On 12 July 2012, the Federal Government passed amendments to the
Corporations Regulations 2001 (Cth) to exclude litigation
funding of class actions (Funding Arrangements)
from paragraph (n) of the definition of managed investment scheme
(MIS) in section 9 of the Corporations Act 2001 (Cth)
(Act). This means that litigation funders
(Funders) do not have to comply with the onerous
registration, licensing, conduct and disclosure requirements for an
MIS stipulated by the Act.
The salient features of the amendment include the insertion of
clause 5C.11.01 which sets out the requirements a scheme must
satisfy to be excluded from the definition of an MIS. The
requirements include that the dominant purpose of the scheme is for
each of its members to seek remedies to which they may be legally
entitled (clause 5C.11.01(b)(i)) and that the Funder may provide
funds under a "no win no fee" arrangement (clause
The amendments also impose requirements on Funders aimed at
ensuring that conflicts of interest between members, lawyers and
Funders are appropriately managed. Such measures include reviews
and monitoring of potential conflicts, and disclosure requirements.
The formal regulation of potential conflicts is an important aspect
of the amendments given the inherently different interests of
Funders and those to whom financial support is being provided. If a
Funder is found not to have adequate arrangements in place for
managing conflicts it can be fined 50 penalty units or $5500.
Prior to this amendment, a majority of the Full Court of the
Federal Court of Australia had held that Funding Arrangements
qualified as an MIS under the Act in the decision of Brookfield
Multiplex Limited v International Litigation Funding Partners Pte
Ltd (2009) 180 FCR 11. This decision provided obstacles to
Funders as it required funding arrangements with more than 20
participants to be registered and comply with section 601ED the
Act. A further barrier to Funders was imposed by the case of
International Litigation Partners Pte Ltd v Chameleon Mining NL and
Anor (2011) 276 ALR 138, which held that Funding Arrangements also
required an Australian Financial Services Licence. Further
discussion of the Chameleon decision can be found in our
March 2012 Insurance Update.
There has been some considerable debate over the extent to which
litigation funding does actually advance the objective of justice
in practice. The amendments have been criticised by the broader
business community, drawing the ire of the Australian Institute of
Company Directors (AICD), who have been advocating
for tighter regulation of litigation funders. The AICD's Chief
Executive, John Colvin, has said that he regards these amendments
as an undesirable tipping of the balance towards plaintiffs, as
they perpetuate a "vulture" business model which
"preys on companies in distress" and increases
the costs and burdens of doing business in Australia. The Federal
Government has indicated that it plans to conduct a second, more
informal review as to how Funders should be regulated, and will be
inviting submissions from stakeholders.
There is no question that these amendments, by removing
administrative burdens on Funders, continue to demonstrate that
Australia is a fertile field for class actions supported by
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This was an interlocutory decision about the appointment of a tutor for the child appellant, to carry on his proceedings.
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