In 'the view from abroad' section, we take a closer look at Australia - one of the world's strongest and most progressive third party litigation funding markets
When it comes to third party funding, as a jurisdiction, Australia is at the forefront. The passing by New South Wales of the Maintenance, Champerty and Barratry Abolition Act in 1993 enabled Australia's first foray into dispute resolution funding. Prior to that, because of the English common law doctrines of maintenance (where a person supports litigation in which that individual has no legitimate concern) and champerty (where one party financially maintains another in litigation and then takes a share of the damages), it had historically been illegal.
The progressive approach to dispute resolution funding adopted in Australia has resulted in a now well-established funding regime which, since 1993, has gone from strength to strength.
However, as with any new or novel concept, reaching the mainstream status that funding has in Australia today was not without its hurdles. It was eight years after the Maintenance Champerty and Barratry Abolition Act before the country's largest funder - Bentham - was given the green light to bring the third party model to bear on a class action claim. Three years later, in a landmark move, Bentham was listed on the Australia Securities Exchange, further solidifying its position in the market - and third-party funding generally - by moving into funding large insolvency and class action suits.
What really propelled third party funding in Australia into the mainstream was the 2006 High Court ruling of Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd. In that case, the court decided that third parties could indemnify litigants in exchange for a percentage of damages recovered, paving the way for the third party funding regime as it exists today.
Major force
So, with the open road created by the Fostif decision, how has the funding model evolved in Australia? The consensus view is that it has become a major force on Australia's litigation scene. Initially applied in insolvency cases, the funding model is now used widely across almost all areas of litigation, but most widely in class actions.
This is emphasised by the Federal Government Productivity Commission's recently published final report about access to justice, which addressed the issue of litigation funding head on. One of the report's three core recommendations goes straight to the heart of the third party funding market in Australia. It calls for the introduction of a regulatory system for funders to:
- ensure funding agreements are fair;
- prevent funders from exercising too much control over proceedings;
- avoid conflicts of interest between funders, lawyers and claimants; and
- ensure funders have sufficient capital.
More specific details of the proposed regulation have not been published and, by its silence, the Commission has chosen not to recommend a particular regulator to oversee the regime. However, analysts including lawyer Moira Saville at King & Wood Mallesons in Sydney, have written that there is likely to be a three-tiered approach to third party funding regulation using the courts, the Financial Ombudsman Scheme and, where necessary, amendments to existing legislation.
More broadly, commentators suggest that there are two primary reasons for the success of third party funding in Australia:
- Conditional fee agreements are banned meaning that other means of funding the increasing costs of litigation must be found; and
- The before- and after-the-event insurance sector is relatively weak, meaning that thirdparty funding fills the gap, providing a less risky method for litigants to cushion the blow of losing an action.
However, more than that, it is widely acknowledged that law firms and their clients have seen the real benefits that third party funding of disputes can bring.
"The market has increased in recent years," comments Neil Cussen, a partner in the financial advisory department of the Sydney office of Deloitte, who has two decades' experience of the model as applied specifically to the insolvency field.
"There are now numerous funding suppliers," explains Cussen, "that are tied to various legal practitioners and firms providing services in the small to medium-sized enterprise, middlemarket and top end of town sectors."
More relaxed
Gavan Griffith QC, who was Australia's Solicitor-General for 14 years until 1997, and now practises mostly as a presiding arbitrator out of London in commercial and investment disputes, comments that some jurisdictions, including Australia, are more relaxed than England with respect to the rise of litigation funding.
Griffith says: "For example, Australia has long abolished champerty and is comfortable with litigation funding to carry commercial and tortious class actions and also for single claimants. There funders are accepted as an every day part of legal disputes, and the conventional procedures for security for costs may be invoked by defendants whether or not a funder is involved. In Australia there is no inhibition to funding arbitration claims, but also no reported experience of security for costs orders being applied for where funders are involved."
For their part, Australian claimants broadly appear to have embraced the funding model. In so doing, they seem to have recognised the benefits that funding brings. These include access to justice in circumstances where, if funding wasn't available, impecunious claimants would not have been able to bring their claims at all and a recognition of the commercial benefits of funding for wellfunded claimants, including freeing up capital that would otherwise have been used to fund the litigation and taking the costs of the litigation off balance sheet.
Originally published in Funding In Focus, May 2015
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