The Full Court of the Federal Court of Australia handed down a
judgment on Tuesday (20 October 2009) that could have significant
consequences for Australia's burgeoning litigation funding
In a 2-1 majority judgment, the Full Court in Brookfield
Multiplex Limited v International Litigation Funding Partners Pte
Ltd  FCAFC 147 has found that the litigation funding
arrangements and the solicitors' retainer for representative
proceedings constituted an unregistered Managed Investment Scheme
in breach of the Corporations Act 2001 (Cth). Whilst no
final orders have been made (with the parties now required to file
submissions), Brookfield Multiplex has sought declaratory and
injunctive relief that would have the effect of restraining the
litigation funders, the solicitors and the representative
applicants from taking any steps in the action pursuant to the
offending arrangements and retainers.
The case involves representative proceedings brought against
Brookfield Multiplex by shareholders seeking damages for losses
relating to the company's alleged failure to disclose cost
blowouts in the construction of London's Wembley Stadium.
Effectively the claimants allege fraud on the market and the case
is one of several of its type currently before the Courts seeking
compensation for stock market losses said to arise from breaches of
statutory corporate disclosure obligations.
The action is being run by Maurice Blackburn Cashman (MBC) and
is funded by International Litigation Funders Pty Lte solicitors
(ILF) for claimants who have signed funding agreements with ILF and
retainer agreements with MBC. Under those arrangements, ILF pays
all disbursements and 75% of the fees incurred by MBC (with the
remaining 25% only payable if the claims succeed) in return for ILF
receiving a "commission" of between 25% and 40% of any
damages or settlement sum paid.
Full Court's decision
In overturning the decision of Finkelstein J, Justices Sundberg
and Dowsett have found that the retainer and funding agreements
satisfy the elements of a Managed Investment Scheme requiring
registration under the Corporations Act. They found that
people had contributed money's worth as consideration to
acquire interests in the scheme, that those contributions had been
pooled to produce financial or other benefits and the members do
not have day to day control over the scheme.
As a result, the scheme should have been registered under
section 601ED of the Corporations Act and the Court has
indicated declaratory relief is likely in order that the Brookfield
Multiplex can have confidence that the action will not be disrupted
or delayed in the future by ASIC or a disgruntled group member
asserting an irregularity.
It is reported that Maurice Blackburn Cashman is considering an
application for special leave to the High Court in respect of the
There are numerous shareholder or investor class actions
currently before the courts or that are anticipated and many of
those are backed by litigation funding on terms similar to those
present in this case. The Full Court's decision means that
those class actions should probably have been registered as Managed
Running a Managed Investment Scheme entails a wide range of
commercial, legal and compliance issues, including the requirement
to hold an Australian Financial Services Licence (AFSL). Whilst
such issues are not insurmountable for the litigation funder,
obtaining the AFSL and registration of the scheme is a complex
process that ordinarily takes many months. Where the litigation
funder is a foreign entity (as is the case with ILF), that process
is likely to be further complicated.
In the Brookfield Multiplex case, the Full Court stated
that the defendant in a representative proceeding is entitled to
have confidence in its dealings with the solicitors, for the
claimants that they are properly authorized to act, and that the
proceedings will not, in the future, be disrupted or delayed by any
intervention by ASIC or a disgruntled group member, asserting an
irregularity of the nature identified here. Those comments call
into question the status of other class actions currently before
the courts and may present an obstacle for claims in contemplation
unless suitable arrangements are put in place.
The other consequence of the judgment may be that litigation
funders and solicitors running representative proceedings shy away
from class actions that involve retail investors (ie the "mums
and dads" of the investment community) as an investment scheme
involving large or institutional investors will not require
registration (but the manager of that scheme will still need an
To view the citation to the judgment please click
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