1 Commercial legal finance basics
1.1 How is commercial legal finance defined in your jurisdiction?
Commercial legal finance, commonly known as ‘litigation funding', involves a commercial (for-profit) entity (‘funder') providing a litigant with meritorious claims (‘claimant') with funds, indemnities or both under a contract (‘funding agreement') to enable the claimant to initiate or pursue legal or arbitral proceedings seeking monetary remedies in respect of its claims.
The finance provided is non-recourse, in that if the proceedings fail the claimant is not required to meet any of the costs. The funder is paid solely out of any pecuniary recovery (eg, damages, settlement) achieved by the claimant in the event the proceedings are successful.
The funding agreement defines the funder's remuneration. Provided that the return from the funded litigation is sufficient – and subject to court approval in the case of funded class actions – on success, the funder will be entitled to reimbursement of all funds provided or expensed in supporting the proceedings plus a commission or fee calculated as a percentage of the claimant's recovery from the proceedings or as a multiple of the total amount invested (eg, a 2x or 3x multiplier).
If the proceedings are unsuccessful, the funder will lose its investment and be required to pay the defendant's costs (‘adverse costs') as ordered by the court or tribunal, or as agreed, either under an indemnity given by the funder in the funding agreement or pursuant to an order of the court.
The funder may have also provided security for the defendant's costs during the proceedings.
1.2 How does commercial legal finance differ from consumer litigation finance and contingency agreements?
Consumer litigation finance (ie, the funding of small individual claims) is not a principal focus of commercial funders in Australia. Such cases are generally undertaken by lawyers under ‘no win, no fee' retainers. However, funders do routinely provide finance for mass consumer claims prosecuted in large-scale representative proceedings (class actions) in those jurisdictions with class action regimes.
Contingency agreements are retainer agreements between a litigant and the litigant's lawyers under which the lawyers carry the cost of the proceedings (either on their own balance sheets or with assistance from funders or lenders) and recover their fees and disbursements only if the proceedings are successful.
Contingency agreements include:
- ‘no win, no fee' or conditional fee agreements; and
- damages-based agreements.
Under a conditional fee agreement, the lawyers recover disbursements and their fees calculated at usual hourly rates, with (where permitted) an uplift on the fees (typically 25%) to compensate them for the cost of the credit they have advanced to the client and the risk of non-payment.
Under a damages-based agreement, the lawyers can earn a contingency fee under which they are paid a percentage of the client's recovery. Unlike a funder, the lawyers do not recover their costs in addition to the contingency fee. Damages-based agreements, known as ‘group costs orders', are permitted only in class actions in the Victoria Supreme Court and are currently illegal elsewhere in Australia.
1.3 What are the major legal finance products/solutions in your jurisdiction? (a) Single case fees and expenses; (b) Portfolio fees and expenses; (c) Monetisation of claims; (d) Monetisation of judgments and awards and (e) Other
Legal finance in Australia is chiefly provided on a single-case basis, either:
- to fund multi-party class action litigation (the largest single component of the funding market); or
- to support individual litigants with a range of claim types – in particular, insolvency, IP, contracts and business disputes.
The funding and purchase of claims from liquidators are dealt with in question 6.1.
Portfolio funding is also developing in Australia, particularly in relation to the funding of disbursements for personal injury lawyers. The increasing use of contingency fees in Victoria by plaintiff lawyers may increase demand for portfolio funding. Plaintiff lawyers may seek to underwrite the costs and risks of holding portfolios of contingency fee cases. Funders already deploy ‘hybrid' funding models in Victoria, under which they agree to share a contingency fee with a law firm in return for funding certain of the firm's exposures (eg, adverse costs or disbursements).
Australia's largest domestic funder, ASX-listed Omni Bridgeway Limited, recently sold a partial interest in two of its class action investments to third parties, potentially initiating the development of a secondary market for trading in, or securitising interests in, funded litigation (Omni Bridgeway Limited, FY22 Results (30 August 2022), p13).
1.4 In what areas of law is litigation finance most prevalent in your jurisdiction (eg, competition, insolvency, patents, contracts)?
Litigation finance initially developed to provide funding for insolvency practitioners under statutory exceptions to maintenance and champerty, and this remains an important component of the industry. Funders also provide support for single-party claims, including for:
- contract and business disputes;
- IP and professional negligence claims;
- disputes between shareholders in private companies; and
- certain family, trusts and inheritance disputes.
However, the financing of class actions has become a signature strength of the Australian litigation funding industry, in terms of:
- funds deployed;
- claimants supported; and
- revenues and publicity earned.
Class action funding has generated most of the case law and regulatory initiatives relating to litigation funding. For these reasons, it is the focus of this Q&A.
Funders have backed class actions seeking redress for a wide range of wrongs. Funded proceedings include claims by consumers, shareholders, investors, employees, businesses, homeowners, franchisees, First Nations peoples and members of superannuation schemes, arising from:
- breaches of continuous disclosure obligations by listed public companies;
- underpayment or non-payment of wages and benefits;
- natural disasters (bush fires, floods);
- government misconduct (including historical claims by indigenous claimants);
- defective products (airbags, diesel emissions);
- misleading and deceptive conduct and other contraventions by banks, rating agencies, investment promoters and other financial institutions;
- cartels, price fixing and other anti-competitive conduct;
- environmental damage (land contamination, marine pollution, escape of pathogens);
- breaches of duties owed by superannuation trustees to members;
- mass torts; and
- valueless insurance policies or wrongful denial of cover by insurers.
1.5 Who are the major players in the industry (eg, pure players, multi-strategy firms, start-ups)?
The world's leading international litigation funders operate in Australia, including:
- Burford Capital;
- Omni Bridgeway;
- Vannin Capital;
- Harbour Litigation Funding;
- Balance Legal Capital;
- LCM; and
In addition, there are numerous experienced and well-run Australian providers of litigation finance and brokers, including:
- Litigation Lending Services;
- Investor Claim Partner;
- Court House Capital;
- Litigation Funding Solutions; and
- Claims Funding Australia (a subsidiary of leading plaintiff law firm Maurice Blackburn).
Singapore-based International Litigation Partners has had a longstanding and successful involvement in the Australian market. There are also ad hoc funders formed to finance particular pieces of litigation.
According to a report by the Parliamentary Joint Committee on Corporations and Financial Services entitled Litigation Funding and the Regulation of the Class Action Industry (December 2020):
Data collated by the Parliamentary Library indicate that, as at 18 June 2020, 22 litigation funding companies were known to be operating in Australia, 14 litigation funders were foreign owned or based overseas, six were Australian owned or based, and the information for two funders was unknown. Confidential data provided to the committee indicate that the number of foreign litigation funders operating in Australia could be higher. (references omitted)
2 Legal framework
2.1 How mature is the market for legal finance in your jurisdiction? What types of commercial litigations and/or arbitrations may be funded by a third party?
Australia was a pioneer in modern litigation funding. Hugh McLernon and John Walker – who founded Australia's largest domestic funder, IMF (Australia) Limited, in 1998 – began funding cases in the mid-1990s. IMF listed on the ASX in 2001, became IMF Bentham and is now the leading multinational litigation financier, Omni Bridgeway Limited (ASX:OBL).
As such, the Australian market is both mature and experienced in the use of litigation funding. There are no specific legal restrictions on the types of cases or claims, whether in civil litigation or arbitration, that may be funded by a third party in Australia.
2.2 Is there a dedicated legal finance regime in your jurisdiction? What other laws and regulations have relevance to legal finance in your jurisdiction?
The regulation of litigation funders has been particularly contentious. In 2020, the then federal government imposed a new regulatory regime on litigation funding by the Corporations Amendment (Litigation Funding) Regulations 2020 (Cth).
Funders of ‘litigation funding schemes' (for the funding of class actions entered into on or after 22 August 2020) were required to:
- hold an Australian financial services licence (AFSL);
- ensure that proceedings including ‘retail clients' (virtually all funded class actions to date) were registered with the Australian Securities and Investments Commission (ASIC) as ‘managed investment schemes' (MIS) and complied with the requirements of Chapter 5C of the Corporations Act 2001 (Cth); and
- comply with the product disclosure and anti-hawking requirements of the Corporations Act 2001 (Cth).
The 2020 regulations were criticised as unworkable – a practical problem that ASIC attempted to ameliorate through certain exemptions granted by the ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787 (Cth) (now revoked).
The 2020 regime has unravelled. In June 2022, the Full Federal Court held that funders need not comply with the MIS provisions of the Corporations Act (LCM Funding Pty Ltd v Stanwell Corporation Limited  FCAFC 103). And on 10 December 2022, the current federal government expressly reversed the effect of the 2020 regulations with the enactment of the Corporations Amendment (Litigation Funding) Regulations 2022 (Cth).
The 2022 regulations provide that litigation funding schemes are explicitly exempt from:
- the MIS regime;
- the AFSL requirements;
- the product disclosure regime; and
- the anti-hawking provisions of the Corporations Act 2001 (Cth).
This realigns class action funding with the regulatory regime that applies to funding provided for insolvency-related and single-party litigation. The latter schemes had remained regulated under the pre-existing ‘light-touch' regime. Funders operating these schemes need not be licensed but must maintain written procedures for identifying and managing conflicts of interest (see ASIC Regulatory Guide 248; Corporations Amendment Regulation 2012 (No 6) (Cth)).
2.3 Which public sector bodies and authorities are responsible for enforcing the applicable laws and regulations? What powers do they have?
ASIC has extensive powers, including to:
- initiate criminal or civil penalty proceedings;
- suspend, cancel or vary an AFSL; and
- temporarily or permanently ban an individual from providing specified financial services.
The courts that manage and hear class actions have also emerged as important bodies for overseeing funders' conduct. Funding agreements must be disclosed to the court and to opposing parties and funders must often provide security for costs in funded class actions. Court approval of settlements is required, at which time the court may reduce or reject a funder's fee. Courts have made cost orders against funders and sanctioned rare instances of misconduct.
Justice Lee explained the importance of such judicial oversight in Stanwell, at , as follows:
At all stages during the currency of such litigation, the Court is required to adopt a close protective and supervisory role, be alive to the interests of group members and to take steps to ensure that any class action is conducted in a way which best facilitates the just resolution of the disputes according to law and as quickly, inexpensively and efficiently as possible.
Relatedly, the Court is also obliged to protect group members and manage the class action recognising that conflicts of interest, or conflicts of duty and interest, between and among representatives, group members, funders and solicitors can arise. When this is understood and appreciated, any criticism that litigation funding arrangements are ‘unregulated' is put into proper context.
2.4 Do the rules and codes of any self-regulatory organisations or professional associations have relevance to legal finance in your jurisdiction? What powers do such organisations and associations have?
Unlike the United Kingdom, which has a self-regulatory Code of Conduct for litigation funders that are members of the Association of Litigation Funders of England and Wales, the nine litigation funders that belong to the Association of Litigation Funders of Australia need not adopt its Best Practice Guidelines (January 2019).
The guidelines "represent a best practice framework within which Members may develop their own standards, policies and procedures". They cover:
- dispute resolution;
- recommended disclosure to funded parties;
- the extent of the funder's financial obligations and its capacity to meet those obligations;
- the funder's rights to participate in the proceedings;
- grounds for terminating a funding agreement; and
- a complaints procedure.
The most important professional standards relevant to funding are external to the litigation funding industry. They comprise the rules and ethical standards that apply to solicitors, barristers, expert witnesses, arbitrators and insolvency practitioners in Australia.
The proper performance of any piece of funded litigation depends critically on these professionals, among other things:
- maintaining their independence from the funder;
- strictly observing their fiduciary and ethical duties owed to clients or the court;
- avoiding conflicts of interest; and
- in the case of lawyers, maintaining their paramount duty to the court and the administration of justice (eg, see Part 2, Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015 (NSW)).
Failure to observe these fundamental standards will have serious consequences. This was starkly illustrated by the scandal which enveloped the lawyers and litigation funder in Banksia Securities (discussed in question 5.8).
2.5 What is the general attitude towards legal finance in your jurisdiction among the courts and other relevant bodies?
The High Court's approval of litigation funding in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 CLR 386 led to it to becoming widely accepted as an important and legitimate means of improving access to justice in Australia.
In 2014, the Law Council of Australia and the Federal Court declared that "litigation funding has proven to be the life-blood of Australia's representative proceeding litigation", having "a major impact on the sorts of cases being conducted". They noted that:
- representative proceedings funded by group members are rare; and
- "actions funded by law firms on a conditional fee basis are the exception rather than the rule. This is a consequence of the time, cost and complexity of most representative proceedings and the risk burden, carried by the representative applicant, of an adverse costs order."
Litigation funding is viewed less favourably by large corporations and insurers. They believe that:
- funders' returns are excessive and unfair to funded litigants;
- funded proceedings are bedevilled with conflicts of interest; and
- the growth in funded litigation (especially shareholder class actions), coupled with increased activity of foreign-based funders, necessitate greater regulation.
Litigation funding and class actions have been subject to four inquiries in six years:
- 2014 (Productivity Commission);
- 2016 (Victorian Law Reform Commission);
- 2018 (Australian Law Reform Commission); and
- 2020 (Parliamentary Joint Committee).
In addition to the Corporations Amendment (Litigation Funding) Regulations 2020 (Cth), the previous federal government even proposed to cap funders' returns (a measure ultimately not enacted) to tighten controls on the industry. The appropriate regulation of funding remains contentious.
2.6 Is legal finance considered consumer credit and is it captured by the relevant protective regulations in your jurisdiction?
Litigation finance is not regulated as consumer credit.
The High Court of Australia, in International Litigation Partners Pte Ltd v Chameleon Mining NL (receivers and managers appointed) (2012) 246 CLR 455, held that the funding agreement in that case was a ‘credit facility' as it provided for a period a form of ‘financial accommodation' of Chameleon Mining by International Litigation Partners, because the funder's entitlement to be repaid legal costs financed and recover a commission were deferred until settlement or judgment in the funded proceedings.
The Corporations Amendment Regulation 2012 (No 6) (Cth) reversed this decision and declared that litigation funding schemes and litigation funding arrangements are not ‘credit facilities'. Under the ASIC Credit (Litigation Funding-Exclusion) Instrument 2020/37, ASIC has exempted litigation funding arrangements and proof of debt funding arrangements from the provisions of the National Credit Code until 31 January 2026.
3 Other risk-sharing models available to litigants and law firms
3.1 Are conditional (contingent or success) fee agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?
Conditional fee (‘no win, no fee') agreements are permitted in Australia. They were the earliest means by which claimants could practically defray the substantial cost of bringing a class action. The solicitors:
- must carry the expense of their own hourly fees, counsel's fees and other disbursements for the duration of the litigation; and
- are entitled to recover these costs – plus an ‘uplift' of 25% of their fees in some jurisdictions – on a successful outcome.
Conditional fee agreements can provide better returns to claimants than litigation funding, as there are no funders' fees to pay.
The 25% uplift has been criticised as insufficient to compensate the lawyers for the risk of losing the case and the financial commitment they must make to bring it to conclusion. Only large firms have the financial capacity to take on such cases. In addition, the representative applicant faces liability for an adverse costs order if the respondent prevails and may need to provide security for costs – two risks that are typically covered by a funder.
Justice Murphy, speaking extra-judicially, has noted empirical research showing that when conditional fee agreements were the primary funding mechanism, before the widespread use of litigation funding, "the usage of the [class action] procedure began to decline" (Navigating through the principles and practicalities of GCOs, CFOs and NWNF, speech to the Commercial Law Association, 18 March 2022, p3).
Nevertheless, conditional fee agreements remain an important funding option for litigants today.
3.2 What is the maximum contingency that is permitted (ie, up to 100% of hourly fees or something less)? Is there a cap on the amount of success fees lawyers can receive under such arrangements?
The maximum uplift is 25% of the lawyers' ordinary hourly fees in those jurisdictions where an uplift is permitted (eg, see Section 182(2)(b) of the Legal Profession Uniform Law 2015 (NSW)).
3.3 Are damages-based agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?
Damages-based agreements (known as ‘group costs orders') have been permitted in the state of Victoria since 30 June 2020 (Section 33ZDA of the Supreme Court Act 1986 (Vic)).
The court can order that legal costs payable to the law firm representing the plaintiff and group members in a group proceeding be calculated as a percentage of the amount of any recovery achieved. The law firm must pay any adverse costs and provide security for costs. The court can change the percentage.
Group costs orders have been made in the following cases:
- 27.5% – Allen v G8 Education Limited  VSC 32;
- 40% – Bogan v The Estate of Peter John Smedley (Deceased)  VSC 201 (significantly, converting a funded shareholder class action – in which the funder was entitled to its costs plus a 45% fee – into a group costs order, with the funder and the lawyers sharing costs and the 40% contingency fee); and
- 24.5% – Nelson v Beach Energy  VSC 424.
Group costs orders are seen as benefiting claimants by:
- providing certainty as to the maximum costs that can be deducted from any ultimate recovery;
- potentially improving claimant returns over litigation funding, as all costs are included in the percentage; and
- avoiding the need for sufficient group members to sign funding agreements to satisfy a funder that the proceedings are viable to fund.
Given that few law firms have the resources to meet the costs and adverse cost risks inherent in class actions, litigation funding is likely to remain a key source of finance for these cases.
3.4 What other funding and/or risk-sharing options are available to litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?
Litigants have a range of options, including:
- commercial litigation funding;
- conditional fee agreements;
- group costs orders (Victoria);
- after-the-event (ATE) insurance, by which a litigant (or funder) can insure against the risk of paying an adverse costs order; and
- in a very limited number of cases, either:
- lawyers acting pro bono (often in human rights cases); or
- not-for-profit litigation funding provided by a trade union or charity, or via crowd funding. An example is the live cattle export ban class action, which was supported by a registered charity, the Australian Farmers Fighting Fund, for a 10% commission (Brett Cattle Company Pty Ltd v Minister of Agriculture (No 3)  FCA 1628).
Which form(s) of funding are available will depend on:
- the circumstances of each case; and
- crucially, the capacity and willingness of law firms and/or funders to provide support.
Conditional fee agreements and group costs orders are more likely to be used by large law firms with the capacity:
- to carry their own costs and meet substantial disbursements for four to five years; and
- with group costs orders, to assume substantial security for costs and adverse cost liabilities and risks (Justice Murphy, Navigating through the principles and practicalities of GCOs, CFOs and NWNF, speech to the Commercial Law Association, 18 March 2022, p11).
Commercial litigation finance – whether used on its own or as a supplement to conditional fees or group costs orders – has enhanced:
- the practical funding options available to litigants; and
- the number, size, volume and types of cases that law firms – both large and small – can undertake.
3.5 Are law firms in your jurisdiction allowed to have non-lawyer owners or non-lawyer shareholders?
Australian law firms can have non-lawyer owners and shareholders. A number of law firms have listed on the Australian Securities Exchange, including:
- two leading plaintiff law firms:
- Slater & Gordon Limited (ASX:SGH); and
- Shine Justice Limited (which owns Shine Lawyers) (ASX:SHJ);
- a family law firm, AF Legal Group Limited (ASX:AFL); and
- two IP specialists:
- IPH Limited (ASX:IPH); and
- Quantum Intellectual Property Limited (ASX:QIP).
3.6 How do the available funding and risk-sharing options impact on the attitudes of corporate litigants about affirmative recovery programmes or the pursuit of high-value commercial claims more generally?
Litigation funding offers significant benefits to corporate litigants which might otherwise be unable or disinclined to meet the costs of litigation. They can pursue valuable legal claims without using their own capital or incurring debt, freeing up financial resources for business investment and growth. Litigation finance can also ‘level the playing field' for the litigant where the opponent is larger or wealthier.
Funding is non-recourse and covers the risk of paying an adverse costs order, relieving companies of having to recognise a contingency in their accounts or expense the litigation costs through their profit and loss statements. The best lawyers can be retained to maximise the prospects of success; and the project management services provided by a funder can relieve management of distractions otherwise caused by litigation, without the company losing control over the conduct and resolution of the claim.
Funding can be:
- provided in the usual way, to meet the costs and liabilities of conducting the particular litigation; or
- advanced directly to the company to support its business while it meets the cost of the litigation itself.
In some cases, litigation finance may be available to meet the costs of defending claims.
Corporate litigants can thus benefit significantly from the use of litigation funding, which can enable them to pursue and monetise legal claims that might otherwise go to waste.
3.7 How do the range of funding and risk-sharing options available impact on the attitudes of law firms about their own business?
The development of litigation funding has allowed many law firms to undertake meritorious class action proceedings for their clients that otherwise would not have got off the ground. A typical class action costs millions of dollars to run (A$5 million-plus is not uncommon) over three to five years (or more). Representative applicants face the risk of liability for the respondent's equally substantial costs if the proceedings are lost. Without litigation funding, many meritorious class actions simply could not proceed – a reality that has long been recognised.
Litigation funding has:
- given law firms the ability to take on actions that they otherwise could not afford to conduct under conditional fee agreements or group cost orders;
- afforded vital cost protection to clients;
- increased the number of law firms that are prepared to bring class actions by reducing the risks that they would otherwise have faced when moving into a new area of practice;
- deepened the experience of those firms that have entered the arena; and
- afforded access to justice and hundreds of millions of dollars in compensation to millions of Australians.
4 Collective actions
4.1 Is it possible to bring collective actions in your jurisdiction? If so, can they be funded by third parties? In those circumstances, how is the amount of the funder's return determined? Are there caps or other restrictions? Do such agreements require court approval?
Australia's first class action regime commenced in the Federal Court in 1992 under Part IVA of the Federal Court of Australia Act 1976 (Cth). Class action procedures have subsequently been adopted in the New South Wales, Victoria, Queensland, Tasmania and South Australia Supreme Courts, and most recently in the Western Australia Supreme Court.
The Federal Court's requirements are typical. Under Section 33C of the Federal Court of Australia Act 1976 (Cth), a proceeding may be commenced by one or more persons representing some or all of the claimants where:
- seven or more persons have claims against the same person;
- the claims of all those persons are in respect of, or arise from, the same, similar or related circumstances; and
- the claims of all those persons give rise to a substantial common issue of fact or law.
Class actions are widely accepted as an efficient means of organising, prosecuting and justly resolving the common claims of large numbers of claimants. Over 500 class actions have been filed, with many resulting in substantial settlements (Ashurst, Class Actions in Australia – Quickguide (2019)).
An extensive body of class action jurisprudence has developed, which is beyond the scope of this Q&A to explore. Litigation funding has played a central role in the evolution of class action law and practice, which in turn has come to define many features of the modern litigation funding industry. As a result, issues raised by this question are addressed throughout this Q&A.
4.2 How significant is the funding of collective actions in your jurisdiction relative to the use of legal finance by individual commercial litigants?
According to a recent analysis of the Australian litigation funding market, class actions are believed to comprise just over half of the market, with the balance including insolvency proceedings and litigation by businesses and individuals (IBIS World, Litigation Funding in Australia (April 2021), p21).
Litigation funding has strongly underpinned the growth in class action proceedings in Australia. According to research by Professor Morabito of Monash University, between March 1992 and March 2013, only 15% of class actions filed in the Federal Court were funded. This increased to 64% of filings between March 2013 and March 2018, reaching a peak of 78% in the last 12 months of that period (Association of Litigation Funders of Australia, Submission to New Zealand Law Commission (11 March 2021), p 11).
While more recently levels have fallen – Allens Linklaters reported that only 44% of new class actions were funded in 2021 – growth is expected to resume as regulatory uncertainty diminishes (Allens Linklaters, Class Action Risk 2022, p2).
5 Securing financing
5.1 What factors will a funder generally consider when evaluating whether to fund a case?
In broad terms, a funder will consider the following factors when evaluating a potential investment:
- Prospects of success:
- the availability of evidence to establish each element of the alleged causes of action, causation and damages;
- whether the evidence is documentary or oral;
- any proportionate liability; and
- potential defences and evidence to establish them.
- Financial analysis:
- the legal budget through to judgment;
- the timing of expenditures;
- the total funding sought;
- the likely quantum of the claims and any cross-claims;
- the cost and timing of security for costs;
- potential adverse costs;
- the defendant's capacity to pay any award or settlement; and
- the likely time to resolve the dispute.
- Risk analysis:
- whether the claims, if funded, will cause the funder to breach any portfolio concentration limits;
- the defendant's legal team and attitude to settlement;
- the experience of the solicitors and counsel;
- the law firm's capacity to run the litigation;
- group member demand; and
- whether the representative applicant can be expected to make commercially rational decisions, give evidence and see the case to conclusion.
- whether the costs, including the funder's returns, are proportionate to the claim quantum such that value will be delivered to the litigants and any realistic settlement approved by the court (if applicable).
- Litigation risks:
- the jurisdiction;
- whether the litigation will raise any novel or undecided points of law;
- the risk or existence of competing class actions and funding models (eg, no win, no fee; group costs order); and
- witness risks.
Overall, the litigation funder will consider whether the litigation is commercially viable to fund, having regard to identified risks and returns.
5.2 What should a litigant or litigant's counsel look for in a legal finance partner?
A litigant or litigant's solicitors should consider the following when assessing a litigation funder:
- the expertise and experience of the funder's personnel, including whether they have any prior experience in the law and procedure for which funding is sought;
- the financial resources and strength of the funder, and whether it is likely to have the endurance and financial capacity to see the case through to the end, having regard to its other funding commitments;
- the reasonableness (or otherwise) of the terms offered or negotiated, including:
- the funder's percentage;
- the amount of funding to be provided (eg, is it capped? Are the lawyers required to carry some of their fees? How will any security for costs be given?);
- the extent of the funder's involvement in the litigation; and
- whether there are fair procedures for settling the litigation and resolving any disputes;
- the funder's track record of success, including any previous experience that the solicitors or counsel have had with the funder;
- whether the funder enjoys a good working relationship with ATE insurance providers, which may assist in securing such insurance for the case;
- the funder's compliance with all applicable regulations and clear procedures for managing any conflicts of interest;
- the funder's independence from any other party that is likely to be involved in the litigation, including the lawyers and any claimants or witnesses; and
- the solicitors' assessment of their ability to develop a strong, productive and collaborative relationship with the funder for the duration of the litigation.
5.3 What is the typical process for concluding the legal finance agreement?
A typical process for concluding a funding agreement is as follows:
- Non-disclosure agreement (NDA): An applicant for funding will be asked to sign a NDA with the funder to ensure confidentiality and the free flow of information between the funder, the applicant and the applicant's lawyers.
- Initial case assessment: The funder will review documents and other information provided under the NDA in an initial assessment to determine whether the case generally meets the funder's criteria and has merit.
- Detailed due diligence: If the application proceeds, the funder will subject the case to a comprehensive due diligence to assess it against the extensive funding criteria referred to in question 5.1. The funder will utilise legal counsel to evaluate the claim's prospects of success and will carry out its own financial, investment and risk analysis. If the case appears promising, the funding agreement will be negotiated with the applicant's lawyers.
Due diligence typically takes some weeks to complete and the application may be rejected at this stage.
- Funding decision: The funder will likely have an investment committee that approves cases for funding. If, following the due diligence, the funder's team believes that the case warrants funding, it will be put to its investment committee for decision. Investment committees often comprise highly experienced litigators, former judges and investment professionals.
- Signing of the funding agreement: If approved, the funding agreement will be offered to the applicant for signing. The funder may enter into a separate agreement with the lawyers governing the terms on which their costs are to be budgeted, billed and paid.
5.4 What terms does the legal finance agreement typically include?
The typical terms in a funding agreement include the following:
- Extent of funding provided: Whether the funder will pay all, or a proportion of, the legal costs and disbursements, including any cap on funding and whether funding extends to investigation costs, adverse costs, and security for costs.
- Funder's returns: In the event of success, the funder's entitlement to recoup its expenditures and a fee calculated either as a percentage of the funded party's monetary recovery in the proceedings or a multiple of the funder's outlays, in each case to be paid from recoveries only.
- Funder's permitted involvement in the litigation: The funder may:
- provide day-to-day instructions to the lawyers;
- be kept informed of developments in the litigation;
- approve any change to the lawyers or claims being funded; and
- participate in settlement discussions (see also question 7.3).
- Primacy of the lawyers' duties to the litigant and conflict management: The lawyers' duties owed to the funded litigant expressly take priority over any duties they may owe the funder and any instructions given by the funder may be overridden by the funded litigant's instructions.
- Process for settlement: Any dispute between the funder and the funded litigant over whether the proceedings should be settled and, if so, on what terms will be referred to the most senior counsel acting for the claimants, whose decision on these issues is final.
- Termination: The funder may terminate the funding agreement on the giving of written notice and without cause, subject to the funder meeting all costs and adverse costs incurred to the date of termination; the litigant may terminate for breach of the agreement.
5.5 Do any caps apply to the funder's fees?
Funders operate in a competitive market. The funder's fees will be negotiated with the litigant's lawyers and set out in the funding agreement. They cannot exceed this amount and the funding agreement will typically provide that, in any event, they cannot exceed any recoveries in the litigation, reinforcing that funding is non-recourse.
In funded class actions that settle, the funder's return will be subject to court approval. The court may require the funder's commission to be reduced, or the funder may decide to reduce its fees, to achieve a settlement or secure approval of a settlement.
Alternatively, the funder may seek a common fund order (CFO) on a class action settlement. A CFO is an order of the court providing that all group members pay a percentage, set by the court, of the settlement to the funder, irrespective of whether they have signed a funding agreement.
Unlike group costs orders, CFOs cannot be made at an early stage in the proceedings (BMW Australia Ltd v Brewster (2019) 269 CLR 574). Uncertainty remains over whether CFOs may be made on settlement or judgment. Judicial opinion is divided. For example, Justice Lee made a CFO entitling the funder to 25% of the gross settlement in Asirifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 3)  FCA 1885. But in Davaria Pty Limited v 7-Eleven Stores Pty Ltd (No 13)  FCA 84 at  – , Justice O'Callaghan – relying in part on the reasoning of the majority of the High Court in BMW – held that the Federal Court lacks the power to make a CFO on settlement under either its statutory powers in the Federal Court of Australia Act 1976 (Cth) or its equitable jurisdiction.
There are no express statutory or regulatory restrictions or caps on funders' fees. On a settlement approval in Hall v Pitcher Partners  FCA 1524, Justice Beach said at : "It is in the interests of group members that funders be given a commercial return commensurate with their capital outlays and risks."
5.6 Can the funder terminate the legal finance agreement before the litigation has ended? If so, under what circumstances and what are the implications?
Typically, a funding agreement will entitle the funder to terminate the agreement at any time on the giving of written notice (14 days' notice is common). If invoked, the funder will not be required to pay any future costs, but will remain liable to meet any costs (including adverse costs) accrued to the date of termination. The funding agreement may provide that if the funded litigant goes on to recover damages or a settlement, the funder will be repaid its outlays from that recovery but will forgo its fee.
Any decision to terminate funding is a serious step by the funder, which may lose its entire investment and crystallise an adverse costs liability if the proceedings then fail. However, it is important that a funder be able to cease funding proceedings that it considers no longer enjoy strong prospects of success or for which the funding arrangements must be restructured (eg, on the consolidation of two sets of funded proceedings).
5.7 Under what circumstances (if any) must funding be approved by the court in advance?
There is no requirement for a court to approve a funding agreement in advance of litigation, other than in the case of liquidators, which are prohibited by Section 477(2B) of the Corporations Act 2001 (Cth) from entering into any agreement on the company's behalf that may last more than three months without first obtaining:
- the approval of the court or the committee of inspection; or
- an authorising resolution of the creditors.
Section 477(2B) has led to the development of extensive jurisprudence on the principles to be applied by a court in approving a liquidator's entry into a funding agreement (eg, see Robinson, In the matter of Reed Constructions Australia Pty Ltd (in liq)  FCA 594).
The Australian Law Reform Commission (ALRC) has recommended that Part IVA of the Federal Court of Australia Act 1976 (Cth) be amended so that:
- funding agreements for class actions in the Federal Court would be enforceable only if approved by the court; and
- the court would be given express statutory power to reject, vary or amend the terms of such agreements (ALRC, Integrity, Fairness and Efficiency – An Inquiry into Class Action Proceedings and Third-Party Litigation Funders – Final Report (December 2018), Report 134, Recommendation 14).
5.8 Have there been notable disputes arising from legal finance agreements, and if so, what can a litigant or counsel do to avoid such disputes?
There are few reported decisions of funding disputes. Two cases arising from a funder's post-termination entitlements (Chameleon Mining – see question 2.6) and obligations (Trafalgar West Investments Pty Ltd v LCM Litigation Management Pty Ltd  WASC 159) were resolved in favour of the funders; while a dispute between funder International Litigation Partners and a claim by a representative applicant to A$1.2 million in expenses remains unresolved (Arasor).
The most significant dispute arose from the settlement of the Banksia Securities class action. Two group members challenged the funder's and lawyers' claimed A$19 million in fees and commission. The Victorian Supreme Court appointed independent counsel as a ‘contradictor' to investigate. The court found that the lawyers and funder had engaged in egregious and fraudulent conduct and appalling breaches of duties owed to the court, and ruled as follows:
- Class counsel were struck off the roll of legal practitioners;
- Damages of A$11.7 million and indemnity costs were ordered to be paid to the claimants; and
- The matter was referred to Victoria's director of public prosecutions for criminal investigation (Bolitho v Banksia Securities Ltd (No 18) (Remitter)  VSC 666).
Banksia is an outlier in Australia's well-functioning litigation funding market. In delivering judgment, Justice Dixon said that the process had demonstrated the capacity of the civil justice system to self-regulate funded class actions.
All litigation funding arrangements must:
- unambiguously spell out the rights and obligations of the funder, claimants and lawyers;
- ensure that the lawyers and funder remain independent of each other; and
- ensure that the lawyers scrupulously observe their ethical and professional duties owed to their clients and the court.
5.9 Is the funder bound to fund any counterclaims arising from the funded litigation?
A funder is obliged to fund any counterclaims arising from the funded litigation only if this is specifically negotiated and agreed in the funding agreement.
6 Purchasing a litigation claim, judgment or award
6.1 Can the funder purchase legal claims?
Liquidators have statutory powers to sell causes of action belonging to the company or conferred on them by the Corporations Act 2001 (Cth). These include:
- the right to recover unpaid debts owed to the company;
- contractual rights to damages (where assignable); and
- claims relating to unfair preferences, insolvent trading and uncommercial transactions (Section 477(2)(c) and Section 100-5, Schedule 2 – Insolvency Practice Schedule (Corporations) of the Corporations Act 2001 (Cth)).
Litigation funders have taken advantage of these provisions to purchase such claims at a discount and fund their enforcement and recovery. Effectively, ‘portfolios' of claims may be purchased. Payment terms can be structured as:
- an upfront payment;
- a payment following completion of investigations into the claims; or
- a split payment including a percentage of any recovery.
Such funding has:
- resulted in an earlier distribution to creditors;
- improved the prospects of valuable claims being realised; and
- reduced risks for liquidators (S Diqer and J Ward, "Assigning Claims", Australian Restructuring Insolvency & Turnaround Association Journal (March 2020), pp22-23).
Outside of insolvency, litigation funders generally do not purchase legal claims, but take an equitable assignment of a share of the fruits of the action under the rule in Glegg v Bromley  3 KB 474, such that the claimant remains the owner and ultimate controller of the claim.
6.2 How does a funder purchase a claim out of an insolvency?
Claims purchased by funders out of a corporate insolvency can be assigned by deed of assignment, provided that certain statutory requirements are met.
For the assignment of claims conferred by the Corporations Act 2001 (Cth) on the liquidator, the liquidator must:
- give prior written notice to the creditors of the proposed assignment; and
- if the claims are subject to litigation, obtain the approval of the court (Sections 100-5(2), (3), Schedule 2 of the Corporations Act 2001 (Cth)).
In addition, if the terms of the assignment are to extend for more than three months (eg, if the price is partly payable on success), court or creditor approval is required under Section 477(2B) of the Corporations Act 2001 (Cth). If the claim relates to a debt due to the company, which is effectively being compromised by the assignment, similar approval under Section 477(2A) may also apply.
Written notice of the assignment, signed by the assignor, should also be given to the debtor or defendant to ensure that the assignment is effective at law and to avoid the need for the liquidator to be a party to the enforcement action (eg, Section 12 of the Conveyancing Act 1919 (NSW)).
6.3 Are final judgments and/or mere causes of action assignable in your jurisdiction and is there a regulatory framework governing this?
Final judgments that create enforceable debts are assignable. Litigation funders may agree to purchase judgment debts or fund their enforcement.
However, the common law restricts the assignment to unrelated third parties of ‘bare causes of action' in contract, tort or under statute, as such assignments may "savour of maintenance" (J W Carter, Contract Law in Australia (2018), [17-12], [25-29]) – a complicating remnant of the doctrines of maintenance and champerty. There are also restrictions on the assignment of certain statutory causes of action which are regarded as personal to the party accorded the claim (eg, a claim in respect of misleading and deceptive conduct – Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd  VSC 633).
Limitations on the assignability of claims outside of the statutory insolvency provisions, coupled with concerns about ‘trafficking in litigation' and the courts' proper role, have discouraged the development of markets for trading or securitising interests in legal claims. In Gladstone Ports Corporation Limited v Murphy Operator Pty Ltd  QCA 250, the Queensland Court of Appeal explained at :
The development of litigation in Australia has not yet reached the stage at which there is a general trade in tort claims, for example by offering for sale claims for damages for personal injuries or for defamation on an open market underwritten by the judiciary's preparedness to vindicate claims in the hands of plaintiffs whose only interest in the wrongdoing lies in the recoupment of an investment.
7 Role of the funder
7.1 Can the funder influence the litigant's choice of counsel?
A funder may influence the litigant's choice of counsel and will generally want to be satisfied that throughout the litigation, all counsel retained are:
- highly competent;
- experienced in the relevant law and procedure; and
- as far as possible, the best available.
The counsel team may initially be specified as a term of the funding arrangement, with the litigant and lawyers having to consult and seek agreement of the funder on any change to that team. For its part, the funder will be influenced by the recommendations of the litigant's solicitors, and counsel themselves, on the composition of, and any changes to, the counsel team.
7.2 Can the funder attend and/or participate in the court proceedings?
A funder may:
- attend court proceedings, as any other member of the public may do; and
- with leave of the court, participate in the proceedings (eg, to be heard in support of a settlement approval application).
7.3 Can the funder influence the acceptance or terms of a proposed settlement agreement?
The funding agreement will provide that the funder:
- is to be informed of all settlement discussions, offers and counteroffers;
- is to be permitted to participate in settlement discussions and mediations; and
- may trigger the procedure by which any disagreement between the funder and litigant over a proposed settlement is resolved by the binding decision of senior counsel.
In Court v Spotless Group Holdings Limited  FCA 1730 at , Justice Murphy considered it "inappropriate" for the funder to have had direct settlement negotiations with the defendant in the absence of the applicant's lawyers, even though the settlement ultimately reached was approved as being in the interests of the group members. The judge expressed the view that "such a practice is to be deprecated", as the funder's involvement in the negotiations affected a proceeding in which not all group members had entered into a funding agreement. The funder's actions raised the potential for a conflict of interest and may have been inconsistent with the lawyers' fiduciary obligations owed to the applicant and group members.
7.4 In what other ways can the funder participate in, and exert influence on, the litigation?
Generally, litigation funders endeavour to establish a close and productive working relationship with the claimant's lawyers and prefer to reach a consensus with the claimant's decision maker and the lawyers on all major decisions affecting the litigation and its resolution. The funder seeks to add value to the funded litigation to enhance its prospects of success, rather than just to ‘exert influence' over it.
8 Ethical considerations
8.1 In what circumstances (if any) is it necessary to disclose a legal finance agreement to the court or to the opposition? What specific information must be disclosed?
Litigation funding agreements must be disclosed to the court and opposing parties in class actions commenced in the Federal Court and the New South Wales, Victoria, Queensland and Tasmania Supreme Courts under practice notes issued by those courts.
A copy of the agreement is provided on a confidential basis to the judge presiding over the first case management hearing in the proceedings, with a redacted copy of the agreement to be filed and served on the defendant prior to that hearing. The redactions may conceal "any information which might reasonably be expected to confer a tactical advantage on another party to the proceeding", being:
- the litigation budget or the amount of funding available under the agreement (‘war chest' information); and
- any information which might reasonably be expected to indicate an assessment of the risks or merits of the litigation (Federal Court of Australia, Class Actions Practice Note (GPN-CA), [6.1], [6.4]).
8.2 Are communications between the parties to the legal finance agreement subject to privilege in your jurisdiction?
Privilege applies to:
- confidential communications between a client and a lawyer for the dominant purpose of the lawyer providing legal advice to the client (legal advice privilege); and
- confidential communications between the client and a third party, or between a lawyer acting for the client and a third party; and confidential documents prepared for the dominant purpose of the client being provided with legal services for actual or anticipated litigation (litigation privilege).
Either privilege may apply to communications and documents passing between a funder, a litigant and the litigant's lawyers. Documents recording efforts by the liquidators to obtain litigation funding for proceedings have been held to be prima facie privileged, subject to the court inspecting them. Privilege may attach to the extent the documents reveal, expressly or by implication, legal advice or views as to prospects, strategy, tactics and the like (Hastie Group Ltd (in liq) v Moore  NSWSC 1355).
In IOOF Holdings Ltd v Maurice Blackburn Pty Ltd  VSC 311, legal analysis provided by a law firm to a funder about a potential class action was held to be subject to legal advice privilege even though the usual indicia of a solicitor-client relationship were absent (including a retainer agreement). However, documents relating to the negotiation of the funding agreement and the mechanics of how the proceedings would be run were not privileged.
Whether a funding agreement attracts privilege depends on its contents, there being no general principle that such agreements are privileged (Marshall v Prescott  NSWCA 152).
8.3 Does the rule of attorney work product apply to documents generated for the purposes of securing legal finance in your jurisdiction?
The attorney work product rule, as defined in US law (Hickman v Taylor, 329 US 495 (1947)), does not exist as a ground of privilege under Australian law; although, as noted above, confidential documents (whether delivered or not) prepared for the dominant purpose of providing a client with professional legal services relating to an actual, pending or anticipated Australian or overseas proceeding in which the client is or may be, or was or might have been, a party are subject to litigation privilege (Section 119 of the Evidence Act 1995 (Cth)).
8.4 In what circumstances (if any) do rules about fee-splitting impact on the use and practice of legal finance?
There are no rules on fee splitting in Australia – that is, the sharing of fees between lawyers and third-party funders. This is illustrated by the Bogan proceedings referred to in question 3.3.
8.5 Do the doctrines of champerty and maintenance apply in your jurisdiction?
The doctrines of maintenance and champerty for centuries prohibited third parties from financing litigation in which they had no ‘legitimate interest'. The doctrines originated in medieval England but are now practically obsolete in Australia as a basis for staying a commercially funded proceeding or setting aside an otherwise valid funding agreement.
The doctrines have been diminishing in importance for years. In 1967, the United Kingdom abolished the torts and crimes of maintenance and champerty – a reform followed by the majority of Australia's jurisdictions. A major boost to funding was given by the High Court's 2006 Fostif decision, in which a majority held that the funding of a representative proceeding in New South Wales by a third party does not, in itself, amount to an abuse of process or justify a stay of the proceedings; and neither are the funding arrangements contrary to public policy.
In Gladstone Ports (see question 6.3), the Queensland Court of Appeal declined to hold funding agreements entered into to finance a class action in Queensland – a state that, unlike New South Wales, has not abolished the torts of maintenance and champerty – unenforceable as "contrary to public policy" because the agreements allegedly conferred too much power on the funder to control the proceedings. The court said that the current policy of the law recognises the public benefit of class actions, which depend for their efficacy on admittedly ‘champertous' funding arrangements but which experience has shown operate "without any of the appellant's predicted ills having been experienced" ().
8.6 Are there any types of proceedings (family, private prosecutions) for which funding is not permitted?
There are no types of proceedings in Australia for which funding is not permitted.
9.1 What is the typical timeframe for first-instance proceedings in your jurisdiction?
The timeframe to resolve first-instance proceedings obviously depends on many factors and can vary considerably. Few statistics are available on this aspect of court performance.
However, the Federal Court – which has a broad jurisdiction and handles large numbers of corporations, immigration, insolvency, taxation and IP cases, among others – reported that during 2020-21, 82.3% of cases were completed in less than 18 months, with 90.38% of matters being determined in that time over the previous five years. The court also indicated that judgment was delivered within three months of matters being reserved in 73.5% of appeals and 84.3% of first-instance proceedings (Federal Court of Australia, Annual Report 2020-21, Australia Government Transparency Portal).
Class actions typically take three to five years to reach trial at first instance.
9.2 What are the opportunities in the litigation process for a case to be struck out prior to a trial?
There are a number of procedures by which a case can be struck out or stayed prior to trial, the most important being:
- the rules providing for striking-out pleadings; and
- the summary judgment procedure.
Failure to provide security for costs will also result in a stay, and potentially the dismissal, of the proceedings.
A pleaded claim or defence may be struck out on certain grounds, including where it:
- fails to disclose a reasonable cause of action or defence;
- is likely to cause prejudice, embarrassment or delay in the proceedings; or
- is otherwise an abuse of the court's process.
If the statement of claim is wholly struck out with no leave to replead, the proceedings are liable to be dismissed with costs. If the defence is struck out, the plaintiff will be entitled to default judgment (Zuckerman on Australian Civil Procedure (2018), [7.77]).
A party may apply for summary judgment against its opponent. The rules differ between jurisdictions. Under Rule 26.01 of the Federal Court Rules 2011 (Cth), the Federal Court may enter summary judgment if satisfied, among other grounds, that either:
- the applicant has no reasonable prospect of successfully prosecuting the proceedings; or
- the respondent has no reasonable prospect of successfully defending them.
Special rules apply to the discontinuance or declassing of class actions prior to trial, with court approval being required (see Francis (Trustee) v Oculus Accounting Pty Ltd (No 2)  FCA 1275).
9.3 How much party discovery of evidence is permitted in your jurisdiction? Are there procedures for seeking or compelling evidence from non-parties?
Extensive pre-trial documentary discovery is permitted in Australian litigation. In some cases, preliminary discovery may be allowed prior to initiating proceedings, to ascertain the proper defendant or determine whether there is a cause of action.
Discovery, where ordered, requires a party to produce all documents in its possession, custody or power that are relevant to a fact in issue in the proceedings, other than documents that are subject to a claim for privilege. In general, the court will limit discovery to defined categories of documents. Once produced, the documents are available for inspection and copying by the other party. Where the discovery is extensive, computerised document management systems are used.
Parties to proceedings may also use subpoenas and third-party discovery orders to compel the production of documents from third parties. Discovery is one of the most expensive and time-consuming phases of litigation, especially in commercial litigation and class actions.
Parties rely heavily on documentary discovery in part because pre-trial ‘oral discovery' – known as ‘depositions' in US litigation – has been absent from Australian civil procedure. That may be changing.
In Davaria Pty Ltd v 7-Eleven Stores Pty Ltd (No 8)  FCA 295, the Federal Court held that provisions in the Federal Court of Australia Act 1976 (Cth) were sufficiently broad as to permit orders for pre-trial oral discovery. The court dismissed the particular application on grounds including that ordering oral discovery at that stage in the proceedings would disrupt preparation for trial, but the door to depositions has been opened.
9.4 Are interlocutory appeals (appeals of non-final judgments) permitted during proceedings in the first instance?
Interlocutory appeals are allowed, generally with the leave of the court (eg, see Section 24(1A) of the Federal Court of Australia Act 1976 (Cth)).
9.5 Are first-instance decisions commonly appealed in your jurisdiction? What is the typical timeframe for appeal proceedings?
Statistics on court performance published by the Productivity Commission suggest that, on average, less than 10% of matters finalised at first instance are appealed (Productivity Commission, Report on Government Services 2022, 7A Courts Data Tables, Table 7A.6).
However, the figure is generally much higher in relation to judgments in cases supported by a litigation funder. This is due to:
- the substantial sums commonly at stake;
- the importance of the case to the parties; and
- the availability of funding to support appeals by a claimant in the event of a first-instance loss (funding agreements will commonly include appeal funding with an adjustment to the funder's return reflective of the increased risks).
As a successful appeal may reverse an adverse outcome at a relatively modest cost (compared to the first-instance proceedings), it often makes economic sense for the unsuccessful party to appeal.
In Australia, there are two levels of appeal:
- from the trial court to an intermediate court of appeal (a state court of appeal or the Full Court of the Federal Court); and
- a further appeal to the High Court of Australia.
Appeals of final judgments at first instance are permitted as of right; but appeals to the High Court are restricted to those appellants (typically no more than 10% to 15% of applicants) that are granted special leave to appeal by the High Court.
9.6 How are decisions typically enforced in your jurisdiction? What is the typical timeframe for enforcement proceedings?
A judgment creditor may use one or more methods for enforcing a money judgment, including:
- a writ for the seizure and sale of assets;
- an instalment order for payment of the judgment by instalments;
- a garnishee order applying to the judgment debtor's salary, wages or bank deposits;
- a charging order creating an equitable charge in favour of the judgment creditor over property beneficially held by the judgment debtor;
- a stop order and stop notice in relation to funds paid into court by the judgment debtor; and
- the appointment of a receiver.
There is no typical timeframe for enforcement proceedings.
9.7 Is there an automatic stay on enforcement pending appeal or under what circumstances is one granted? Are appeals from first instance granted as of right?
An appeal does not automatically act as a stay of execution or a stay of the proceedings under the judgment subject to the appeal or invalidate any proceedings already taken, although an appellant or interested person may apply to the court for an order staying execution of the proceedings until the appeal is heard and determined (Rule 36.08 of the Federal Court Rules 2011 (Cth)).
The general principle is that a party is entitled to enforce a judgment as soon as it is given. However, the court's discretion to grant a stay is wide and the applicant for a stay needs to demonstrate a reason or an appropriate case to warrant a favourable exercise of the discretion – for example, the applicant may show that there would be no reasonable probability of recovering money it paid out under a judgment if its appeal succeeds (Henderson v Amadio Pty Ltd (No 3) (1996) 65 FCR 66, 69).
10 Costs and insurance
10.1 Will the court order the losing party to pay the costs of the winning party? How else might costs be allocated between the parties and under what conditions?
Australia applies the ‘loser pays' rule, in that generally the successful party to litigation is entitled to recover its litigation costs from the unsuccessful party. The successful party:
- is only entitled to an indemnity;
- cannot recover more than it paid or was required to pay its lawyers; and
- may recover costs that were reasonably incurred and that are reasonable in amount.
Usually, only a proportion of costs actually incurred are payable; although if the unsuccessful party or its lawyers engaged in misconduct or acted unreasonably during the proceedings, the court may order that costs be paid on a more generous ‘indemnity' basis.
Costs are at the discretion of the court, which may also have regard to whether the costs are proportionate to:
- the amounts at stake in the litigation; and
- the extent to which the successful party facilitated the just resolution of the dispute according to law and as quickly, inexpensively and efficiently as possible (known as the ‘overarching purpose' – for example, see Section 37M(1) of the Federal Court of Australia Act 1976 (Cth)).
The court may depart from the usual costs rule in certain circumstances – for example, if the successful party nevertheless:
- lost a significant issue;
- abandoned part of its case; or
- engaged in ‘disentitling conduct', such as causing the other party to incur unnecessary cost or delay (Zuckerman on Australian Civil Procedure (2018), [28.5]-[28.7], [28.75]-[28.76]).
10.2 Are some or all of the costs of funding recoverable by the winning party?
The Australian courts have not ruled on the question of whether litigation funding costs (essentially, the litigation funder's fee) are recoverable by the successful party.
10.3 Can the court order costs against the litigation funder?
The court may order costs directly against a litigation funder as a non-party (Knight v FP Special Assets (1992) 174 CLR 178). The principle in Knight has been codified in certain jurisdictions (eg, Section 98(2) of the Civil Procedure Act 2005 (NSW)) and applied to funders.
In Jin Lian Group Pty Ltd (in liq) v ACapital Finance Pty Ltd (No 2)  NSWSC 1202, a litigation funder provided security for costs (via an after-the-event (ATE) insurance policy) and limited funding for the liquidators' costs, but did not fund the matter generally. Nevertheless, the court ordered that it be:
- jointly and severally liable for the first defendant's costs from the date on which the first tranche of security was paid; and
- liable for costs on an indemnity basis from a second date on which the liquidators had rejected, with the funder's agreement, an offer of compromise made by the defendant.
Justice Stevenson listed factors relevant to the exercise of the court's discretion and noted that the security "proved to be the decisive factor" in the proceedings going to trial, where they were lost. He observed at -:
The Funder agreed to involve itself in these proceedings purely for financial gain. Its Litigation Funding Deed is a sophisticated and extensive document … Litigation funders should be aware that if they involve themselves in pending court proceedings where their intervention is the factor that causes those proceedings to continue and go to trial, they risk an adverse costs order. Here the Funder took a gamble.
10.4 Can the court order security for costs? If so, in what circumstances will it generally do so and how is this calculated and provided?
A superior court may make an order for security for costs pursuant to its inherent jurisdiction or under statute. The order provides that unless the plaintiff provides security in an acceptable form for the defendant's costs of defending the proceedings, the proceedings will be stayed and may, if the order is unsatisfied, be dismissed.
Orders for security are discretionary. Factors favouring the granting security include:
- whether the plaintiff is ordinarily resident outside the jurisdiction;
- whether the claims are brought by an impecunious corporation; and
- whether the plaintiff is suing for the benefit of another person (which may include a litigation funder).
On the other hand, the possibility that a valid claim could be stopped in its tracks because an impecunious plaintiff is unable to provide security may count against the making of an order.
Security, where ordered, is generally provided in tranches and calculated to reflect the defendant's reasonable estimated costs of defending various stages of the proceedings. Evidence may be given by a costs consultant.
Security is commonly provided by way of:
- payment of money into court;
- a bank guarantee;
- a charge; or
- a deed of indemnity issued by an ATE insurer (Zuckerman on Australian Civil Procedure (2018), [10.139]-[10.171]).
10.5 Is security for costs commonly ordered in funded litigation?
Security for costs orders are commonly made in funded litigation. The existence of a funding agreement is a factor that weighs in favour of an order being made. The rationale was explained in Green v CGU Insurance  NSWCA 148 by Hodgson JA at :
… in my opinion, a court should be readier to order security for costs where the non-party who stands to benefit from the proceedings is not a person interested in having rights vindicated, as would be a shareholder or creditor of a plaintiff corporation, but rather is a person whose interest is solely to make a commercial profit from funding the litigation.
10.6 Is after-the-event (ATE) insurance allowed in your jurisdiction? If so, how mature is the market?
ATE insurance is permitted in all jurisdictions in Australia. It is commonly used in funded litigation and is reasonably well understood by funders, litigation lawyers and the courts. The market is mature.
10.7 In what circumstances is ATE insurance typically used? What are the advantages and disadvantages?
ATE insurance is used to underwrite a plaintiff's liability to pay an adverse costs order if the proceedings are unsuccessful.
The insurer may also be prepared to provide security for the defendant's costs, either:
- by assigning the policy to the defendant; or
- more commonly, by issuing deeds of indemnity under which the insurer waives its rights to terminate the policy and undertakes to pay the defendant on the loss of the case.
Against these substantial benefits, there are disadvantages to the use of ATE insurance, including the following:
- Cost: Premiums are typically 20% to 40% of the limit of indemnity, although payment of the premium can be partly or fully deferred and made contingent on success in the litigation.
- Limited cover: The litigant may be unable to secure cover for the entirety of the expected liability due to underwriting limits imposed by the insurers.
- Uncertainty over use for security: Judicial authority is divided over the acceptability of using deeds of indemnity to provide security for costs.
- Enforcement: Many of the insurers are offshore, sometimes requiring additional security to cover the defendant's enforcement costs.
ATE premiums are often funded. In some cases, the funder may buy the ATE insurance policy itself to lay off some or all of its obligations to meet adverse costs and provide security for costs under the funding agreement. In court-approved settlements, funders might not be reimbursed ATE costs they have paid if they are also claiming a percentage (Asrifi-Otchere v Swann Insurance (Aust) Pty Ltd (No 3)  FCA 1885). The funder's right to recover ATE premiums may depend on the terms of the funding agreement itself (Petersen Superannuation Fund Pty Ltd v Bank of Queensland Limited (No 3)  FCA 1842, ).
10.8 What other types of insurance are available for litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages?
The other types of insurance commonly used by litigants in Australia largely underwrite the costs, risks and liabilities involved in defending claims. These include:
- directors' and officers' liability (D&O) policies;
- public and product liability insurance policies;
- professional indemnity insurance policies; and
- investment management insurance policies.
D&O policies – which insure directors and company officers against claims arising from the conduct of their duties and may also include ‘Side C' cover, which insures the company itself against liability for breaches of the securities laws – have received the greatest attention in recent years. Insurers and brokers have claimed that the increasing level of securities class action activity in Australia has been a major factor in the recent ‘crisis' said to have enveloped the D&O market:
- Insurers have withdrawn from the market or tightened limits on cover;
- Premiums have spiralled by as much as 400% to 500% for the largest listed companies; and
- "Punitive retentions" and exclusions have been imposed ("COVID worsens D&O crisis: Marsh", Insurance News (16 June 2020)).
While clearly many factors have been at play in the tightening market for D&O cover recently experienced in Australia, there are signs that the market may be stabilising, with fresh capacity entering the market and insurer appetite returning (Gallagher, Global State of the Market – Report for Directors' and Officers' (D&O) (January 2022), p10 (Australia)).
11 Trends and predictions
11.1 How would you describe the current legal finance landscape and prevailing trends in your jurisdiction?
The prevailing trends in the market include the following:
- The resumption of growth in class action filings: Growth in filings of new class actions is expected to resume from recent low levels, driven in part by new claim types, including:
- mass data and privacy breaches;
- environmental, social and governance and climate-related litigation;
- actions against technology companies; and
- cryptocurrency claims.
- Increased competition: Competition will increase among providers of finance for litigation, including more cases being brought with group costs orders in the Supreme Court of Victoria, coupled with the possible adoption of contingency fee regimes in jurisdictions outside of Victoria.
- Expanding opportunities for litigation funders: Opportunities for funders will improve as litigation activity increases and group costs orders prove not to be suitable for all cases or law firms, but with the potential for co-funding arrangements with those firms that use contingent fees. A forecast weakening economy may also increase funders' opportunities in relation to insolvency, financial services and shareholder claims.
- Improved regulatory regime: A fit for purpose regulatory regime for litigation funding is likely to be put in place following the repeal of the ill-suited Corporations Amendment (Litigation Funding) Regulations 2020 and government consideration of the Australian Law Reform Commission's (ALRC) detailed recommendations. The regime is likely to combine appropriate financial services regulation (perhaps including a bespoke financial services licence for funders) with increased court oversight, bringing hoped-for regulatory certainty and stability to the sector.
11.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
In the next 12 months, the federal government is expected to respond in detail to the ALRC's 2018 recommendations to reform class action proceedings and third-party funding.
The recommendations and the government's response are likely to form the basis for a comprehensive regulatory regime for litigation funders and supplement to existing professional and judicial standards controlling lawyers' involvement in, and case management of, class actions.
Key recommendations include that:
- the Federal Court be given express statutory power to make common fund orders on the plaintiff's application or the court's motion;
- a statutory presumption be introduced that funders of class actions will provide security for costs in those proceedings in a form enforceable in Australia;
- the Federal Court be given express power to award costs against any funder or insurer that fails to comply with the court's "overarching purpose" (see question 10.1);
- funding agreements for class actions be enforceable only with the court's approval and the court be given express statutory power to reject, amend or vary the terms of such agreements; and
- funding agreements indemnify representative applicants against adverse costs and be subject to Australian law and jurisdiction.
Much interest will be focused on the government's response to the ALRC's recommendation that solicitors who act for representative applicants in class actions in the Federal Court be permitted to enter into "percentage-based fee agreements", subject to certain safeguards. The attorney-general has expressed his "scepticism" of contingency fees.
12 Tips and traps
12.1 What would be your recommendations for the smooth progress of funded litigation in your jurisdiction and what potential pitfalls would you highlight?
The selection of the funder is perhaps the most important factor in ensuring the smooth progress of funded litigation.
Litigants and their lawyers should choose a reputable funder with the necessary experience, track record, expertise and resources to ride out the highs and lows inherent in any complex litigation. The funder should:
- be able to work productively and flexibly with the litigant and the litigant's lawyers; and
- generally, act professionally in assessing, managing and financing the litigation.
The funding agreement's terms should be clear, unambiguous and reasonable. The funder, lawyers and litigant should be strictly independent of each other. The funder:
- should be ethical and comply with applicable regulations; and
- should have a good relationship with leading ATE insurers if ATE insurance is to be sought as part of the funding arrangements.
The objective of all litigation is to maximise the value of the litigant's claims net of costs – a goal on which the interests of the funder and the litigant are fully aligned. A good funding relationship will enhance the ultimate value of the claim. As one prominent plaintiff's lawyer explained: "The best funders are highly skilled negotiators and litigation strategists. This is where the real value is in the funding relationship."
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.