The Third Party Litigation Funding Law Review 6th edition: Australia

8 DECEMBER 2022 BY JASON GEISKER & DIRK LUFF

I  Market overview

Australia is home to one of the world’s most sophisticated third party litigation funding markets. Initially, litigation funding was used by insolvency practitioners to pursue insolvency-related legal claims, but since the turn of the millennium litigation funding has been utilised in a far broader range of civil and commercial disputes and arbitrations. Even so, third party litigation funding remains relatively underutilised in Australia.^[2] In 2021 the total legal market spend on litigation in Australia was estimated at A$4.8 billion, with the addressable market for third party litigation funding estimated at half that amount, or A$2.4 billion.^[3] In contrast, the Australian litigation funding market had an estimated revenue of only A$173.5 million in 2020–21.^[4] The litigation funding market is estimated to have grown by 8.7 per cent per annum between 2017 and 2022. That trend is predicted to continue, albeit at a slower rate of 4.1 per cent per annum, over the next five years.^[5]

In 2019 the Australian Law Reform Commission (ALRC) estimated there were approximately 33 litigation funders active in the Australian market,^[6] although due to a significant tightening in the regulatory environment, numbers may have declined slightly since the ALRC’s report. The use of litigation funding for a broad range of class actions^[7] is a well-known aspect of the Australian market. Class actions are now thought to represent just under half of the litigation funding market, with the balance comprising small to large businesses and individuals.^[8] In the 12 months ending 3 March 2018, approximately 72.5 per cent of the class actions filed in Australia were supported by third party litigation funders.^[9] However, over the past five years there has been a steady decline in funded class actions as a proportion of the overall class actions commenced in Australia, such that they now represent less than half of all class actions filed.^[10] Indeed, in 2021 and 2022 total class action filings themselves (funded and unfunded) were at the lowest level on record since 2017–2018, reflecting the broader slowdown of this market segment.^[11]

Despite dealing with covid-19 comparatively well from a public health perspective, Australia did not completely avoid the economic shockwaves from the pandemic experienced around the globe. Factors influencing the demand for litigation funding in Australia include the strength of the local economy, the rate of corporate insolvencies, the demand for legal services, regulatory settings and the level of government intervention.^[12] Yet, despite the biggest economic downturn since the great depression, surprisingly for the Australian business community covid-19 did not result in the tsunami of corporate insolvencies originally expected. Largely due to unprecedented levels of government assistance and intervention, external administrations in 2020 and 2021 were kept at record lows,^[13] resulting in a reduced demand for litigation funding in the insolvency market segment. In 2022 this trend somewhat reversed, with corporate insolvency appointments returning to almost pre-covid-19, long-term average levels.^[14] This was in-part driven by the Australian Taxation Office adopting a more aggressive approach towards recovery of overdue tax debts.^[15] This recent increase in corporate insolvencies and deteriorating economic conditions, along with an increase in demand for legal services^[16] and predicted improved regulatory settings, is expected to drive growth in the litigation funding industry over the coming years.

II Legal and regulatory framework

i The legal basis and limits of third party funding

Prior to 2006, encouraging litigation and funding another’s claim for profit were prohibited in Australia by the common law doctrines of maintenance and champerty.^[17] These doctrines prevented the courts from being used for speculative business ventures. Maintenance and champerty were the foundation for numerous challenges to the legitimacy of litigation funding before being progressively abolished as crimes and torts in most Australian states.^[18] More than 20 challenges to funding agreements were mounted^[19] in the eight years leading up to the 2006 landmark decision of the High Court in Campbells Cash and Carry Pty Ltd v. Fostif Pty Limited (Fostif).^[20]

In a pivotal moment in the development of Australian jurisprudence, the High Court held in Fostif that third party litigation funding of a class action was not an abuse of process or contrary to public policy.^[21] The Court stated that notions of maintenance and champerty could not be used to challenge proceedings simply because they were funded by a litigation funder.^[22] Following Fostif, litigation funding has become an entrenched part of the Australian legal system, playing a crucial role in providing greater access to the courts and bringing equality of arms to claims often against well-resourced respondents.

Even so, courts may still intervene in funded litigation where funding arrangements are considered to be contrary to the public policy considerations upon which the previous prohibitions were based at common law.^[23] Fostif reserved the question as to what those public policy considerations might be in the Australian states that have not abolished the torts of maintenance and champerty by statute. Hence, challenges to litigation funding agreements still arise from time to time.^[24] A recent example arose in the Queensland Court of Appeal decision in Gladstone Ports Corp Ltd v. Murphy Operator Pty Ltd^[25] (Gladstone). That case involved a challenge to the adequacy of security for costs provided by way of a deed of indemnity from the funder. The defendant joined the funder to the proceeding and sought a declaration that its funding arrangements supporting the class action were unenforceable by reason of public policy. Gladstone argued the funder had been given an impermissible level of control, particularly in relation to settlement and other decision making, in the litigation.

The Court of Appeal rejected these arguments. To the extent that ‘maintenance offends against the law’, the Court considered this can be adequately dealt with through the doctrine of abuse of process and should be subsumed into that body of law, rather than dealt with as a separate tort of maintenance.^[26] The Court said a litigation funder was not in a substantially different position from ‘an insurer defending a claim or suing to recover under a right of subrogation’.^[27] An application for special leave to appeal was subsequently dismissed, with the High Court concluding Gladstone’s arguments had insufficient prospects of success.^[28]

Likewise, the extent of a lawyer’s ability to fund claims, in the same way that third party funders might, has been reviewed by the Court too. With the exception of Victoria, legal practitioners in all other Australian states and territories are prohibited from entering into any arrangement for payment of damages-based contingency fees (where fees are calculated by reference to a percentage of the amount recovered).^[29] Unsurprisingly, practitioners in all states are still entitled to enter into conditional billing arrangements whereby their ordinary fees are payable upon a successful outcome. These arrangements are known as no-win no-fee agreements and sometimes permit an uplift of up to 25 per cent of the lawyer’s ordinary fees where a successful outcome is achieved.^[30] For obvious reasons, such arrangements are often not commercially viable for practitioners, particularly for larger or more complex claims such as class actions. Victoria has been the only state to address this issue. Victorian practitioners have been permitted to enter into damages-based contingency fee arrangements for class actions since 1 July 2020.^[31]

The extent to which a lawyer may be associated with the litigation funder has been extensively tested by a Melbourne-based solicitor, Mark Elliott (now deceased), who was a sole director and shareholder of Melbourne City Investments Pty Ltd (MCI). In 2014, securities class actions were commenced by MCI, as the representative plaintiff, against ASX listed Treasury Wine Estates (TWE) and Leighton Holdings (LEI). MCI acquired shares in TWE and LEI. Mr Elliott also appointed himself as the legal representative for MCI, which was receiving litigation funding to conduct the claims. In December 2014, the Victorian Court of Appeal stayed the proceedings as an abuse of process. The stay was granted because the proceedings had been commenced with the predominant purpose of earning legal fees for Mr Elliot, rather than the fees being an incident or by-product of the vindication of legal rights. In their majority judgment, Maxwell P and Nettle JA emphasised the importance of maintaining public confidence in the fairness of court processes; confidence that ‘would undoubtedly be shaken’ if the enrichment of a solicitor were held to be a legitimate purpose for bringing proceedings.^[32]

Separately, Mr Elliott trialled a different funding model for a class action brought against Banksia Securities.^[33] He again sought to act as the lead plaintiff’s solicitor, while also being a director and secretary of the litigation funder and holding an indirect shareholding in the funder. The litigation funding agreement entitled the funder to a 30 per cent commission and to exercise control over the conduct of the proceeding. The Supreme Court of Victoria restrained Mr Elliott from acting in the Banksia Securities class action owing to conflicts of interest. Justice Ferguson considered that the main risk arising from Mr Elliott’s pecuniary interest in the outcome of the class action was that he might not fulfil, or might not be perceived to fulfil, his duties to the court or be independent and objective.^[34] Her Honour found ‘it would be inimical to the appearance of justice for lawyers to skirt around the prohibition on contingency fees by this means; particularly where the legal practitioner’s interest in the funder is sizeable’.^[35]

In February 2018, a A$64 million settlement of the Banksia Securities class action was approved but was then subject to judicial review following an appeal from a disgruntled group member. The review involved the appointment of a contradictor to assist the Court to consider the amounts to be paid for legal costs and funding commission. In the dramatic developments that followed, allegations were presented to the Court suggesting the plaintiff’s solicitor and counsel had engaged in serious misconduct in connection with their billing practices. In response, both the plaintiff’s senior and junior counsel elected not to dispute the allegations and offered to have their names removed from the bar roll. The review hearing before Supreme Court Justice Dixon, which examined the funder’s and lawyers’ conduct, including whether they should be ordered to forego all costs and commission and pay additional damages to the 16,000 class members, concluded on 18 March 2021, with judgment delivered on 11 October 2021.^[36] In his judgment, Justice Dixon found that the litigation funder and five lawyers involved engaged in egregious conduct in connection with a fraudulent scheme, intending to claim more than A$19 million in purported legal costs and funding commission from the settlement sum. Justice Dixon noted that their conduct had shattered confidence in, and expectations of, lawyers as an honourable profession, and corrupted the proper administration of justice. The Court concluded that the lawyers’ and funder’s actions were appalling breaches of their respective duties to the court, particularly the paramount duty and overarching obligations imposed on them by the Civil Procedure Act 2010 (Vic). As well as removing some of the lawyers involved from the roll of admitted practitioners, Justice Dixon also referred the matter on to the Director of Public Prosecutions for further investigation and appropriate action.^[37]

ii Post-Fostif developments in litigation funding regulation

As providers of financial services and credit facilities, litigation funders are subject to the consumer provisions of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), which contains protections against unfair contract terms, unconscionable conduct, and misleading and deceptive conduct.^[38] These provisions provide avenues for redress against unfair or false and misleading terms or omissions in funding agreements. Funders are also subject to the general regulatory requirements under the Corporations Act 2001 (Cth) (Corporations Act) and the general law, including equity.^[39]

In 2009, litigation funding regulation prompted national debate following the landmark decision in Brookfield Multiplex Funds Management Pty Ltd v. International Litigation Funding Partners Pte Ltd (Multiplex), which determined that litigation funding agreements and the lawyer’s retainer in a funded class action constituted managed investment schemes within the meaning of Section 9 of the Corporations Act.^[40] Managed investment schemes are required to be registered^[41] and managed by a public company holding an Australian financial services licence (AFSL).^[42] Failure to comply is an offence.^[43]

A second landmark case involving a dispute between a funder and client raised similar questions at the time regarding the nature and regulation of funding arrangements. In Chameleon Mining NL (Receivers and Managers Appointed) (Chameleon) the funded client sought to rescind a funding agreement under Section 925A of the Corporations Act and thereby avoid payment of the funder’s commission.^[44] The client argued that the funding agreement was a financial product and that the funder did not hold an AFSL. The High Court concluded that the funding agreement constituted a credit facility rather than a financial product and, while it did not need an AFSL, the funder did require an Australian credit licence.

In the aftermath of these two landmark decisions the federal government intervened, announcing that it would protect funded class actions from too heavy a regulatory burden.^[45] In 2010, the Australian Securities and Investments Commission (ASIC) issued class orders granting transitional relief to the lawyers and litigation funders involved in funded class actions, exempting them from the managed investment regulatory obligations. ASIC subsequently granted transitional relief from the financial product regulatory requirements of the Corporations Act. More recently, those protections have since been significantly scaled back as discussed below.

The Multiplex and Chameleon cases also led to the introduction of a conflict management regime. In 2012, regulations were enacted exempting litigation funders from the managed investment scheme provisions of the Corporations Act subject to compliance with certain conflict management requirements.^[46] During this time litigation funders providing both single-party funding^[47] (litigation funding arrangements) and multiparty funding^[48] (litigation funding schemes) were required to conduct reviews and maintain written procedures identifying and managing conflicts of interest.^[49] In April 2013, ASIC released a regulatory guide detailing how litigation funders may satisfy these obligations.^[50]

However, in a dramatic policy change on 22 May 2020, the then Federal Treasurer, the Honourable Josh Frydenberg, announced significantly expanded regulatory requirements were to be imposed on litigation funding via the Corporations Amendment (Litigation Funding) Regulations 2020 (Cth) (2020 Regulations). The stated effect of the 2020 Regulations was twofold: to require third party litigation funders to hold an AFSL, and to require funders to comply with the managed investment scheme regime under Chapter 5C of the Corporations Act. The 2020 Regulations were published on 23 July 2020 under a cloud of controversy,^[51] and took effect on 22 August 2020.^[52] The 2020 Regulations rejected the detailed recommendations of the ALRC report ‘Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders’ (ALRC report) delivered to the Federal Attorney-General on 21 December 2018.^[53] Since 22 August 2020, a number of applications have been made in connection with funded class actions to determine if they contravene the 2020 Regulations or are protected by the transitional provisions.^[54] Delays resulting from compliance with this managed investment scheme regime were also experienced in some funded class actions.^[55]

Subsequently, in Stanwell Corporation Ltd v. LCM Funding Limited,^[56] one of the respondents to the class action, Stanwell, alleged that the funding arrangements for the class action were unlawful, in that they constituted a managed investment scheme that failed to comply with the 2020 Regulations. In response, the litigation funder (LCM) filed a cross-claim seeking a declaration that the funding arrangements did not constitute a managed investment scheme, and contended that the earlier Full Court decision of Multiplex was wrong. Justice Beach dismissed Stanwell’s claims, holding that the litigation funding arrangements were grandfathered by reason of the transitional provisions in the 2020 Regulations^.[57] As such, his Honour found that it was not necessary to deal with the litigation funder’s cross-claim and dismissed the cross-claim.^[58] Justice Beach did, however, state that there is a strong case for arguing that it is appropriate for a Full Court to reconsider the majority decision in Multiplex.^[59] His Honour then went on to identify (in some detail) the problematic aspects of the reasoning in Multiplex, including the ‘unresolved conceptual incoherence in applying Chapter 5C [of the Corporations Act] to litigation funding schemes’.^[60] On 13 December 2021, the litigation funder appealed from the dismissal of its cross-claim.

In 2022 in the landmark decision of LCM Funding Pty Ltd v. Stanwell Corporation Limited (Stanwell),^[61] the Full Court of the Federal Court of Australia unanimously held that the decision in Multiplex was plainly wrong, and that a litigation funding scheme did not constitute a managed investment scheme.^[62] The Court agreed with Justice Beach’s analysis of the deficiencies in the reasoning in Muliplex.^[63] Justice Lee found that the ‘characterisation of litigation funding arrangements as managed investment schemes is a case of placing a square peg into a round hole’.^[64] His Honour also dismissed the idea that litigation funding schemes are unregulated, citing the Court’s close protective and supervisory role ‘. . . to ensure that any class action is conducted in a way which best facilitates the just resolution of the disputes according to law and as quickly, inexpensively and efficiently as possible. Relatedly, the Court is also obliged to protect group members and manage the class action recognising that conflicts of interest, or conflicts of duty and interest, between and among representatives, group members, funders and solicitors can arise.’^[65]

Following the Stanwell decision, the federal government has sought to clarify the regulatory position to align with Stanwell by proposing appropriate amendments to the Corporations Regulations 2001 (Cth) (Corporations Regulations). This has been proposed through the draft Corporations Amendment (Litigation Funding) Regulations 2022 (draft Funding Regulations), which at the time of writing are currently the subject of consultation. The draft Funding Regulations propose to (among other things) exempt litigation funding schemes from the managed investment scheme provisions of the Corporations Act, effectively bringing the arrangements for litigation funding schemes in line with the regime prior to 22 August 2020.

iii Reviews into the regulation of litigation funding

The regulation of litigation funding in Australia has evolved through a long history of reviews and reports.

Productivity Commission report

In September 2014, the Productivity Commission delivered a comprehensive report regarding access to justice, which favoured two major reforms which, if implemented, would greatly impact litigation funding.^[66] The two proposed reforms were the introduction of a licensing regime for litigation funders,^[67] and the removal of the ban on lawyers charging damages-based contingency fees, thereby introducing another funding option for clients.^[68] Both reforms (and an array of other proposals) received further independent consideration at state and federal level by the Victorian Law Reform Commission (VLRC) and the ALRC.^[69] In mid-2020, a hastily convened Parliamentary Joint Committee on Corporations and Financial Services (PJC)^[70] gave further consideration to the regulation of ‘litigation funding and the class action industry’ prior to the federal government responding to the 24 detailed recommendations contained in the ALRC report.^[71]

VLRC

On 16 December 2016, the Victorian Attorney-General commissioned the VLRC to report on litigation funding and the conduct of class actions and to consider how regulators might better protect litigants from unfair risks or disproportionate costs burdens.^[72] The VLRC report, ‘Access to Justice: Litigation Funding and Group Proceedings’, tabled in the Victorian parliament on 19 June 2018 (VLRC report), recommended that, subject to careful regulation, legal practitioners be permitted to charge contingency fees so as to provide another funding option for clients who are unable to bring proceedings without financial assistance in appropriate cases. The VLRC report also supported industry-wide, national regulation of litigation funders and recommended that Victoria advocate for stronger national regulation through the Council of Australian Governments.^[73]

ALRC

On 11 December 2017, the federal government announced that the ALRC would conduct a similar federal review into litigation funding and the conduct of class actions. The ALRC Inquiry, led by the Honourable Justice Sarah Derrington QC, consulted broadly with judicial and expert panels, regulators, stakeholders and interested parties in the United Kingdom and Canada. A discussion paper released on 1 June 2018 (ALRC paper)^[74] attracted more than 70 formal submissions from a broad range of industry stakeholders, including funders, law firms, insurers, industry super funds, non-government organisations, business lobby groups, and regulatory bodies and professional associations.

The ALRC report was delivered to the Attorney-General on 21 December 2018 and makes 24 recommendations, predominantly relating to the reform of class action law and procedure.

Consistent with the earlier recommendations of the VLRC and the Productivity Commission, the ALRC report recommends that percentage-based fee arrangements or contingency fee arrangements for solicitors be permitted in Australian class action proceedings with some limitations.^[75] This would allow solicitors to receive a proportion of the sum recovered at settlement, subject to court approval, to ensure arrangements are reasonable and proportionate. The four key arguments advanced in favour of contingency fee arrangements are that they will: increase access to justice for prospective group members of medium-sized class actions (between A$30 million and A$60 million); promote competition; increase returns for group members; and provide clarity and certainty for group members.^[76] The recommended limitations to be placed on contingency fee arrangements include that the contingency fee be the one and only form of funding; the solicitors are precluded from also recovering any professional fees on a time-cost basis; and the solicitors bear the onus of paying for the disbursements and must account for these within the contingency fee.^[77]

Notably, in relation to the regulation of litigation funders, the ALRC report recommends against the introduction of a licensing regime (contrary to the initial proposal in the ALRC paper). It suggests improved court oversight of litigation funders on a case-by-case basis.^[78] The ALRC considers this will ‘achieve at least the same level of consumer protection without the regulatory burden of a licensing regime’.^[79] The ALRC report suggests a suite of amendments to the Federal Court of Australia Act 1976 (Cth) (FCA Act) aimed at strengthening the Federal Court’s supervision of litigation funders, including to provide that litigation funding agreements for class action proceedings are enforceable only with the approval of the court; expressly empowering the court to award costs against litigation funders (and insurers) who fail to comply with the overarching purposes of the FCA Act (to facilitate the just resolution of disputed claims according to law and as quickly, inexpensively and efficiently as possible); and a statutory presumption that litigation funders who fund class action proceedings will provide security for costs in a form that is enforceable in Australia.^[80]

The ALRC report also recommends that the ASIC Guide 248 be strengthened to require that litigation funders who fund class action proceedings report annually to ASIC on their compliance with the requirement to implement adequate practices and procedures to manage conflicts of interest.^[81] In recognition of the wide range of funding models emerging since the 2012 conflict management procedures were introduced, the ALRC also recommends that the scope of Regulation 5C.11.01 of the Corporations Regulations be amended to include law firm financing and portfolio financing within the definition of a litigation funding scheme, so that litigation funders who provide such funding are also required to implement conflict management procedures.^[82]

Parliamentary Joint Committee review

Without responding to the ALRC report, in May 2020, the former federal government announced yet another review of ‘litigation funding and the regulation of the class action industry’ – this time via a referral to the PJC.^[83] A four-week period was allowed for short submissions followed by a series of short hearings in July and August 2020. The stated terms of reference of the inquiry were to consider whether the current level of regulation applying to Australia’s growing class action industry is impacting fair and equitable outcomes for plaintiffs.^[84]

On 21 December 2020, precisely two years after the ALRC report was completed, the PJC delivered its own, far briefer report (PJC report). In it, the PJC recognised that litigation funders close the considerable gap in financial resources between the two sides of a class action, reducing the defendant’s ability to defeat the case through superior economic power and recognised that, in many instances, a class action in Australia may not proceed without a litigation funder. However, in many respects, the PJC report took a major departure from many of the earlier recommendations of the more comprehensive ALRC report.

The PJC report recommends a series of additional legislative, regulatory and practice requirements be introduced with the stated objective of constraining litigation funders and class actions. These recommendations include:

• that a new concept of ‘procedural proportionality’ be legislated for class actions to require that the potential costs and drawbacks of proceedings be balanced against the benefits to class members, as well as the impact on court resources, regulatory outcomes and public interest;
• a presumption that litigation funders provide security for costs and fully indemnify representative plaintiffs;
• enhanced Federal Court legislative powers to oversee and reject, vary or amend any term of a litigation funding contract in the interests of justice, including commissions and fees, and to require Federal Court approval orders as a condition of the funding agreement being enforceable;
• permitting the appointment of court-appointed referees with market capital or finance expertise to act as litigation funding fee assessors;
• legislating to guarantee a minimum return of at least 70 per cent of the gross proceeds to class action members;^[85]
• enhanced use of contradictors to appear at class action settlement approval hearings;
• a review of the ability of lawyers to obtain an uplift fee of 25 per cent of their costs on no-win no-fee retainers;
• subjecting lawyers to financial services regulation (including AFSL and managed investment scheme compliance obligations) where they conduct class actions on a contingency basis;
• requiring litigation funders and lawyers to make disclosures to the Federal Court as to any potential conflicts of interest (on an ongoing basis) and to provide their conflict management policy to the court when applying for approval of funding agreements;
• imposing on litigation funders the same standards and duties that are owed by lawyers to their clients;
• limiting the forum for claims brought under the Corporations Act to the Federal Court; and
• working with state and territory governments to achieve consistent class action regimes across jurisdictions.

In contrast to the ALRC report, the PJC report adopts a far more aggressive stance on what the PJC report authors consider to be the appropriate level of regulatory intervention. The authors cite evidence of a ‘systemic and inappropriate’ skewing of successful class action proceeds in favour of litigation funders at the expense of class members’ share of the proceeds.^[86] The PJC’s conclusion appears to be based on a selected extract from the earlier ALRC report, which noted the median return to class members in funded claims was 51 per cent, compared to 85 per cent in unfunded claims.^[87] The PJC’s somewhat simplistic comparison appears to have informed its rationale for some of its more aggressive reform recommendations, without recognising the fundamental differences between funded claims and claims pursued without third party funding (TPF) support. For instance, claims that are pursued without TPF offer no litigation expense assistance, no adverse costs protection and no security for costs support to class representatives. These benefits come with a cost. Hence, it is hardly surprising that funded claims tend to result in lower median percentage net returns to class members than unfunded claims (once commissions are factored in). However, can the median percentage returns be looked at in isolation and used as a proper comparator without regard to the other benefits that funded litigation provides? The PJC report authors also acknowledge that in many instances a class action in Australia may not proceed at all without a litigation funder.^[88]

III Structuring the agreement

i Typical structure

Funded litigation can involve a contractual relationship between the litigation funder, the lawyer and the funded client, whereby the funder agrees to provide for some or all of the client’s legal costs and disbursements in return for receiving a percentage of any damages recovered. The remuneration can take any form, although more common forms include a multiple of the funding, a percentage of the proceeds, a fixed amount, or a combination of these.^[89] Percentages typically range between 20 and 45 per cent of the settlement proceeds depending on the risks and time involved and the type of funding required.^[90] The ALRC report noted that the median commission rate for third party litigation funding of Federal Court class actions between March 2017 and March 2018 was 30 per cent.^[91] However, in the context of insolvency litigation funding, commission rates can be considerably higher.^[92] In contrast, the median rate for ‘common fund’ orders in class actions during the period October 2016 to December 2019 was 21.9 per cent.^[93]

In class actions, the funder may also assist with project management, administration and pre-claim investigation and may charge a project management fee. Litigation funders now routinely agree to provide security for costs and an indemnity to cover the risk of adverse costs orders in the event that the proceeding is unsuccessful.

As litigation funders do not act as the legal representatives for the funded litigant, clients generally enter into two agreements: a standard retainer agreement with their lawyer recording the scope and terms under which the legal services are to be provided; and a litigation funding agreement with their funder recording the terms on which litigation funding is to be provided. Commonly, the funder and lawyers have no direct contractual relationship, although clients often authorise their lawyers to report directly to the funder and agree to funder-approved standard lawyer terms. Funders may agree to pay a proportion, or all, of a lawyer’s fees during the course of the claim. Where legal fees are partially deferred they are generally recovered from any resolution sum if a successful outcome is achieved. The client usually authorises the lawyer to receive any resolution sum on the client’s behalf to be applied in accordance with an agreed priority.

Funding agreements often allocate project management responsibilities and day-to-day administrative control over the litigation to the funder, allowing the funder the right to provide instructions and administrative support to the lawyers, subject to the client’s overriding instructions. In theory, the ultimate level of control given to the funder might be seen to give rise to potential conflicts between the interests of the client, in achieving the best possible outcome, and the interests of the funder, in resolving the claim for an acceptable return on its investment. In Fostif, the Court of Appeal recognised that a high level of control by the funder is expected and permissible but cautioned that it would be contrary to public policy for the lawyers to fully abdicate to the funder the obligation to act for the representative party.^[94] Therefore, while it is permissible for a funder to maintain day-to-day control of a claim, the legal representatives are expected to consult with the client on key issues. Hence, funding agreements often preserve the client’s right to override the funder’s instructions and commonly include dispute resolution mechanisms.

More recently, some litigation funders have purchased claims as an alternative to traditional litigation funding.^[95] This has largely occurred in the context of insolvency litigation as a result of amendments to the Corporations Act allowing external administrators (including liquidators) to assign rights to sue.^[96] The agreement to purchase or assign the claim may be structured in a number of ways, including providing for the funder to pay an upfront payment, a back-end payment contingent on success (such as a percentage of any damages recovered), or a combination of both.

ii Judicial intervention

Over the past decade, Australian courts have shown a willingness to scrutinise the commercial terms of litigation funding agreements and, in some instances (somewhat controversially), intervene if they consider funding commissions to be excessive. In Earglow Pty Ltd v. Newcrest Mining Ltd (Newcrest), Justice Murphy considered that the court had power to reduce a litigation funder’s commission rate in the context of a class action when approving the settlement.^[97] His Honour held that the court was not limited to the binary choice of either approving or rejecting the settlement – instead, the court had power to approve the settlement, while at the same time varying, of its own motion, the amount payable to the funder (thus, in effect, overriding the contractual arrangements between the funder and group members).^[98] Justice Murphy considered that this power derived from a combination of Sections 23, 33V, 33Z and 33ZF of the FCA Act, and was analogous to the court’s power to fix the amount of costs payable to the lawyers.

In deciding whether to exercise that power in the context of a class action settlement approval, Australian courts have also shown a willingness to review and consider legal costs, the amount that funded litigants will receive ‘in hand’, the risks assumed by the funder, the amount of adverse costs exposure, and the sophistication and experience of funded litigants. Applying these principles to the Newcrest settlement approval application, Justice Murphy concluded that the aggregate funding commission of A$6.78 million, at rates of between 26 and 30 per cent, was fair and reasonable. His Honour considered the published empirical research into the funding commission rates paid in Australian class actions, and previous settlement approval decisions, before concluding that those rates were at the lower end of the range. His Honour also emphasised the need for transparency about matters relating to funding in settlement approval judgments to allow proper benchmarking.

In contrast, in Mitic v. OZ Minerals Ltd (No. 2), Justice Middleton agreed that the court had power to vary the amount payable to a litigation funder out of a settlement in a class action,^[99] but preferred to base that view on Section 33V(2) of the FCA Act, rather than on the other provisions referred to by Justice Murphy.^[100]

This issue appears not to be settled. In Liverpool City Council v. McGraw-Hill Financial Inc (now known as S&P Global Inc),^[101] Justice Lee approved a comparatively large funding commission of A$92 million out of a total settlement of A$215 million (about 43 per cent) through a funding equalisation order, but, in doing so, considered that Section 33V(2) of the FCA Act did not give the court the power to interfere with the amount of a funding commission to make a settlement reasonable, or to alter a valid contract between parties (including a funding agreement).^[102] In doing so, Justice Lee noted that there were no objections or applications to set aside the agreement and that a large portion of the class were sophisticated institutional investors. Although his Honour did not ultimately decide on whether the court has an inherent power to alter a funding agreement,^[103] he did express significant doubt about the existence of such a power, which would allow the court to interfere and vary funding agreements in the context of a settlement by altering the contractual promises of group members to pay a commission.^[104]

Consequently, the question (and extent) of judicial power to vary terms of litigation funding agreements remains somewhat controversial and unresolved in Australia.^[105] The courts have since considered this question in a number of cases and have either declined to vary the commission rate,^[106] or, in some cases, varied the commission rate.^[107] On 30 September 2021, the former federal government responded to the specific recommendations of the ALRC report and PJC report that the Federal Court be given an express statutory power to reject, vary or amend the terms (such as the commission rate) of such litigation funding agreements, and that litigation funding agreements (for class action proceedings) be enforceable only with the approval of the Federal Court, via the new Treasury Laws Amendment (Measures for Consultation) Bill 2021: Litigation Funders (Funders Bill), which, among other things, aimed to provide the court with express statutory power to do so.^[108] The Funders Bill was introduced into Parliament on 27 October 2021 but did not pass the Senate.

Scrutiny of the commercial terms of litigation funding agreements has also arisen in the insolvency context. In Re Jabiru Satellite Limited (in liq) and NewSat Limited (in liq),^[109] the Supreme Court of New South Wales (NSW) dismissed an application for the appointment of a special purpose liquidator seeking to pursue claims available to the companies against secured lenders. The Court determined that the appointment was not beneficial to creditors of the companies, placing considerable weight on the onerous proposed funding terms. In particular, Justice Black was concerned with the size of the potential funding fee (of at least 70 per cent of the net resolution sum), which the Court found would be ‘wholly disproportionate’ to the costs the funder would likely incur.^[110]

IV Disclosure

The Federal Court’s Class Action Practice Note requires the disclosure of legal costs and any litigation funding charges to current and potential clients in class actions, in clear terms, as soon as is possible.^[111] Broader disclosure to the court and other parties is also required in any class action.^[112] Funded applicants are entitled to redact these materials to conceal information that might confer a tactical advantage on another party.^[113] Commercial terms such as the litigation budget, the commission and the costs structure are generally redacted, whereas the court is given a complete version.^[114] On occasion, the Federal Court has been prepared to order production of unredacted litigation funding agreements where relevant, for example, where funding rates were relevant to the respondent’s application to set aside the proceeding as an abuse of process,^[115] or where an application to de-class the proceeding on the ground that a closed class was said to be an abuse of process.^[116] Significant additional disclosure obligations currently apply for funded class actions as a result of the 2020 Regulations, including the requirement to provide a product disclosure statement (PDS) to members of the scheme and provide certain information on a website.^[117] If the draft Funding Regulations are implemented, these additional disclosure obligations will be removed.

Conversely, outside the class action realm, there are few mandatory requirements for disclosure of funding agreements.^[118] Parties have successfully resisted production of funding agreements and documents associated with the funding relationship, such as investigative reports and correspondence between the funder and a funded party, on the ground of legal professional privilege under Section 119 of the Evidence Act 1995 (NSW) (Evidence Act). In Hastie Group Ltd (in liq) v. Moore, the respondent successfully obtained orders at first instance for production of an expert report that had been provided to the prospective litigation funder.^[119] However, the NSW Court of Appeal overturned that decision and upheld a claim of legal professional privilege. It did so on the ground that the report was prepared for the dominant purpose of the provision of professional legal services in relation to proceedings or anticipated proceedings under Section 119 of the Evidence Act, having regard to the engagement letter attached. Importantly, the Court of Appeal also held that the disclosure of the report to a litigation funder was not sufficient to waive privilege in circumstances where it was clear that the report was being provided on a confidential basis.^[120]

V  Costs

Superior Australian courts generally have power to order costs against a non-party, including a third party funder. In Knight v. FP Special Assets Ltd, the High Court held that the relevant provisions of the Supreme Court Act 1867 (Qld) empowered the court to award costs against a non-party where the party to the litigation is an insolvent person or ‘man of straw’, and the non-party has played an active part in the conduct of the litigation and has (or some person on whose behalf that non-party has been appointed has) an interest in the subject of the litigation.^[121]

This principle was recently applied in Jin Lian Group Pty Ltd (in liq) v. ACapital Finance Pty Ltd (No. 2),^[122] where the Court held a third party funder jointly and severally liable for the defendant’s costs from the date security for costs was provided.^[123] In this case, security for costs was ordered in the sum of A$149,000. As the plaintiff was an insolvent company and the liquidators were without funds to pay the security, the liquidators entered into a funding agreement pursuant to which the funder provided funding for the security and an adverse costs indemnity up to A$150,000. The plaintiff was ultimately unsuccessful at trial, and the defendant’s costs exceeded the amount of security provided. The Court considered the matters relevant in determining whether it is appropriate to make a non-party costs order, including that the funder provided funds for the litigation, had a direct interest in the fruits of the litigation and had agreed to provide an adverse costs indemnity, and determined that each of the matters were present in this case.^[124] The Court formed the view that ‘but for the intervention of the Funder . . . . the proceeding would not have continued’,^[125] and stated that ‘Litigation funders should be aware that if they involve themselves in pending court proceedings in circumstances where their intervention is the factor that causes those proceedings to continue and go to trial, they risk an adverse costs order.’^[126]

The limits of this principle have been tested on the related question of whether security for costs can, and should, be ordered against third party litigation funders in ‘no costs’ jurisdictions.^[127] In Augusta Ventures Ltd v. Mt Arthur Coal Pty Ltd (Augusta),^[128] the Full Court of the Federal Court was asked to consider whether the court has power to make a security for costs order against a third party funder in a no costs jurisdiction^[129] and, if so, whether the order should be made on discretionary grounds.^[130] The Court reiterated that it retains power to stay proceedings (including by reference to considerations concerning the exposure of a litigation funder to costs) as part of its power to control its own processes.^[131] However, the focus is different when exercising discretion to make security for costs orders against third party funders in no costs jurisdictions. It was said the prejudice the claimants themselves would suffer from not being able to vindicate their rights, should the funder not provide such security, is inappropriate where such claimants are not ordinarily liable for costs.^[132] Accordingly, the Court upheld the appeal and set aside the order for security for costs originally made against the third party funder.

Similarly, in Duck v. Airservices Australia (No. 3),^[133] the Court considered an application for an order that the third party litigation funder pay the respondent’s costs of the proceeding in a no costs jurisdiction. The Court held that the no costs jurisdiction did not prevent a costs order being made against the third party funder, but declined to exercise the discretion to make the costs order sought because it was not in the interests of justice to do so in the particular circumstances of the conduct of the proceedings.^[134] The Court concluded that the no costs jurisdiction is but one factor to consider in the exercise of the court’s broad costs discretion, and that the conduct of the litigation is always likely to be an important consideration.^[135] The Court attached considerable weight to the efficient determination of the proceedings, especially by way of a separate question, which saved substantial costs and court time, and stated that it was very much in the interests of justice to encourage this sort of conduct, especially by the potent exercise of the costs discretion.^[136] However, the Court recognised that a costs order might be warranted against a funder in certain circumstances, for example, if the proceeding was instituted vexatiously or without reasonable cause, or if there was an unreasonable act or omission in the conduct of the proceedings that caused the respondent to incur costs.^[137]

However, examples exist where a litigation funder did not provide any contractual indemnity against adverse costs and where the court subsequently refused to order that third party funder to pay adverse costs. In Jeffery & Katauskas Pty Ltd v. SST Consulting Pty Ltd (SST), the High Court held that it was not an abuse of process where a plaintiff was unable to meet an adverse costs order simply because the funder had not assumed any liability for adverse costs.^[138] In that case, the defendant had not sought adequate security for costs during the proceeding. The High Court clarified that a litigation funder does not always have to put the funded party in a position to meet any adverse costs order.^[139]

At the time, the High Court’s SST decision generated apprehension from some quarters, suggesting that funders might refuse to provide indemnities for adverse costs to the detriment of successful respondents. Perhaps as a result of commercial realities and market competition, these fears have not materialised.^[140] In practice, litigation funders routinely agree to indemnify clients against adverse costs exposure and provide security for costs that may be ordered. Representative applicants in funded class action claims will often not be prepared to assume personal liability for costs without such indemnities.^[141]

Where security for costs has been sought in funded litigation, the adequacy and form of security proposed by some funders has also given rise to disputes. In Domino’s Pizza Enterprises Limited v. Precision Tracking Pty Ltd (No. 2), the funded party opposed a security for costs order being made on the grounds that there was no risk that a costs order would not be satisfied because of the combined effect of the litigation funding indemnity, an adverse costs insurance policy and proposed undertakings by Precision Tracking Pty Ltd to notify the parties of any relevant change of funding circumstances.^[142] The Court ordered security for costs to be lodged, concluding that Precision Tracking did not have the capacity to meet an adverse costs order; the funding agreement restricted the indemnity to a counterclaim in the proceedings; and the adverse costs insurance was taken out for the primary claim. Additionally, the funder had absolute discretion to terminate its funding arrangements with Precision Tracking at any time, including the adverse costs indemnity and the adverse costs insurance.

The adequacy of adverse costs insurance as a form of security was again tested in Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Ltd (Petersen)^[143] and Equititrust Limited v. Tucker.^[144] In the Petersen case, Justice Yates accepted that, depending on the circumstances, ‘an appropriately worded ATE policy might be capable of providing sufficient security for an opponent’s costs’; but on the facts of Petersen concluded that the specific policy offered was not sufficient, noting the beneficiary of the policy was the applicant, not the respondents.^[145] His Honour also found that there was no mechanism by which the respondents could compel the applicant to sue on the policy if it were breached. Although this could potentially be overcome by direct proceedings against the insurer under the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), there were other potential difficulties, including numerous policy exclusions that might be relied on, and a lack of evidence in relation to procurement of the policy that might have an impact on non-disclosure and avoidance rights.

The costs of providing security, including the costs of obtaining an after the event (ATE) policy, will typically be borne by funded clients either indirectly in the sense that they are absorbed in the funding commission, or directly in that they are recovered through a payment made to the funder of an amount in addition to the funding commission.^[146] The ability of a funder to recoup the costs of obtaining an ATE policy in a funded class action was recently considered in Asirifi-Otchere v. Swann Insurance (Aust) Pty Ltd (No. 3).^[147] In approving a settlement by way of a common fund order, the Court decided that the costs of obtaining an ATE policy should not be passed on separately to group members when the court controls the remuneration, but should be incorporated into the commission paid to the funder. The Court noted that it is a matter for the funder whether to obtain an ATE policy to defray the risk of providing an adverse costs indemnity.^[148]

VI The year in review

i Draft Corporations Amendment (Litigation Funding) Regulations

In a further major shift in the proposed regulation and reform of litigation funding in Australia, on 2 September 2022, the newly elected federal government consulted on the draft Funding Regulations, which propose changes to the regulation of litigation funding schemes under the Corporations Act. The broad effect of the draft Funding Regulations is to return the regulatory position back to that which existed immediately prior to the 2020 Regulations. The draft Funding Regulations seek to once again provide litigation funding schemes with an explicit exemption from the managed investment scheme, AFSL, product disclosure and anti-hawking provisions of the Corporations Act.^[149] In part, this is to ensure the Corporations Regulations reflect the status of the law following the Full Court of the Federal Court’s decision in Stanwell.

The exposure draft explanatory statement, issued by the authority of the Assistant Treasurer, states that the ‘regulatory regime in the [Corporations] Act for regulating litigation funding schemes is not fit for purpose. Specifically, the MIS and ASFL regimes were not designed or intended to regulate the litigation funding industry.’^[150] The draft Funding Regulations will bring arrangements for litigation funding schemes in line with arrangements for other types of funding schemes (i.e., insolvency funding schemes) and litigation funding arrangements. The consultation process in relation to the draft Funding Regulations closed on 30 September 2022 and it is expected they will be promptly brought into effect thereafter.

ii       ASIC consultation paper 345 – litigation funding schemes: guidance and relief

In July 2021, ASIC published consultation paper 345 seeking industry feedback in respect of a number of proposals. Two important proposals outlined in the paper concerned ASIC’s intention not to renew certain instruments providing critical regulatory relief to clarify that litigation funding arrangements generally are exempt from the National Credit Code;^[151] and litigation funding arrangements funded by conditional costs arrangements (no-win no-fee retainers) are exempt from managed investment scheme obligations, AFSL requirements, product disclosure and anti-hawking requirements.^[152] ASIC proposes to withdraw both relief instruments from January 2023.^[153]

Consultation paper 345 also sought feedback on the need to continue interim relief from other requirements in the 2020 Regulations mandating disclosure of certain litigation information to be expressed in dollar amounts in relevant PDS for interests in a registered litigation funding scheme. These requirements might otherwise result in disclosure of sensitive costs, fees, charges and benefits in a publicly available PDS, thereby giving up a strategic ‘war chest’ of information to defendants, such as the estimated sum for which the litigation might be settled.^[154] ASIC considers that so long as this information is separately disclosed directly to general members in the litigation funding scheme then this sensitive information should not also be required in a PDS.^[155]

Submissions were also sought on ASIC’s proposal to continue with limited relief from the obligation to treat members who hold interests of the same class ‘equally’. In proposing this continued relief, ASIC recognises that the value of a legal claim will generally vary from member to member. ASIC recognises that the amount to be distributed to each general member from any resolution sum obtained via a class action may be informed by various factors specific to each individual member.^[156]

Prior to the introduction of the draft Funding Regulations, amendments to the relevant ASIC instruments foreshadowed in ASIC’s consultation paper 345 were expected to be implemented resulting in those instruments not being renewed beyond 31 January 2023. Should the relief from compliance with the National Credit Code and relief in respect of conditional costs agreements be removed, this would significantly add to the heavy regulatory burden on litigation funders. Undoubtedly this would drive up compliance costs imposed on litigation funders, lawyers and their clients seeking to conduct class actions, multi-party litigation and certain types of conditional costs litigation. However, if the draft Funding Regulations are implemented, it is anticipated that ASIC will respond promptly and renew these relief instruments.

iii      Treasurer and Attorney-General consultation paper: ‘Guaranteeing a minimum return of class action proceeds to class members’

In preparation for further reform, on 28 May 2021 the former government announced plans to consult on the recommendations in the PJC report.^[157] This announcement was quickly followed on 1 June 2021 with a government consultation paper titled ‘Guaranteeing a minimum return of class action proceeds to class members’, which focused on recommendation 20 of the PJC report.^[158] This paper asks how parliament might best legislate to guarantee a minimum return to class members from the gross proceeds of a class action (including settlements) and questions whether a 70 per cent minimum gross return to members should be legislated. The paper also explored options to allow a further ‘graduation’ of guaranteed gross returns to class members, accounting for ‘risk, complexity, length and likely damages or settlement to flow from the case’. The proposal is said to allow class members a higher portion of gross proceeds in less complex cases.

As part of the Funders Bill, the former federal government sought to legislate a 70 per cent minimum gross proceeds return to class members in late 2021. However, given the Funders Bill did not pass the Senate prior to a change in the federal government, it is expected the new government will not pursue the Funders Bill.

iv       Common fund orders

A significant evolutionary step in the Australian legal system has been the judicial consideration of common fund orders (CFOs) in class actions. CFOs can provide for the legal costs of the proceedings and the commission charge of a litigation funder to be shared by all members of a class who succeed in, or achieve a settlement in, a class action, irrespective of whether they have signed any legal retainer or funding agreement. However, the ability of the court to make a CFO at an early stage of a class action proceeding was successfully challenged in the High Court (by a 5:2 majority) in the Lenthall and Brewster class actions on 4 December 2019.^[159]

The first CFO in a class action was made by the Full Court of the Federal Court on 26 October 2016 in the QBE class action.^[160] The order was made at an early stage of the proceedings to assist group members in making an informed decision as to their participation in the class action prior to opting out. In approving the order, Murphy, Gleeson and Beach JJ stated that upon any successful settlement or judgment in the proceedings, the applicant and class members must pay a reasonable court-approved funding commission from any monies received, prior to distribution of those monies.^[161] The Full Court declined to set the funding commission rate, preferring to determine that issue at a later stage, ‘when more probative and more complete information will be available to the Court, probably at the stage of settlement approval or the distribution of damages’.^[162]

Following the QBE class action a number of CFOs were made in a range of class actions, including Blairgowrie Trading Ltd v. Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No. 3);^[163] Camping Warehouse v. Downer EDI (Approval of Settlement);^[164] Lenthall v. Westpac Life Insurance Services Limited^[165] (the Lenthall class action); and Catherine Duck v. Airservices Australia.^[166]

In 2019, the judicial power enabling CFOs at an early stage of the proceeding was ultimately challenged in a landmark series of cases involving the Lenthall class action and Brewster v. BMW Australia Ltd (the Brewster class action),^[167] where a separate question for determination as to the power to make CFOs was referred directly to the NSW Court of Appeal. In a historic first joint sitting of the Full Federal Court of Australia (via Lenthall ) and the NSW Court of Appeal (via Brewster), the Courts heard these challenges. On 1 March 2019, both Courts concluded that there is sufficient statutory power enabling CFOs to be made. Allsop CJ, Middleton and Robertson JJ were unanimous in dismissing the Lenthall appeal, finding that Section 33ZF of the FCA Act (the basis for the general power of the courts to make orders appropriate or necessary to ensure that justice is done in the proceedings) enabled the Courts to make such orders.^[168] Likewise, Meagher JA, Ward JA and Leeming JA agreed that CFOs were authorised pursuant to Section 183 of the Civil Procedure Act 2005 (NSW) (CPA).^[169] It was held that the making of CFOs was a proper exercise of judicial power and in no way contravened Chapter III of the Commonwealth Constitution.^[170]

The High Court subsequently granted special leave to hear appeals in both the Lenthall and Brewster matters as to whether the Courts had erred in concluding that Section 33ZF of the FCA Act and Section 183 of the CPA validly enabled the making of CFOs. On 4 December 2019, a majority of the High Court of Australia (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ) held that neither Section 33ZF of the FCA Act nor Section 183 of the CPA empowers a court to make a CFO.^[171] In a joint judgment, Kiefel CJ, Bell and Keane JJ held that although the power conferred on the court by those sections is broad, considerations of text, context and purpose all point to the conclusion that it does not extend to the making of a CFO.^[172] However, the High Court’s judgment left unresolved two questions:

1. whether the court has power to make a CFO at the conclusion of a representative proceeding, pursuant to Section 33ZF of the FCA Act and Section 183 of the CPA (following a judgment) or Section 33V(2) of the FCA Act and Section 173(2) of the CPA (following a settlement); and
2. whether the making of a CFO would be unconstitutional.

Following the High Court’s decision in the Brewster and Lenthall class actions, on 20 December 2019 the Federal Court issued a new class actions practice note (GPN-CA) to indicate that the Court will still consider appropriate applications for orders sharing the costs of class actions at the conclusion of proceedings of this kind.^[173]

Different approaches have been taken by judges in interpreting the scope of the High Court’s decision in Brewster and Lenthall.

Justice Beach, Justice Murphy and Justice Lee of the Federal Court have expressed the view that the court has the power to make CFOs (sometimes referred to as ‘expense sharing orders’) at the time of settlement under Section 33V(2) of the FCA Act,^[174] with those Justices making such orders in recent cases.^[175] Other Federal Court judges have taken a different view,^[176] with some considering the majority of the High Court gave strong reasons favouring a funding equalisation order over a CFO.^[177]

The question of whether CFOs can be made at settlement under Section 173 of the CPA was recently referred to the Court of Appeal of the Supreme Court of NSW in Brewster,^[178] although the Court of Appeal promptly declined to decide the issue because no settlement had been reached and therefore the Court was effectively being asked to deal with the issue in a factual vacuum.^[179] The Full Court of the Federal Court of Australia adopted a similar approach when dealing with the equivalent to Section 173 of the CPA under federal legislation in the 7-Eleven class action.^[180] While not determining the question, Justice Lee took the opportunity to provide some useful guidance on CFOs generally, providing a helpful explanation as to the differences between commencement CFOs, settlement CFOs and judgment CFOs.^[181] With these two decisions, the NSW Court of Appeal and the Federal Court of Australia now unanimously consider that the High Court’s earlier decision in Brewster prohibiting CFOs is limited to commencement CFOs and does not address or decide whether settlement CFOs or judgment CFOs are beyond judicial power.^[182] On 25 June 2021 the High Court of Australia dealt with an application for special leave to the High Court from the decision of the Full Court of the Federal Court of Australia in the 7-Eleven class action. The High Court dismissed the special leave application with costs, finding that it ‘does not present a suitable vehicle for the determination of the issue which the applicant seeks to raise’.^[183]

In Pearson^[184] (the stolen wages class action), Murphy J of the Federal Court also considered whether a CFO made pre-Brewster had continuing effect. His Honour found that although it is apparent, as a result of the decision in Brewster, that the extant CFO made earlier in the proceeding was beyond power, as an order of a superior court, the CFO remained valid until and unless set aside,^[185] and as no party had sought to have the CFO set aside, it continues in effect.^[186]

The result of the High Court’s decision in the Brewster and Lenthall class actions has been to reduce flexibility for the courts to adopt CFOs and to deal with commission rates. The decision has also been viewed as being likely to substantially reduce the interest of litigation funders in the Australian class action market.^[187] With some judges now calling for legislative intervention on the issue,^[188] there appears to be a strong basis for regulatory change.

v  Contingency fees in the Supreme Court of Victoria (class actions)

Another evolutionary step in the Australian system occurred on 18 June 2020 with the introduction of damages-based contingency fees in class actions applicable in the Supreme Court of Victoria. These changes were introduced via a new Section 33ZDA of the Supreme Court Act 1986 (Vic) allowing for group costs orders in class actions. Group costs orders can now be made where it is ‘appropriate or necessary to ensure that justice is done’. This is a first in Australia and, consistent with recommendations from academics,^[189] the Productivity Commission, VLRC and ALRC, permits the court to make orders allowing a plaintiff law firm to charge its fees as a percentage of the amount recovered rather than on a time or scale fee basis. Fundamental to the making of a group costs order is that the plaintiff law firm must assume liability for adverse costs risks as a condition of the order and also be prepared to satisfy any security for costs orders.^[190] Consequently, comparisons with no-win no-fee contingency fee arrangements (which do not require the plaintiff’s lawyers to provide security or cover adverse costs exposure) are not apt. At an early stage in the proceeding, the court will determine the percentage to be allocated to the plaintiff law firm that can be charged as a contingency. It may revisit this percentage at a later stage.^[191] Guidance as to procedural matters is set out in the Supreme Court’s practice note,^[192] which came into operation on 1 July 2020 with the commencement of Section 33ZDA.

The first ever applications for group costs orders were heard jointly before Justice Nichols in the Supreme Court of Victoria on 3 June 2021 in class actions against Australia and New Zealand Banking Group Limited and Westpac Banking Corporation (the Fox class actions).^[193] The plaintiff in each case sought a group costs order pursuant to Section 33ZDA, to the effect that the legal costs payable to the solicitors for the plaintiff and group members (Maurice Blackburn) be calculated at a rate of 25 per cent of the recovered amount.^[194] Justice Nichols decided that the plaintiffs had not established a sufficient basis for the exercise of the discretion conferred by Section 33ZDA to make a group costs order at the rate proposed and considered it appropriate to adjourn the applications to permit the plaintiffs to consider their respective positions and, if so advised, to reapply for group costs orders at a later time.^[195] Justice Nichols stated that the determination of whether the making of a group costs order is appropriate or necessary to ensure that justice is done (the criterion for the exercise of the discretion) will depend upon a broad evaluative assessment of the relevant facts and evidence before the court and that the price, or the costs that group members are likely to pay, is a relevant consideration, but not the only consideration.^[196]

Justice Nichols determined that the answer to the statutory question in this case turned on whether the proposed group costs orders were more advantageous to group members than the existing no-win no-fee arrangements with Maurice Blackburn (which included the provision of an indemnity against the risk of adverse costs).^[197] Justice Nichols rejected the plaintiff’s contentions that the existing no-win no-fee arrangements were interim arrangements and that the appropriate comparator was third party litigation funding in which a funder would charge a commission in addition to reimbursement of legal costs.^[198] The contradictor appointed by Justice Nichols submitted that on the plaintiffs’ modelling group members would be better off under a group costs order than under the existing arrangements on some projected recovery scenarios. However, in other scenarios the group would be worse off. Noting that the projections were subject to very considerable uncertainty, Justice Nichols concluded that ‘[o]n the evidence I could not be satisfied that the statutory criterion for the exercise of the discretion to make a group costs order has been met’.^[199]

The first group costs order under Section 33ZDA was made on 1 December 2021 by Justice Nichols of the Supreme Court of Victoria in the case of Allen v. G8 Education Ltd (the Allen class action).^[200] The group costs order provided that the legal costs of the plaintiffs and class members’ lawyers be calculated at a maximum rate of 27.5 per cent of the amount of any award or settlement in the proceeding, and liability for the payment of legal costs be shared among the plaintiffs and class members.^[201] Her Honour did so ‘on the plaintiffs proffering an undertaking to the effect that they would not apply for an order under s 33ZDA seeking any greater percentage than 27.5%’.^[202] Justice Nichols’ reasons for granting the group costs order in this case included that it will confer on group members certainty of outcome (in that they will be guaranteed to receive not less than 72.5 per cent of any compensation recovered); it will permit the assessment of costs at a prima facie reasonable rate by reference to practically available measures, with the rate subject only to the possibility of a downward revision; and if a group costs order is not made, the evidence is that TPF will be sought on terms that will deliver a worse financial outcome to group members.^[203] However, Justice Nichols highlighted that there are limits and inherent uncertainty in comparative assessments of group costs orders with no-win no-fee arrangements and TPF based on predictive modelling undertaken at an early stage of the proceeding and ‘that comparative outcomes modelling must not be permitted to subsume the place of the evaluative inquiry required by s 33ZDA’.^[204] Her Honour also placed little weight on the plaintiffs’ submissions that the making of the group costs order would avoid delay.^[205]

Justice Nichols acknowledged that a group costs order was granted in Allen but refused in Fox, despite generally similar circumstances, and stated that the cases concerned different evidence, different retainers and different submissions.^[206] One of the key distinguishing factors in Allen is that Justice Nichols accepted that the no-win no-fee arrangement was ‘interim’ and that if the group costs order application was unsuccessful, the alternative funding model was third party litigation funding.

In April 2022, the second group costs order under Section 33ZDA was made by Justice Dixon of the Supreme Court of Victoria in the case of Bogan v. The Estate of Peter John Smedley (Deceased).^[207] In this case, Justice Dixon made a group costs order at a rate of 40 per cent,^[208] subject to a condition precedent that the funder forgo any accrued rights under the funding agreement (which included an entitlement to reimbursement of legal costs and a funder’s commission of 45 per cent).^[209] The critical consideration, in Justice Dixon’s view, was that if a group costs order was not made at all, there was a considerable risk, or probability, that the funder would conclude that the funding agreement was not financially viable for it to continue to fund the proceeding.^[210] Likewise, if a group costs order was made but at a lesser rate than 40 per cent, Justice Dixon considered that there was a considerable risk that the funder would not enter into the proposed costs sharing agreement with the solicitors for the plaintiffs (Banton Group), which was conditional on a successful application for a group costs order at a 40 per cent rate to replace the existing funding agreement.^[211] Justice Dixon concluded that if the proceeding is not viably funded, the representative plaintiffs will be unable to continue with the proceeding, and it is probable that it will terminate without adjudication and that justice cannot be done if the plaintiffs and group members are not able to pursue their claims and must abandon them.^[212] Justice Dixon rejected the submissions made by one of the defendants, KPMG, that the solicitors were acting as a ‘mere front’ for the funder and that the group costs order being sought was more a common fund order, as the funder would have continued involvement through the costs sharing agreement.^[213] His Honour stated that the ‘statutory language does not invoke any inquiry into the means by which the law practice chooses to fund its obligations’.^[214]

While Justice Dixon agreed with the analysis of Justice Nichols in Fox and Allen as to the applicable principles governing the nature of an application under Section 33ZDA,^[215] his Honour added that the ‘financial viability of both the existing funding agreements and the proposed funding arrangement by a group costs order are relevant considerations’.^[216] Justice Dixon noted that process of setting a group costs order would be significantly assisted by an investment evaluation analysis, and his Honour traversed the generally accepted investment and insurance principles in the expectation that in future cases such an analysis will be presented to the court.^[217]

A third group costs order under Section 33ZDA was made by Justice Nichols of the Supreme Court of Victoria in August 2022, at rate of 24.5 per cent, in competing class actions brought against Beach Energy.^[218] The solicitors for the plaintiffs in each class action were Slater & Gordon and Shine Lawyers. A group costs order at a rate of 24.5 per cent was sought in both class actions; however, Shine Lawyers also proposed a tiered structure where the rate decreased if the amount recovered was greater than A$100 million. Justice Nichols granted the group costs order sought by Slater & Gordon, and permanently stayed the competing Shine class action.^[219] Justice Nichols considered that the additional tiered structure proposed by Shine Lawyers was ‘not shown to amount to a real price difference and the description of it as “window dressing” was apt’.^[220] While noting that the proceedings overlapped almost entirely and that there was very little that separated the competing class actions and their lawyers,^[221] her Honour concluded that ‘the standard of legal work . . . where it is different, clearly favours’ the Slater & Gordon class action.^[222]

vi       Abolition of torts of maintenance and champerty and new class action regime in Western Australia

A further development towards aligning the states with the federal jurisdiction occurred in September 2022, when the (then) Western Australian parliament followed the Victorian, NSW and Queensland jurisdictions by establishing a legislative framework for class actions for the Supreme Court of Western Australia.^[223] In an effort to seek uniformity, the Western Australian government chose to model its own class action regime on the federal system as detailed in Part IVA of the FCA Act, although with some minor variations. Additionally, as part of the same reforms in September 2022, the Western Australian parliament also abolished the torts of maintenance and champerty in that state as part of the government’s civil procedure reforms.^[224] This legislation was careful not to interfere with the common law restrictions on contracts that might be found to be contrary to public policy or otherwise treated by the courts as illegal.^[225] These statutory abolitions followed the path taken in other Australian states such as NSW, Victoria, South Australia and the Australian Capital Territory and adopted earlier recommendations of the Western Australia Law Reform Commission.^[226]

VII    Conclusions and outlook

The litigation funding landscape in Australia continues to grow and evolve into a more sophisticated market. In the past 16 years the common law has steadily refined and clarified the regime’s requirements since the High Court’s seminal decision in Fostif. Increased competition coupled with the availability of group costs orders in Victoria have driven innovation, although the first part of the 2020s have seen a dramatic hardening of the regulatory environment, particularly in relation to class action and multiparty litigation funding. However, it appears that with a change of federal government in mid 2022, the regulatory pendulum may now move back towards the centre, starting with the proposed draft Funding Regulations introduced for consultation in September 2022.

Clearly, some important steps in the evolution of litigation funding in Australia have been the progressive abolition of the torts of maintenance and champerty across various states of Australia. Comity and uniformity would hopefully see the remaining states and territories follow suit in this respect. The introduction of damages-based contingency fees for lawyers in Victoria has also been significant with several group costs orders now made since the commencement of Section 33ZDA of the Supreme Court Act 1986 (Vic) in July 2020. The likelihood is that further group costs orders will be made, leading to the Supreme Court of Victoria potentially becoming a jurisdiction of choice for class actions. Changes to harmonise the damages-based contingency fee provisions for class actions in other states and territories, and federally, present an opportunity for law makers and regulators to enhance consumer choice and provide new pathways for access to justice.

Key issues for determination in the year ahead will be the new federal parliament’s response to the ALRC report. The extent of judicial power available to make CFOs by reference to Section 33V of the FCA Act is also likely to be further tested. Irrespective of the outcome, the adoption of the common fund doctrine in class actions since the QBE decision has arguably improved fairness and equity between class members and enabled funders to more efficiently consider the commercial viability of multiparty claims, while decreasing the need to engage in costly client book-building. Should the High Court further constrain CFOs in class actions, there will be a stronger basis for regulatory change as recommended by the ALRC report. As Justice Beach lamented in McKay Super Solutions Pty Ltd (Trustee) v. Bellamy’s Australia Ltd:^[227] ‘Trial judges need flexible tools to regulate these funding arrangements and to tailor solutions to each individual case. And preferably that regulation should take place closer to the outset of proceedings rather than at the other end, particularly where competing class actions are in play.’

In considering the regulatory pathway ahead it is worth reflecting on the objectives outlined in the second reading speech for the introduction of Australia’s class actions regime made back in 1992. During that period, the (then) Attorney General, the Honourable Michael Duffy, said ‘the new procedure will enhance access to justice, reduce the cost of proceedings, and promote efficiency in the use of court resources’.^[228] Despite these noble objectives espoused by parliament 30 years ago, the increasing compliance burdens of Australia’s heavily regulated litigation funding market seem to have placed the Australian litigation funding market at a crossroads. Positive signs are now emanating from the new federal government that a more pragmatic, evidence-based and workable regulatory environment can be achieved, which, if implemented, should enhance access to justice.

External version can be found here.

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Notes

_{[1] Jason Geisker is a principal and Dirk Luff is a special counsel at Maurice Blackburn Lawyers, the legal advisers to Claims Funding Australia Pty Ltd. Reproduced with permission from Law Business Research Ltd. This article was first published in December 2022. For further information please contact Nick.Barette@thelawreviews.co.uk}

_{[2] IBISWorld, Litigation Funding in Australia (June 2022), page 16.}

_{[3] Omni Bridgeway annual report 2021, page 10. The total overall legal market spend was estimated at A$23 billion, making the litigation market just over 20 per cent of the overall legal services market in Australia in 2021.}

_{[4] IBISWorld, Litigation Funding in Australia (June 2022), page 9.}

_{[5] ibid.}

_{[6] Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (report No. 134, January 2019) Appendix G.}

_{[7] Also known as representative actions, a class action is a procedure whereby a single representative can bring or conduct a claim on behalf of others in the same, similar or related circumstances (Part IVA Federal Court of Australia Act 1976 (Cth) Section 33C(1)).}

_{[8] IBISWorld, Litigation Funding in Australia (June 2022), page 19. Specifically, class actions were said to comprise 44 per cent of the litigation funding market.}

_{[9] Professor Vince Morabito, ‘Courts see record number of class actions as shareholder proceedings drop in significance’ Lawyerly (20 May 2021).}

_{[10] ibid. In the 12 months ending 3 March 2021 there was a total of 32 funded class actions filed in Australia (approximately 46.3 per cent of all class actions). This number could be lower if more group costs orders are secured in some of the nine class actions commenced in Victoria during this period.}

_{[11] King & Wood Mallesons, The Review: Class Actions in Australia 2021-22.\}

_{[12] IBISWorld, Litigation Funding in Australia (April 2021), pages 6 and 10.}

_{[13] In FY2021 Australia had 4,235 companies entering external administration and controller appointments, the lowest number in the past 20 years: Australian Securities & Investments Commission, Australian Insolvency Statistics, September 2021, Table 1.1, page 2.}

_{[14]  Australian Restructuring Insolvency & Turnaround Association, ‘Insolvency numbers return to pre-COVID levels’ (9 August 2022)}

_{[15] ibid.}

_{[16] Law Partnership Survey, ‘Partner boom as top law firms play ‘catch-up’’ (30 June 2022).}

_{[17] Maintenance is assistance in prosecuting or defending a lawsuit by someone with no bona fide interest in the case. Champerty is an agreement to divide litigation proceeds between the owner and another party unrelated to the lawsuit who helps enforce the claim.}

_{[18] Civil Law (Wrongs) Act 2002 (ACT) Section 221; Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) Sections 3–4, 6; Criminal Law Consolidation Act 1935 (SA) Schedule 11 cll 1(3), 3; Wrongs Act 1958 (Vic) Section 32; Crimes Act 1958 (Vic) Section 322A; Civil Procedure (Representative Proceedings) Act 2021 (WA) Section 36; and Civil Liability Act 2002 (Tas) Section 28E(ba) and (bb). The torts have not been abolished in Queensland or the Northern Territory.}

_{[19] Standing Committee of Attorneys-General, Litigation funding in Australia (discussion paper, May 2006), page 4.}

_{[20] (2006) 229 CLR 386; [2006] HCA 41.}

_{[21] ibid., at [1].}

_{[22] ibid., at [84]–[86].}

_{[23] For example, see Wrongs Act 1958 (Vic) Section 32(2).}

_{[24] For other examples, see Murphy Operator Pty Ltd v. Gladstone Ports Corporation Ltd (No. 2) [2019] QSC 012 at [33]–[38]; see also the 13 September 2019 decision in Murphy Operator Pty Ltd v. Gladstone Ports Corporation Ltd (No. 4) [2019] QSC 228, where, in response to a direct challenge to the litigation funding agreements between the funder and the lead applicants and group members, it was held that those agreements are not, by reason of maintenance, champerty or public policy, unenforceable.}

_{[25] (2020) 384 ALR 725; [2020] QCA 250.}

_{[26] ibid., at [81], [82].}

_{[27] ibid., at [95], [96].}

_{[28] Gladstone Ports Corporation Limited v. Murphy Operator Pty Ltd & Ors [2021] HCATrans 114 (25 June 2021).}

_{[29] See new Section 33ZDA of the Supreme Court Act 1986 (Vic) applying from 1 July 2020 for the exception in Victoria, and Section 183 of the Legal Profession Uniform Law 2015 (NSW) for a New South Wales example of the common prohibition.}

_{[30] See, for example, Section 182(2)(b) of the Legal Profession Uniform Law 2015 (NSW).}

_{[31]  Justice Legislation Miscellaneous Amendments Act 2020 (Vic), which received royal assent on 30 June 2020.}

_{[32] Treasury Wines Estates Limited v. Melbourne City Investments Pty Ltd (2014) 45 VR 585; [2014] VSCA 351 at [22].}

_{[33] Bolitho v. Banksia Securities Ltd (No. 4) [2014] VSC 582.}

_{[34] ibid., at [53].}

_{[35] ibid., at [51]. That prohibition has since been removed in Victoria.}

_{[36] Bolitho v. Banksia Securities Ltd (No. 18) (remitter) [2021] VSC 666.}

_{[37] ibid., at [7].}

_{[38] Australian Securities and Investments Commission Act 2001 (Cth), Sections 12BF–12BM, 12CA–12C, 12DA.}

_{[39] Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (report No. 134, January 2019), p 62.}

_{[40] Brookfield Multiplex Funds Management Pty Ltd v. International Litigation Funding Partners Pty Ltd (2009) 180 FCR 11; [2009] FCAFC 147.}

_{[41] Section 601ED of the Corporations Act, where any of the criteria in Section 601ED(1) are met, subject to Sections 601ED(2) and (2A).}

_{[42] Section 601FA of the Corporations Act.}

_{[43] Section 601ED(5) of the Corporations Act.}

_{[44] International Litigation Partners Pte Ltd v. Chameleon Mining NL (Receivers and Managers Appointed) (2012) 246 CLR 455; [2012] HCA 45.}

_{[45] Hon Chris Bowen, Minister for Financial Services, Superannuation and Corporate Law ‘Government acts to ensure access to justice for class action members’, (media release No. 039, 4 May 2010).}

_{[46] Corporations Amendment Regulation 2012 (No. 6) (Cth).}

_{[47] Corporations Regulations 2001 (Cth), Rule 5C.11.01(d) (since repealed and replaced with Rule 5C.11.01(4) and Rule 5C.11.01(5), which are in materially similar terms).}

_{[48] ibid., Rules 5C.11.01(b)–5C.11.01(c) (now repealed).}

_{[49] ibid., Rule 7.6.01AB.}

_{[50] Australian Securities and Investment Commission, Litigation schemes and proof of debt schemes: Managing conflicts of interest (RG 248, 27 March 2013).}

_{[51] See, for example, the criticisms outlined in various submissions by academics, such as Professor Vicki Waye and Professor Vince Morabito in their submissions in response to the 2020 Federal Parliamentary Inquiry into Litigation Funding and the Class Action Industry. The New Regulations were heavily criticised by Beach J of the Federal Court during an interlocutory hearing on 13 September 2021, saying, ‘The representative applicant is the one who is supposed to have responsibility . . . subject to the court’s supervisory role. If the [representative applicant] doesn’t do their job properly then there’s the ability to remove them’ and ‘[t]he [MIS regulation] assumes this is all within the purview of the responsible entity, which simply doesn’t work with Part IVA action’: Lawyers Weekly, (13 September 2021).}

_{[52] Corporations Regulations 2001 (Cth), Regulation 10.38.01.}

_{[53] Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (report No. 134, January 2019). Page 18 of the ALRC report summarised the conclusions on regulation of funders, noting ‘[a] suite of recommendations to improve the regulation of litigation funders and to support the unique role of the Federal Court in protecting the interests of all group members is recommended in lieu of a licensing regime for litigation funders’.}

_{[54] See for example Brett Cattle Co Pty Ltd v. Minister for Agriculture (No. 3) [2020] FCA 1628; White v. UGL Operations and Maintenance Pty Ltd [2021] FCA 587; Stanwell Corporation Ltd v. LCM Funding Limited [2021] FCA 1430.}

_{[55] Miklos Bolza, ‘Managed investment scheme rules stall $78M class action against NAB, Walton’ Lawyerly (30 September 2021)} 

_{[56] [2021] FCA 1430.}

_{[57] ibid., at [142].}

_{[58] ibid., at [227].}

_{[59] ibid., at [175].}

_{[60] ibid., at [179]-[215].}

_{[61] [2022] FCAFC 103.}

_{[62] ibid., at [6] and [156].}

_{[63] ibid., at [6] and [156].}

_{[64] ibid., at [7].}

_{[65] ibid., at [22].}

_{[66] Productivity Commission, Access to Justice Arrangements (inquiry report No. 72, December 2014).}

_{[67] ibid., vol 2, p. 633, Recommendation 18.2.}

_{[68] ibid., vol 2, p. 629, Recommendation 18.1.}

_{[69] Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (report, March 2018), pp. 17–19, paras. 2.23–2.31 and (Chapter 3); Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third-party Litigation Funders (discussion paper 85, June 2018), pp. 48–52, paras. 3.21–3.33 and pp. 83–91, paras. 5.9–5.41.}

_{[70] The PJC inquiry into ‘Litigation funding and the regulation of the class action industry’ was announced on 13 May 2020, with written submissions closing four weeks later on 11 June 2020. Written submissions were limited to four to five pages.}

_{[71] On 13 May 2020, the House referred to the Parliamentary Joint Committee on Corporations and Financial Services an inquiry into litigation funding and the regulation of the class action industry for report by 7 December 2020.}

_{[72] Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (consultation paper, July 2017), p. vi.}

_{[73]  Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (report, March 2018), p. xvi, paras. 28–31.}

_{[74] Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third-party Litigation Funders (discussion paper No. 85, June 2018), pp. 4–5, and p. 17, para. 1.17.}

_{[75] Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (report No. 134, January 2019), p. 28, p. 205.}

_{[76] ibid., pp. 199–201; Australian Law Reform Commission, Inquiry into Class Action Proceedings and Third-party Litigation Funders (discussion paper No. 85, June 2018), p. 83, paras. 5.10–5.13.}

_{[77] Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (report No. 134, January 2019), p. 28, p. 205.}

_{[78] ibid., p. 163, para. 6.42.}

_{[79] ibid., pp. 161–162, para. 6.37.}

_{[80] ibid., pp. 153–177.}

_{[81] ibid., pp. 177–183.}

_{[82] ibid., pp. 183–184.}

_{[83]  On 13 May 2020, the House referred to the Parliamentary Joint Committee on Corporations and Financial Services an inquiry into litigation funding and the regulation of the class action industry for report by 7 December 2020.}

_{[84]  The terms of reference provided that particular reference was to be made to 14 separate considerations.}

_{[85]  On 28 May 2021 the Federal Treasurer announced a consultation process on recommendations of the PJC report dealing specifically with this proposal.}

_{[86]  Parliamentary Joint Committee on Corporations and Financial Services, Litigation funding and the regulation of the class action industry, (report, December 2020), paragraphs [5.23]–[5.24].}

_{[87] Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (report No. 134, January 2019), page 70.}

_{[88] Parliamentary Joint Committee on Corporations and Financial Services, Litigation funding and the regulation of the class action industry, (report, December 2020), page xiv.}

_{[89] United Nations General Commission on International Trade Law – Working Group III (Investor State Dispute Settlement Reform) Thirty-seventh session, Possible reform of investor-State dispute settlement (ISDS) Third-party funding, UN Doc A/CN.9/WG.III/WP.157 (5 April 2019), page 2.}

_{[90] Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (consultation paper, July 2017), p. 115, para. 8.25. In securities class actions, commission rates have declined over recent years as competition in that sector has increased. The courts have considered these rates in the context of class actions settlement approvals: Kuterba v. Sirtex Medical Limited (No. 3) [2019] FCA 1374 at [7] to [16]. See also IBISWorld, Litigation Funding in Australia (April 2021), page 20.}

_{[91] Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (report No. 134, January 2019) p. 70 and Table 3.7. Professor Morabito also examined a similar review period to the ALRC and concluded that the median percentage of settlement funds ‘consumed’ by funding fees in funded federal class actions settled during the period from January 2013 to December 2018 was 26 per cent, and the median percentage of settlement funds consumed by funding fees in all funded class actions settled during this period was 25.5 per cent: Professor Vince Morabito, ‘An Evidence-Based Approach to Class Action Reform in Australia ‘Common Fund Orders, Funding Fees and Reimbursement Payments’, (January 2019) p. 12.}

_{[92] The funding fee in insolvency cases can exceed 50 per cent, and has been as high as 75 per cent: see Victorian Law Reform Commission, Access to Justice – Litigation Funding and Group Proceedings (report, March 2018), p. 28, para. 2.74; Standing Committee of Attorneys-General, Litigation Funding in Australia (discussion paper, May 2006) p. 4. See also Buiscex Ltd v. Panfida Foods Ltd (in liq) (1998) 28 ACSR 357 at 363–364, where Hodgson CJ in Eq held that a commission as high as 75 per cent was not unreasonable in light of the facts; Re ACN 076 673 875 Ltd (Rec and Mgr Apptd) (2002) 42 ACSR 296 at [33], where Austin J held that commissions of 15 to 40 per cent (where proceedings are commenced) were not excessive in the circumstances of the case; Robinson, re Reed Constructions Australia Pty Ltd (in liq) [2017] FCA 594 (1 May 2017) at [18], where Gleeson J approved the plaintiffs’ entry into a funding agreement that entitled the litigation funder to 85 per cent of the settlement amount (less costs incurred in pursuing the claim), but the funder was required by the funding agreement to pay a number of creditors, leaving a final net share of no more than 55 per cent.}

_{[93] Professor Vince Morabito, Submission to the Parliamentary Joint Committee on Corporations and Financial Services, Litigation Funding and Regulation of the Class Action Industry (10 June 2020).}

_{[94] Fostif v. Campbells Cash & Carry Pty Ltd (2005) 63 NSWLR 203; [2005] NSWCA 83 at [94]–[116].}

_{[95] For example, see Supreme Court of New South Wales Proceeding LCM Operations Pty Ltd v. Rabah Enterprises Pty Ltd [2015] NSWSC 1156.}

_{[96] Section 100-5 of the Insolvency Practice Schedule (Corporations) at Schedule 2 to the Corporations Act, which commenced on 1 March 2017, allows external administrators (including liquidators) to assign any right to sue that is conferred on them under by the Corporations Act including, for example, voidable transaction claims and insolvent trading claims. Previously, liquidators only had the power to sell, or otherwise dispose of, property of the company pursuant to Section 477(2)(c) of the Corporations Act, including common law rights of action such as debts. However, it has been suggested by the courts that not all claims are capable of being assigned including, for example, statutory causes of action for misleading or deceptive conduct: see Pentridge Village Pty Ltd (in liq) v. Capital Finance Australia Ltd [2018] VSC 633.}

_{[97] Earglow Pty Ltd v. Newcrest Mining Ltd [2016] FCA 1433 at [7] and [157]. At [165] Murphy J stated that ‘the Court’s role to protect class members’ interests includes protecting them in relation to excessive litigation funding charges’.}

_{[98] For contrast see City of Swan v. McGraw-Hill Companies Inc [2016] FCA 343; (2016) 112 ACSR 65 at [30], where it was said that in an appropriate case the court may refuse settlement approval because a funding commission is so disproportionate to the risk and expense to which the funder was exposed in the proceedings that it provides a proper basis for the court to refuse approval.}

_{[99] Mitic v. OZ Minerals Ltd (No. 2) [2017] FCA 409 at [28]–[29]; see also Blairgowrie Trading Ltd v. Allco Finance Group Ltd (Receivers & Managers Appointed) (In Liq) (No. 3) [2017] FCA 330; (2017) 343 ALR 476 at [101]; Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Limited (No. 3) [2018] FCA 1842 at [202].}

_{[100] In HFPS Pty Ltd (Trustee) v. Tamaya Resources Ltd (In Liq) (No. 3) [2017] FCA 650 at [105]–[106], Wigney J appeared to accept that the power existed, and so too did the Full Court in Melbourne City Investments Pty Ltd v. Treasury Wine Estates Ltd (2017) 252 FCR 1; [2017] FCAFC 98 at [90].}

_{[101] [2018] FCA 1289.}

_{[102] ibid., at [51].}

_{[103] ibid., at [52]–[58].}

_{[104] ibid., at [47].}

_{[105] See, for instance, observations of Justice MBJ Lee, ‘Varying Funding Agreements and Freedom of Contract: Some Observations’ (Speech, IMF Bentham Class Actions Research Initiative with UNSW Law: Resolving Class Actions Effectively and Fairly, 1 June 2017), p. 7. In other instances, the Federal Court has indicated that under Section 33ZF of the FCA Act 1977 it has the power, for example, to effectively modify ‘any contractual bargain dealing with the funding commission payable out of any settlement proceeds’ in the course of a settlement approval: Blairgowrie Trading Ltd v. Allco Finance Group Ltd (Receivers & Managers Appointed ) (In Liq) (No. 3) (2017) 343 ALR 476, 504. See also Earglow Pty Ltd v. Newcrest Mining Ltd [2016] FCA 1433 at [133]–[134], [157]; Mitic v. OZ Minerals Ltd (No. 2) [2017] FCA 409 at [26]–[31].}

_{[106] Clarke v. Sandhurst Trustees Ltd (No. 2) [2018] FCA 511 at [26]–[27].}

_{[107]  Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Limited (No. 3) [2018] FCA 1842 at [5]–[16], although that reduction was in the context of a common fund order being made, [14], [75], [217]–[227]; See also Endeavour River Pty Ltd v. MG Responsible Entity Ltd (No. 2) [2020] FCA 968, where Murphy J approved a settlement sum of A$42 million inclusive of costs and interest, but initially declined to approve the funder commission of 32.1 per cent and proposed a rate of 25 per cent, which was ultimately agreed by the funder. In providing reasons for approving the settlement and considering the matters that might be relevant to the approval, at [38], Murphy J noted that the court may ‘also take into account the funder’s rate of return over time as that may assist in understanding the range of fair and reasonable funding rates’.}

_{[108] The new Treasury Laws Amendment (Measures for Consultation) Bill 2021: Litigation Funders proposes the introduction of a new Part 5C.7A to the Corporations Act, which, if passed through federal parliament, will introduce a new statutory regime empowering the court to review, approve or vary litigation funding agreements in connection with a new statutory concept known as a class action litigation funding scheme. This proposed legislation appears to respond to, but go beyond, the recommendations in the Australian Law Reform Commission, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders (report No. 134, January 2019), pp. 169–177; Parliamentary Joint Committee on Corporations and Financial Services, Litigation funding and the regulation of the class action industry, (report, December 2020), pp. 157–158.}

_{[109] [2022] NSWSC 459.}

_{[110] Re Jabiru Satellite Limited (in liq) and NewSat Limited (in liq) [2022] NSWSC 459 at [38] and [44].}

_{[111] Federal Court of Australia, Class Action Practice Note (GPN-CA) – General Practice Note, 20 December 2019, paras. 5.3 and 6.1–6.7.}

_{[112] ibid., paras. 6.1, 6.4.}

_{[113] ibid., para. 6.4(b).}

_{[114] Federal Court of Australia, Class Action Practice Note (GPN-CA) – General Practice Note, 25 October 2016, para. 6.1.}

_{[115] Spatialinfo Pty Ltd v. Telstra Corporation Ltd [2005] FCA 455.}

_{[116] Dorajay Pty Limited v. Aristocrat Leisure Limited [2005] FCA 588.}

_{[117] Section 1012B Corporations Act; see also Australian Securities and Investments Commission, ASIC Corporations (Litigation Funding Scheme) Instrument 2020/787 (28 April 2021) in relation to disclosure obligations for passive general members in litigation funding schemes.}

_{[118] See for example Order 9A Rules 1 & 2(1) of the Western Australian Rules of the Supreme Court 1971 (WA); See also Section 477(2B) of the Corporations Act 2001 (Cth), which requires approval of agreements entered into by a liquidator exceeding three months in duration.}

_{[119] Hastie Group Ltd (in liq) v. Moore [2016] NSWSC 1315.}

_{[120] Hastie Group Ltd (in liq) v. Moore (2016) 339 ALR 635; [2016] NSWCA 305 at [59]–[60].}

_{[121] Knight v. FP Special Assets Ltd (1992) 174 CLR 178; [1992] HCA 28 at [192]–[193]; see also Gore v. Justice Corporation Pty Ltd (2002) 119 FCR 429; [2002] FCAFC 83; Dymocks Franchise Systems (NSW) Pty Ltd v. Todd (No. 2) [2004] 1 WLR 2807 (on appeal from New Zealand); see also Fostif Pty Ltd v. Campbell’s Cash and Carry Pty Ltd [2005] NSWCA 83; 63 NSWLR 203 at 230 [120].}

_{[122] [2021] NSWSC 1202.}

_{[123] ibid., at [73].}

_{[124] ibid., at [23].}

_{[125] ibid., at [52].}

_{[126] ibid., at [68].}

_{[127] See Green (as liquidator of Arimco Mining Pty Ltd) v. CGU Insurance Ltd (2008) 67 ACSR 105; [2008] NSWCA 148 at [51], [61] (Hodgson JA), [85]–[88] (Campbell JA) and [80] (Basten JA).}

_{[128] (2020) 384 ALR 340, (2020) 300 IR 446, [2020] FCFCA 194.}

_{[129] Under the Fair Work Act 2009 (Cth).}

_{[130] In the first instance decision the trial judge found that the Court had power to make such an order and exercised the Court’s discretion to order security for costs be provided by the funder: Turner v. Tesa Mining (NSW) Pty Ltd [2019] FCA 1644.}

_{[131] Augusta at [83] (Allsop CJ).}

_{[132] Augusta at [68]–[73] (Allsop CJ); at [89] (Middleton J); and at [93], [131]–[134] (White J).}

_{[133] [2021] FCA 304.}

_{[134] Duck v. Airservices Australia (No. 3) [2021] FCA 304 at [9] and [69] per Bromwich J.}

_{[135] ibid., at [51] per Bromwich J.}

_{[136] ibid., at [9] and [67]–[69] per Bromwich J.}

_{[137] ibid., at [47] per Bromwich J.}

_{[138] Jeffery & Katauskas Pty Ltd v. SST Consulting Pty Ltd (2009) 239 CLR 75; [2009] HCA 43.}

_{[139] See also Grave, Adams and Betts, Class Actions in Australia, (Law Book Co of Australasia, 2nd ed, 2012) para. 17.1000.}

_{[140] ibid.}

_{[141] ibid.}

_{[142] Domino’s Pizza Enterprises Limited v. Precision Tracking Pty Ltd (No. 2) [2017] FCA 211.}

_{[143] [2017] FCA 699.}

_{[144] [2020] QSC 269. In this case, Bond J determined that security in the form of a deed of indemnity between a foreign third party insurer of the plaintiff’s litigation funder and the defendants was not adequate, and ordered that security be provided by way of payment into court, payment into a solicitors’ trust account or bank guarantee.}

_{[145] Petersen Superannuation Fund Pty Ltd v. Bank of Queensland Ltd (Petersen) [2017] FCA 699 at [92].}

_{[146] See Perera v. GetSwift Limited [2018] FCA 732 at [194]–[195] per Lee J; Kelly v. Willmott Forests Ltd (in liquidation) (No. 4) [2016] FCA 323 at [105] per Murphy J; Hardy v. Reckitt Benckiser (Australia) Pty Limited (No. 3) [2017] FCA 1165 at [13]–[15] per Nicholas J.}

_{[147] [2020] FCA 1885.}

_{[148] Asirifi-Otchere v. Swann Insurance (Aust) Pty Ltd (No. 3) [2020] FCA 1885 at [32].}

_{[149] Exposure draft explanatory statement, issued by the authority of the Assistant Treasurer, page 1.}

_{[150] ibid., page 1.}

_{[151] Australian Securities and Investments Commission, ASIC Class Order – Funded representative proceedings and funded proof of debt arrangements exclusion from the National Consumer Credit Protection Act 2009 (CO 13/18, 11 January 2013) and, as from January 2020, Australian Securities and Investments Commission, ASIC Credit (Litigation Funding – Exclusion) Instrument 2020/37 (17 January 2020).}

_{[152] Australian Securities and Investments Commission, ASIC Class Order – Representative proceedings and proof of debt arrangements funded by conditional costs agreements (CO 13/898, 12 July 2013) and, as from January 2020, Australian Securities and Investments Commission, ASIC Corporations (Conditional Costs Schemes) Instrument 2020/38 (17 January 2020).}

_{[153] Australian Securities and Investments Commission, Litigation funding schemes: Guidance and relief (consultation paper No. 345, July 2021), proposals C3-C4.}

_{[154] ibid., pages 30–31.}

_{[155] Various other conditions attach to this relief as set out in Australian Securities and Investments Commission, ASIC Corporations (Disclosure in Dollars) Instrument 2016/767 (28 April 2021), Part 2, Section 8.}

_{[156] Australian Securities and Investments Commission, Litigation funding schemes: Guidance and relief (consultation paper No. 345, July 2021), page 25.}

_{[157] Hon Josh Frydenberg, Treasurer of the Commonwealth of Australia ‘Consulting on the recommendations of the Parliamentary Joint Committee report on litigation funding and class actions’ (media release, 28 May 2021).}

_{[158] Treasury and Attorney-General’s Department, Guaranteeing a minimum return of class action proceeds to class members (consultation paper, June 2021).}

_{[159] BMW Australia Ltd v. Brewster & Anor; Westpac Banking Corporation & Anor v. Lenthall & Ors [2019] HCA 45.}

_{[160] Money Max Int Pty Ltd (Trustee) v. QBE Insurance Group Ltd (2016) 245 FCR 191; [2016] FCAFC 148.}

_{[161] ibid.}

_{[162] ibid., at [11].}

_{[163] [2017] FCA 330.}

_{[164] [2016] VSC 784.}

_{[165] [2018] FCA 1422 at [25].}

_{[166] [2018] FCA 1541.}

_{[167] [2019] NSWCA 35.}

_{[168] Westpac Banking Corporation v. Lenthall [2019] FCAFC 34.}

_{[169] Brewster v. BMW Australia Ltd [2019] NSWCA 35 at [56]–[61], [64]–[67].}

_{[170] ibid., at [96]–[103].}

_{[171] BMW Australia Ltd v. Brewster & Anor; Westpac Banking Corporation & Anor v. Lenthall & Ors [2019] HCA 45 at [3].}

_{[172] ibid., at [3] to [94].}

_{[173] Federal Court of Australia, class actions practice note (GPN-CA) – general practice note, 20 December 2019, [15.4].}

_{[174] McKay Super Solutions Pty Ltd (Trustee) v. Bellamy’s Australia Ltd (No. 3) [2020] FCA 461 at [31] per Beach J; Uren v. RMBL Investments Ltd (No. 2) [2020] FCA 647 at [47] to [73] per Murphy J; Smith v. Commonwealth of Australia (No. 2) [2020] FCA 837 per Justice Lee; Webster (Trustee) v. Murray Goulburn Co-Operative Co Ltd (No. 4) [2020] FCA 1053 at [113] to [114] per Justice Murphy.}

_{[175] Uren v. RMBL Investments Ltd (No. 2) [2020] FCA 647 at [47] to [73] per Murphy J; Smith v. Commonwealth of Australia (No. 2) [2020] FCA 837 per Lee J; Webster (Trustee) v. Murray Goulburn Co-Operative Co Ltd (No. 4) [2020] FCA 1053 at [113] to [114] per Murphy J; Court v. Spotless Group Holdings Ltd [2020] FCA 1730 at [80] per Murphy J; Asirifi-Otchere v. Swann Insurance (Aust) Pty Ltd (No. 3) [2020] FCA 1885 at [13]–[15], [33]–[34] where Lee J ultimately approved the settlement CFO pursuant to Section 33V(1) of the FCA Act, but stated that he would have been prepared to make the order in any event relying on Section 33V(2) or in equity; Evans v. Davantage Group Pty Ltd (No 3) [2021] FCA 70 per Beach J; Hall v. Arnold Bloch Leibler (a firm) (No. 2) [2022] FCA 163 per Beach J.}

_{[176] In Cantor v. Audi Australia Pty Ltd (No. 5) [2020] FCA 637 at [395] to [405], Foster J expressed the view that the court does not have the power to make a CFO at the time of settlement approval under Section 33V(2) of the FCA Act.}

_{[177] Clime Capital Ltd v. UGL Pty Ltd [2020] FCA 66 at [13] per Anastassiou J; Fisher (trustee for the Tramik Super Fund Trust) v. Vocus Group Ltd (No. 2) [2020] FCA 579 at [73] per Moshinsky J.}

_{[178] Brewster v. BMW Australia Ltd [2020] NSWSC 1261. This issue was also recently considered in the case of Haselhurst v. Toyota Motor Corporation Australia Ltd [2022] NSWSC 1076 at [51], where Rees J confirmed that the court had the power to make a CFO at settlement under Section 173(2) of the CPA.}

_{[179] Brewster v. BMW Australia Ltd [2020] NSWCA 272 at [44]–[47].}

_{[180] Davaria Pty Limited v. 7-Eleven Stores Pty Ltd [2020] FCAFC 183.}

_{[181] ibid., at [21]–[30].}

_{[182] ibid., at [42]; Brewster v. BMW Australia Ltd [2020] NSWCA 272 at [41].}

_{[183] 7-Eleven Stores Pty Ltd v. Davaria Pty Ltd [2021] HCATrans 113.}

_{[184] Pearson v. State of Queensland (No. 2) [2020] FCA 619.}

_{[185] In accordance with State of New South Wales v. Kable (2013) 252 CLR 118; [2013] HCA 26.}

_{[186] Pearson v. State of Queensland (No. 2) [2020] FCA 619 at [264] to [268].}

_{[187] Ben Slade, Simon Gibbs and Vince Morabito, ‘Post-Brewster Jurisprudence – The Future of the Common Fund Doctrine’ (2022) 96, Australian Law Journal 430, page 3.}

_{[188] McKay Super Solutions Pty Ltd (Trustee) v. Bellamy’s Australia Ltd (No. 3) [2020] FCA 461 at [34] per Beach J.}

_{[189] See, for example, the conclusions of Professor Vince Morabito and Jarrah Ekstein, ‘Class Actions Filed for the benefit of Vulnerable Persons – An Australian Study’ (2016), 35 Civil Justice Quarterly 61.}

_{[190] Section 33ZDA(2) of the Supreme Court Act 1986 (Vic).}

_{[191] Section 33ZDA(3) of the Supreme Court Act 1986 (Vic), including but not limited to the percentage ordered.}

_{[192] Supreme Court of Victoria, SC Gen 10 Conduct of Group Proceeding (Class Action) (First Revision), July 2020.}

_{[193] Fox v. Westpac; Crawford v. ANZ [2021] VSC 573.}

_{[194] ibid., at [3].}

_{[195] ibid., at [8].}

_{[196] ibid., at [8].}

_{[197] ibid., at [8(f)] and [44].}

_{[198] ibid., at [8(d)], [40] and [165].}

_{[199] ibid., at [45].}

_{[200] Allen v. G8 Education Ltd [2022] VSC 32.}

_{[201] ibid., at [2] and [45].}

_{[202] ibid., at [45].}

_{[203] ibid., at [93].}

_{[204] ibid., at [93].}

_{[205] ibid., at [93(f)].}

_{[206] ibid., at [95].}

_{[207] Bogan v. The Estate of Peter John Smedley (Deceased) [2022] VSC 201.}

_{[208] ibid., at [106].}

_{[209] ibid., at [44] and [106].}

_{[210] ibid., at [105(a)].}

_{[211] ibid., at [62]-[63], [105(b)]. The proposed costs sharing agreement effectively split the risk of funding the proceeding between the solicitors for the plaintiffs (Banton Group) and the funder.}

_{[212] ibid., at [105(d)-(e)].}

_{[213] ibid., at [98]-[100].}

_{[214] ibid., at [101].}

_{[215] ibid., at [12].}

_{[216] ibid., at [14].}

_{[217] ibid., at [16]-[30].}

_{[218] Nelson v. Beach Energy; Sanders v. Beach Energy [2022] VSC 424.}

_{[219] ibid., at [9].}

_{[220] ibid., at [148].}

_{[221] ibid., at [181]-[182].}

_{[222] ibid., at [195].}

_{[223] The Civil Procedure (Representative Proceedings) Act 2021 (WA), which was given royal assent on 14 September 2022.}

_{[224] Section 36(1) of the Civil Procedure (Representative Proceedings) Act 2021 (WA).}

_{[225] Section 36(2)(b) of the Civil Procedure (Representative Proceedings) Act 2021 (WA).}

_{[226] See recommendation 1, The Law Reform Commission of Western Australia: Maintenance and Champerty in Western Australia, Project 110: final report, February 2020.}

_{[227] [2020] FCA 461 at [34].}

_{[228] Commonwealth, Parliamentary Debates, House of Representatives, 14 November 1991, 3174–
3175 (Duffy).}