Australia: Legislative amendment may reverse decision that litigation funding is a "credit facility"

In brief - High Court finds that litigation funding agreement is a credit facility, AFSL not required

The High Court has found that a litigation funding agreement is a "credit facility" and that litigation funders are therefore not required to hold an Australian Financial Services Licence (AFSL) in International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed) [2012] HCA 45. (Please see also our earlier discussion of the NSW Court of Appeal's decision in Recent developments in litigation funding in Australia and the UK.)

However, new legislative changes currently under consideration threaten to reverse this outcome.

Litigation funder makes payment directly to miner's solicitors

On 28 October 2008, Australian mining company Chameleon Mining NL (Chameleon) entered into a deed with Singaporean litigation funder International Litigation Partners Pte Ltd (ILP), pursuant to which ILP undertook to fund litigation commenced by Chameleon in the Federal Court of Australia. Rather than providing payment to Chameleon for its legal fees, ILP provided payment directly to Chameleon's solicitors.

The funding deed provided that a change of control in Chameleon would allow ILP to terminate the agreement and would trigger an obligation by Chameleon to pay an early termination fee to ILP. A change of control in Chameleon subsequently occurred, but Chameleon refused to recognise ILP's entitlement to the early termination fee.

If funding deed is a financial product, funder needs an AFSL

Chameleon argued that the funding deed was a financial product which ILP had entered into in the course of its "financial services business" for which it was required to hold an AFSL. If the funding deed was found to be a financial product and ILP therefore required to hold an AFSL (which it did not), Chameleon would have a basis under Part 7.6 of the Corporations Act 2001 (Cth) to rescind the agreement ( section 925A) and in turn ILP would be unable to enforce the funding deed or rely upon it against Chameleon ( section 925E).

Is litigation funding a financial services business?

In order to determine whether ILP was required to hold an AFSL for the purposes of entering into the funding deed, it was first necessary for the Court to decide whether ILP carried on a "financial services business". In their joint judgment, French CJ, Gummow, Crennan and Bell JJ traced through the relevant Corporations Act provisions defining the acts that constitute "financial services" along with the specific inclusions and exclusions.

The Corporations Act definition of "financial services" includes "dealing in a financial product". The definition of "financial product" is a "facility", being a contract, agreement, understanding or scheme through which a person makes a financial investment, manages financial risk and/or makes non-cash payments.

Credit facilities excluded from "financial product" definition

The Corporations Act excludes credit facilities from the definition of "financial product". ILP argued that the funding deed was specifically excluded from the definition of a "financial product" for the purposes of Chapter 7 of the Corporations Act on the basis that it fell within the definition of a "credit facility".

If the court accepted this argument, it would mean that ILP had not engaged in a "financial services business" and was not therefore required to hold an AFSL for the purposes of entering into the funding deed.

Chameleon found to have no grounds to rescind agreement

The court discussed the Revised Explanatory Memorandum to the Financial Services Reform Act 2001 (Cth), which provided that the definition of a "financial product" did not extend to credit facilities, and to the extent that credit facilities involved consumer credit, they would be regulated by consumer credit legislation rather than the Corporations Act.

The court noted that under the Corporations Regulations 2001 (Cth), the term "credit" is defined as meaning a contract, arrangement or understanding under which payment of a debt to the credit provider is deferred, and as including "any form of financial accommodation". Its provision for any period will be a "credit facility".

The court found that the funding agreement was therefore a "credit facility" on the basis that it was for the provision of a form of financial accommodation of Chameleon by ILP, notwithstanding that ILP paid for Chameleon's legal costs directly to Chameleon's solicitors. On that basis, ILP was not required to hold an AFSL and Chameleon therefore had no grounds upon which to rescind the agreement.

Litigation funding schemes carved out from definition of managed investment schemes

Our earlier article Litigation funding - legislative relief arrives discusses the effect of the July 2012 Corporations Amendment Regulation 2012 (No. 6) which, among other things, carves out litigation funding schemes from the definition of a managed investment scheme, and exempts any party providing a financial service in relation to a litigation funding scheme from obtaining an AFSL.

Such amendments were necessary in light of the 2009 decision of the full Federal Court in Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11, which found that funded class actions fall within the Corporations Act definition of managed investment schemes, meaning that the funders of such actions would have been required to comply with the extensive requirements applicable to managed investment schemes and the obligations imposed upon AFSL holders by section 912A(1) of the Corporations Act.

Some funders had in any event opted to "play it safe" and obtain AFSLs despite the current absence of a mandatory requirement to do so, such as IMF (Australia) Ltd which has held an AFSL since 2005.

High Court's finding in Chameleon Mining may be reversed

A further draft of the Corporations Amendment Regulation 2012 (No. 6), on which consultation is currently being sought, may reverse the High Court's finding in Chameleon.

Most importantly for the purposes of this article, the draft Regulation includes litigation funding arrangements within the definition of a "financial product". This therefore excludes such arrangements from being classed as "credit facilities".

The current tension between the legislative and judicial stances with respect to the status of litigation funding arrangements is set to continue for the immediate future.

Louisa Travers
Commercial litigation
Colin Biggers & Paisley

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.