The 2009 decision of the Full Court of the Federal Court in Brookfield Multiplex Ltd v International Litigation Funding Pty Ltd has cast some doubt about the role and regulation of litigation funding in class actions in Australia. The decision has the potential to affect the availability of litigation funding for class actions, such as those sometimes mooted by disgruntled franchisees.
In Brookfield Multiplex it was held that the litigation funding arrangements (which are largely replicated in other funded class actions) constituted an unregistered managed investment scheme in breach of the Corporations Act (the Act).
Under the Act, operators of managed investment schemes must hold an Australian Financial Services Licence (AFSL) and are subject to stringent prudential and reporting obligations. Only one litigation funder in Australia has an AFSL and if such a level of regulation was now to be introduced that might have an impact of the availability of funding in the future.
ASIC has now advised that it will grant temporary relief from the consequences of the judgment in Brookfield Multiplex to all class actions commenced before 4 November 2009 until the end of the current financial year.
ASIC will assess whether or not and on what terms it will grant transitional relief to class actions commenced after 4 November 2009. The identity of the potential claimants in those class actions (ie whether they are "retail" or "institutional" claimants) may affect ASIC's determination of whether the prudential and reporting obligations associated with managed investment schemes should apply.
Despite the potential for an increased regulatory burden on litigation funders, the Brookfield Multiplex decision does not affect the power of the ACCC to bring class actions on behalf of persons under s 87(1B) of the Trade Practices Act. A recent example is the class action brought by the ACCC alleging misleading and deceptive conduct against Allphones Retail Pty Ltd (and current and former directors and executives of that company) on behalf of certain current and former franchisees.
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.