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Litigation funding continues to rise, both in respect of class
actions and more traditional liquidator proceedings. ASIC has now
granted further relief to funders and lawyers involved in legal
proceedings structured as funded representative proceedings by
extending the interim class order relief. The extension of relief
which was announced on 29 February 2012 will apply until 30
September 2012 under class order 12/158. The extension will enable
the temporary operation of litigation funding schemes and proof of
debt funding schemes that are characterised as managed investment
schemes without having to comply with the requirements of the
Corporations Act.
The relief has been extended to allow additional time for the
Federal Government to implement previously announced reforms and
avoid interim disruption to the industry.
At the liquidator funding level, examination proceedings have
been brought by the liquidators of ABC Learning Centres Limited
(for whom we act) in the Federal Court. In ABC Learning Centres
Limited, Application by Walker (No. 11) [2012] FCA 40, the
plaintiff liquidators sought an order to release them from an
undertaking to the Court to enable them to provide documents during
public examinations to a liquidation funder. The issue for
determination if the principal litigation proceeded was whether
charges over assets given by the companies in liquidation in favour
of a banking syndicate were voidable for the benefit of the
creditors. The liquidation funder required access to certain
documents produced by banks under orders for production to make its
funding decision. However, the plaintiffs were concerned this may
require variation of a confidentiality agreement as not all
documents requested by the funder had been used in the
examinations.
Judgment
Cowdroy J held the original undertaking was not binding as the
terms were not suggestive that the plaintiffs would be permanently
bound. The documents were required for a specific purpose and the
use of the documents was to be subject to a further confidentiality
undertaking. In determining whether parties are bound by
undertaking, there is no 'rigid and exhaustive criteria'
for altering existing orders 1.
Lessons from the Case
The Court will vary an undertaking to give discovered documents
to a non-party where:
it is fundamental to assist in the investigation of a valid
cause of action;
the documents are not provided for general disclosure but for a
specific purpose;
the documents fell within the definition of examinable affairs
under ss9 and 53 Corporations Act 2001;
the documents represent a compromise between the parties'
competing interests and are subject to a further undertaking by the
non-party to ensure confidentiality; and
the greater public interest in ensuring the liquidators'
fulfil their statutory obligation outweighs the interest of
maintaining confidentiality of the documents.
The decision substantially enhances the ability of liquidators
to access potential litigation funding.
Footnote
1Adam P Brown Male Fashions Proprietary
Limited v. Philip Morris Incorporated (1981) 148 CLR
170.
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