Litigation funding is a fact of life in large, complex
litigation. Not too long ago, litigation funding was seen as
against public policy. The law is still developing in this area and
disputes still abound with the litigation funding, how to
characterise it and issues associated with it.
The agreements contain various provisions covering the rights of
the parties, how to conduct the litigation, what licensing
requirements operate and what happens if there is a change in
control of corporations involved in proceedings. Each issue has,
somewhat ironically, lead to complex litigation itself.
In October 2012 the High Court unanimously determined that a
litigation funder was entitled to an "early termination
fee" pursuant to a funding deed despite the funder not having
an Australian Financial Services Licence pursuant to Part 7.6 of
the Corporations Act 2001 (Cth) (the
International Litigation Partners Pte Ltd
(ILP), a Singapore based corporation, entered into
a deed (the Funding Deed) with Chameleon Mining
(Chameleon) to fund Chameleon's legal
proceedings against Murchison Metals and others in the Federal
Court of Australia (the Federal Court
In 2010 an agreement was reached regarding the Federal Court
Proceedings, which resulted in, amongst other things, a change in
control of Chameleon. The Funding Deed contained a clause that if
there was a change of control of Chameleon, it would trigger the
obligation of Chameleon to pay the early termination fee to ILP.
That the Funding Deed contained a clause to this effect was not
Chameleon, in response, issued ILP with a notice of recession of
the Funding Deed pursuant to section 925A of the Corporations
Act 2001 (Cth) (the Act), on the basis that
the Funding Deed satisfied the criteria of section 924A of the Act,
being that the:
agreement was entered into in the course of a financial
services business carried on by way of non-licence; and
non-licensee did not hold an Australian financial service
licence, and is not exempt from the requirement to hold such
The High Court, overturning the Court of Appeal decision, held
that the Funding Deed was a "credit facility" as it was
an agreement, which provided for a period of time, a form of
financial accommodation by ILP to Chameleon.
It was determined that a financial services licence was not
necessary in this instance, and as such the rescission notice
issued by Chameleon was invalid. This meant that Chameleon was
required to pay the 'early termination fee'.
What does this mean for you?
Litigation funding can enable deserving plaintiffs to conduct
litigation that would otherwise be beyond them. However, the issues
surrounding the agreements and their operation are complex and
If you are involved in matters either as a recipient of
litigation funding or as a litigation funder you should be aware of
the issues surrounding them (including whether the agreement
requires compliance with section 924A of the Act).
If, like in this matter, the agreement does not require the
funder to hold a financial services licence, such an agreement will
be valid and the right to terminate may not be available. Careful
consideration should be given to compliance aspects before entering
into such agreements.
How we can help
If you are involved in litigation funding, either by receiving
or providing funding or even as a defendant, understand that the
other party is funded and need advice on the legitimacy of the
agreements, please contact Warren Jiear or
Kylie Tate in
our dispute resolution team who will be able to provide advice in
relation to these issues.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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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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