Vol 9 (2012) - Issue 5

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Litigation Funding in Australia: Latest Developments

Three years ago in this journal, I detailed the growth of professional litigation funding in Australia. At that time, it appeared that litigation funding might be on an unstoppable upwards growth path, despite the clear reservations of many judges.
Not long after I published those observations, litigation funders received a judicial check, in the form of rulings that their activities potentially breached Australia’s corporate fundraising laws. Those roadblocks were only removed in mid-2012, when the Australian Government legislated to exempt litigation funders from the fundraising laws.
Announcing those changes, the Government said it supported 'class actions and litigation funders as they can provide access to justice for a large number of consumers who may otherwise have difficulties in resolving disputes. The Government’s main objective is therefore to ensure that consumers do not lose this important means of obtaining access to the justice system.'
Litigation funding is also enthusiastically supported by Australia’s highest court, the High Court. Nevertheless, it is clear that many judges continue to have reservations about the growth of an industry which, they believe, borders on trafficking in litigation.

1. Background
For a very long time Australia effectively banned third party funding of litigation through the torts of maintenance and champerty. The abolition of those torts late in the second half of the 20th century did not open the floodgates to litigation funding, largely because Australian courts still retained the power to set aside litigation funding agreements on the grounds of public policy.
The floodgates were finally opened in a series of cases beginning in 1996. In Re Movitor Pty Ltd (1996) 14 ACLC 587, the Federal Court of Australia ruled that a liquidator’s statutory power to sell the company’s property allowed the liquidator to assign part of the funds recovered from litigation to a third party which had financially underwritten the litigation.
Re Movitor was followed by Ultra Tune Australia Pty Ltd v UTSA Pty Ltd (1996) 14 ACLC 1610. In that case, rather than assigning the fruits of litigation to the third party funder, the liquidator assigned the cause of action itself to the funder (in return for which the funder would pay USD 300,000 plus 20% of whatever was recovered through the litigation).
Although liquidators were the first to use professional litigation funding, they were quickly followed by voluntary administrators (Re William Felton & Co Pty Ltd (1998) 16 ACLC 1294) and receivers (Hawke v Efrat Consulting Services (1999) 17 ACLC 733). This steady expansion of persons who could use the services of litigation funders showed that the initial basis for allowing it (liquidators’ power of sale) had largely been a 'Trojan Horse'. This point was explicitly recognised in Re William Felton: