ARTICLE ONE - LITIGATION FUNDING & CLASS ACTIONS – AN AUSTRALIAN PERSPECTIVE
The emergence of funding
Since Fostif a number of funded class actions have been successfully concluded
B
eginning in 1992, modern ‘representative’ or ‘class actions’ regimes established by legislation in the federal, and subsequently in several state jurisdictions, made conducting class actions much more feasible. Litigation funding was predominately used by litigants in insolvency matters, but remained largely untapped in respect of class actions. This began changing with the funding of the Aristocrat shareholder action in 2003 (Dorajay Pty Ltd v Aristocrat Leisure Limited (2005) FCA 1483) and gathered pace after the High Court’s decision in 2006 in Fostif. The defendants in Fostif had sought to invoke the historical prohibition on maintenance and champerty in an attempt to stay litigation funded by a third party. They argued that third party litigation funding was ‘contrary to public policy’ and that it amounted to ‘an abuse of process’.
The importance of litigation funding in Australia
C
ertain aspects of the Australian legal system make litigation funding particularly important to the conduct of class actions.
The majority noted that where the crime and tort of maintenance had been abolished third party funding arrangements could no longer be assumed to be contrary to public policy or an abuse of process. Instead they should be considered with reference to the content of specific agreements, and dealt with under the Court’s existing powers on a case by case basis.
First, unlike in the US, ‘costs follow the event’ in Australia. It is widely thought that this ‘adverse costs’ system operates to discourage unmeritorious claims and defences. Although costs are within the discretion of the Court, established authority, and in some cases specific court rules, mean that costs are generally awarded in favour of the successful party.
Since Fostif a number of funded class actions have been successfully concluded. Although it was not the panacea for all third party litigation funding issues that would follow, Fostif clearly marked a tipping point, giving funders renewed confidence to support meritorious claims through Australian courts. Litigation funders have since become an important part of the Australian legal system.
Secondly, US-style contingency fees are prohibited in Australia. Although law firms are permitted to act on a no-win no-fee (or conditional) basis, and in some circumstances may charge an uplift of up to 25% of their professional fees, they are prohibited from calculating their fees as a percentage of
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