'Case Investment History', release to Australian Securities Exchange, 6 May 2011; V Morabito, An Empirical Study of Australia's Class Action Regimes - Second Report, Monash University, Victoria, 2010.
  7. FDR, pp. 173-6.
  8. FDR, p. 176-9.
  9. FDR, pp. 191-201 - The Hon Justice Ronald Sackville AO, QC, Lawyers and Litigation: A Pathway Out to Wealth and Fame?.
  10. FDR, p. 202-213.
Personal tools
Namespaces

Variants
Actions
Navigation
Toolbox