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Harbour View Quarter 3 2015

Featuring news from the Team at Harbour Litigation Funding. Visit our Website for more in depth details

Contents Page 2-11 —

Litigation funding and class actions – an Australian perspective

Jason Geisker and Samuel Taylor of Maurice Blackburn give an overview

and their insights into class actions in Australia

Page 13-19 — Problems with defending litigation funding matters Reay McGuinness of Webb Henderson provides a defendant’s

perspective on class actions in Australia

Page 20-23 — Capitalising on the emerging market for funding in Asia Ruth Stackpool-Moore, Harbour’s Director of Litigation Funding, gives an overview of the development of litigation funding in Hong Kong and Singapore Page 24-25 —

Harbour News

We provide a round-up of updates around the globe including the

opening of our office in Hong Kong and the appointment of Ruth Stackpool-Moore as its Director of Litigation Funding



ith the opening of our new Hong Kong office as the hub of our Asia Pacific business, this issue of Harbour View offers a timely view of litigation funding in the region.

Ruth Stackpool-Moore moves the spotlight to Asia with an overview of the Hong Kong and Singapore jurisdictions and how they are both approaching litigation funding. As the Harbour News section explains, Ruth has an exceptional on-the-ground perspective as Harbour’s Director of Litigation Funding operating from our new Hong Kong office.

Given the sophistication of the Australian legal market and that the Harbour Funds have now approved investments in 12 cases in Australia, we are delighted to recognise all that is happening there with two articles contributed by Australian lawyers. The first article, by Jason Geisker and Samuel Taylor from class action law firm Maurice Blackburn, provides a useful introduction and overview of the vital role of litigation funding in enabling class actions to be brought. The second article is from Reay McGuinness, of Webb Henderson, who advises the Harbour Funds. His article provides a defendant lawyer’s perspective on those issues on which there should be focus before litigation funding is used.

Please visit our website for more news and updates as well as previous issues of Harbour



Litigation funding and class actions – an Australian perspective By Jason Geisker and Samuel Taylor


resources to meritorious claimants, litigation funding is often the only means by which such claims can be vindicated.

n the 12 months to 30 June 2015 Australian class action settlements totalled almost AUD$1 billion. Although Australia has a relatively efficient class action and litigation funding environment, it has not seen the ‘explosion’ of class actions that some predicted. We look at litigation funding in Australia and consider what recent key developments augur for the future.

This is not to suggest the Australian system is problem free. Despite various refinements to the Australian class action and litigation funding regimes, several notable challenges remain. Issues such as formulating efficient funding structures and divisions between courts, regulators and the executive as to the level of regulation and supervision required of funders are yet to be settled. Funders themselves are also still grappling with how best to deal appropriately but fairly with ‘free rider’, unfunded group members in funded class actions. A workable and commercially viable common fund option is not yet settled in Australia.

For the last decade third party litigation funding has been an established part of the Australian legal landscape. Since the High Court’s judicial blessing of litigation funding in the landmark decision of Campbells Cash and Carry v Fostif (2006) 229 CLR 386, the Australian litigation funding market has flourished, gaining mainstream acceptance. Litigation funding has worked particularly well with the policy objectives

So how do developments in litigation funding in Australia assist to predict its future path? We consider some key developments and what they augur for the future.

underlying the Australian class actions regime. By enabling under-resourced applicants to bring more meritorious claims litigation funders have seemingly levelled the playing field in Australia. But the good news does not end there.


facilitating more private civil actions, litigation funding complements other public regulatory enforcement actions, enhancing the overall enforcement and compliance matrix. Privately funded actions have proved to be a powerful mechanism for achieving better governance standards





Australia. Arguably, litigation funding’s most important contribution is in its market-based solution to the problem of promoting better access to justice. In providing capital and


Litigation funding is often the only means by which claims can be vindicated



The emergence of funding

Since Fostif a number of funded class actions have been successfully concluded


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


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


damages. Consequently, only a small number of Australian plaintiff law firms have been prepared to undertake the significant financial burdens associated with conducting large-scale class actions. Even when they do, the economics of the system limit the amount of matters that can be conducted by any one law firm.

are only made against individuals in limited circumstances, particularly if the order would effectively prevent an impecunious plaintiff pursuing litigation. However, where a wellresourced third party (who stands to benefit from the litigation) funds an applicant, the Court will generally favour ordering security for costs.

While the ban on damages-based fees remains in force for the time being, there have been indications that change is on the horizon. A recent Productivity Commission report found that damages-based billing was unlikely to present insurmountable conflicts of interest or to promote unmeritorious claims. Instead the Commission found that the introduction of damages-based billing would have significant advantages in increasing access to justice and ensuring fees are proportional to the litigant’s own interest in pursuing litigation. If the prohibition is lifted, this could provide a wider range of funding structures for prospective litigants.

In response to these factors third party litigation funders have recognised the opportunities available and entered the Australian market. Most litigation funders now offer funding and associated services to claimants including: a) indemnities against adverse costs orders; b) provision of funds for any security for costs ordered by the Court; c) payment of legal costs and disbursements. Consequently, there are signs that Australia is developing a more competitive market for the provision of litigation funding. Litigation funders are perceived as playing an important role in providing access to justice - particularly where

Thirdly, specific rules operate in the context

the cost, relative to the amount being claimed, is

of class actions, which confine adverse costs

too great to be borne by law firms or individual

exposure to the representative or lead applicant

claimants. The provision of commercial funding

in the initial determination of common questions

imposes another check on which matters are

of fact or law. These costs can be significant,

brought before Australian Courts, with funders

particularly for large scale, complex litigation.

likely to invest only in meritorious claims.

They are usually vastly in excess of the individual

Funders will avoid dubious or weak claims due

amount claimed by the lead applicant, meaning

to the risk of adverse costs. The prevalence

that often it is economically irrational for a lead

of litigation funding has also assisted more

applicant to expose themselves to such adverse

defendants to obtain security for adverse costs

costs risks for the benefit of all group members.

that might not otherwise have been ordered

Finally, as a result of the loser pays costs system,

by the Court or recovered from an unfunded

defendants often seek orders for security for

applicant. In practice, most litigation funding

costs at the outset of proceedings, particularly

arrangements involve the provision of an adverse

in high-cost litigation such as class actions.

costs indemnity to the lead applicant. Litigation

Corporate plaintiffs are also subject to statutory

funders generally also accept responsibility for

provisions that make obtaining security for costs more feasible.

payment of the lead applicant’s own legal costs

Orders for security for costs

(or a portion of them) irrespective of whether the



The importance of litigation funding in Australia cont...

The ‘free rider’ conundrum


ne structural issue that continues to vex litigation funders is the potential for some participants in a class action, described in Dawson Nominees Pty Ltd. v. Multiplex Funds Management Ltd. (2007) 242 ALR 111 as ‘free riders’, to participate without assuming any obligation to contribute towards funding costs.

litigation is successful, while the lead applicant is not required to reimburse the funder for costs and disbursements in the event of an unsuccessful outcome.

The Australian representative action regime was introduced as an ‘opt out’ or ‘open class’ system, whereby group members who fall within the class definition are to be included in the class of claimants irrespective of whether they give their consent. However, the open class approach can give rise to tensions where not all group members in an open class action are obligated under funding contracts to contribute to the costs of funding the proceedings. Those group members who receive the benefit of the class action but do not assume any obligations have been referred to as ‘free riders’. Early attempts to resolve the free rider problem have involved the use of ‘closed class’ definitions, whereby entering into a funding agreement is a requirement for participation in a funded class action.

There are signs that Australia is developing a more competitive market for the provision of litigation funding

Initially in Aristocrat, the Court rejected a group definition that required participants to enter into a tripartite retainer and funding agreement with the lawyers and the litigation funder. Stone J held that particular requirement was contrary to the opt-out nature of the legislation which established the federal class actions regime. Subsequently, in Multiplex the earlier decision in Aristocrat was confined to circumstances where the class definition enabled ‘opting in’ after commencement of proceedings. The Court in


The provision of funding imposes another check on which matters are brought before Australian Courts, with funders likely to invest only in meritorious claims. Funders will avoid dubious or weak claims due to the risk of adverse costs



The ‘free rider’ conundrum cont...

It means that the funder only recovers a commission from a portion of the successful claims, and means resources are expended gathering and supporting a closed class of claimants in circumstances where group membership is often subsequently thrown open.

Multiplex stated that a closed class defined by reference to entry into a funding agreement was acceptable; a position that was affirmed by the full Court on appeal.

The common fund approach

Although closed class proceedings are now commonplace in Australia, respondents often request the class be ‘opened’ during the conduct of the proceedings by amendment to the group member definition. This enables any prospective settlement to include the claims of all other potential claimants – not just the funded claimants – and thereby promotes conclusive resolution of claims. Respondents will often contend that without taking this step the spectre of a subsequent proceeding brought by those who suffered the same kind of losses but who had not signed funding agreements remains.


hen a closed class proceeding is opened, orders can be sought providing for group members who have joined, without signing a funding agreement, to pay a commission to the funder equivalent to the amount they would have paid had they signed an agreement. However, Australian courts have been cautious in adopting this approach to date – and even where such orders are granted, some inefficiency remains. The resources expended in identifying potential participants, concluding individual funding agreements and amending the group member definition can be significant. Orders providing for an open class definition at the outset of proceedings, while at the same time addressing the free rider problem, would save time and expense.

In response to the free rider issue Australian courts have commonly approved settlements adopting a ‘funding equalisation’ approach to ensure that unfunded group members do not receive any more, by way of net settlement funds, than those funded group members who have initiated the claim. However, this solution is not entirely satisfactory.

In Blairgowrie Trading v Allco Finance Group Ltd (2015) FCA 811 the lead applicant sought orders requiring all group members to pay funding commission at an early stage in the proceedings. The lead applicant’s funding agreement required them to pay a commission to the funder from the settlement sum, calculated by applying set rates to the claims of all group members. The applicant sought court approval of the commission as reasonable, and orders authorising the lead applicant to pay litigation funding expenses from any settlement money received. Essentially the application was an attempt to retain an open

Although closed class proceedings are now commonplace in Australia, respondents often request the class be ‘opened’


class group definition, while recognising the commercial reality that funders were unlikely to support cases unless they had greater confidence that the participants will be obliged to provide recompense for the benefits received. The orders sought were analogous to the ‘common fund’ doctrine applied in the US, where the lead plaintiff is entitled to pay legal fees from settlement money received in recognition of the fact that the work has been undertaken for the benefit of all group members.

worse off in their net receipts than those who do not. (v) the fact that a proceeding might not be economically viable for a funder to support without some initial confidence regarding their entitlement to recover funding expenses did not support the conclusion that an order in the form sought was in the interests of group members as a whole by facilitating access to justice. Notably, Justice Wigney observed that the decision did not preclude the making of a similar order at a later stage in the proceedings, nor the making of an order in the terms sought in other proceedings, provided that sufficient information is available. In concluding, His Honour noted that some of the applicant’s submissions made out a ‘fairly compelling case for reform’, and that there was something to be said for the adoption of an approach similar to the US common fund system, though it may be a development best left to the legislature.

His Honour Justice Wigney cited several reasons for refusing the application, including that: (i) the early stage of the proceeding meant that it was not possible to reliably gauge the likely outcome, or the amount that would ultimately become payable. (ii) any unfairness in limiting the obligation to pay the funding commission to those group members who had signed funding agreements could be addressed at a later stage in the proceedings, such as during the settlement approval process.

The reasoning in Allco seems, with respect, to be a particularly uncompelling basis on which to refuse a common fund. The decision in Modtech stands as authority for the proposition that if an application for a common fund is to be made it should be made early. There are a number of reasons of principle and practical reality why this should be so. First, as a matter of principle group members should be given the earliest possible opportunity to decide if they wish to pay a funding commission (if they do not they can then opt out or oppose a later settlement). Secondly, the fact that there is uncertainty about the outcome of the proceedings is the reason the applicant is desirous of certainty in funding arrangements. Thirdly, as a matter of commercial reality, funders are unlikely to hazard millions of dollars to fund litigation without the certainty of knowing they will receive a return at the conclusion of the proceeding.

(iii) the proposed order was unnecessary in light of the applicant’s right to approach the Court for an order under section 33ZJ of the Federal Court of Australia Act 1976. Section 33ZJ enables the lead applicant in a class action to seek recovery of any costs in excess of the amount recoverable from the defendants from the damages awarded, but is couched in terms that permit such an application only after the damages have been awarded. (iv) In some circumstances a different approach to avoiding unfairness between group members may be appropriate. One example is the [funding] equalisation approach, as applied in Modtech Engineering v GPT (2013) FCA 626. This differs from a common fund approach in that only the amount payable under signed funding agreements is paid to the funder, but the amounts payable to each group member are adjusted so that group members who pay funding commission are no



Look ahead

there is a strong case for legislative intervention to further simplify the current system. This could be by achieved by permitting a form of court supervised ‘common fund’ process, as the court already does in approving settlements as being fair and reasonable and in the best interests of group members. Group members not satisfied with the funder’s terms could opt out. In the interests of increased access to justice there are good reasons to follow this common fund path.


hile the application in Allco did not succeed, a common fund doctrine may yet develop in the Australian context to strike a balance between promoting access to justice and ensuring the commercial viability of funded actions. This might occur in subsequent cases. Alternatively, legislative reform may resolve the issue comprehensively by providing a statutory framework for common fund applications.

Overall, the Australian experience suggests a market-based solution to access to justice via litigation funding works well. It also suggests that the combination of a well functioning class action system overlayed with an established litigation funding market does not result in an explosion of class actions or strike suit litigation. The policy settings have worked well to restrain the greater majority of weak claims from being commenced or continued.

Some final remarks


n Australia litigation funding is critical to securing redress for many victims who have suffered large-scale wrongs. It fits hand in glove with the role that class actions play in regulating and addressing corporate and large scale misconduct, and goes some way towards restoring equality of arms between those with limited individual resources and well-resourced defendants.

The contention that class actions and litigation funding level the playing field is compelling.

The adoption of a common fund approach in Australia would further promote access to justice. It would retain the intended broad scope of the opt out class actions regime, while providing more certainty for funders that the risks they assume will be compensated in the event of a successful outcome. In doing so, it would eliminate some inefficiencies in the present system. Proceeding down the path of a common fund approach is consistent with the underlying policy objectives of representative proceedings in Australia: to allow multiple claims brought by those with limited resources to be resolved as efficiently as possible.

In Australia litigation funding, goes some way towards restoring equality of arms between those with limited individual resources and well-resourced defendants

If Allco is not distinguished in subsequent cases,


Overall, the Australian experience suggests a market-based solution to access to justice via litigation funding works well

11 9

The reputations of some funders in the Australian market have been substantially enhanced in the minds of defence lawyers



Problems with defending litigation funder matters By Reay McGuinness


Different litigation funders appear to have varying appetites for the risks (and potentially rewards) involved in commencing proceedings quickly. The reputations of some funders in the Australian market have been substantially enhanced in the minds of defence lawyers because it is apparent that they carefully consider the merits and potential damages of a claim before commencing litigation and/or a book build. Whilst those funders may sometimes miss out on the “first mover” opportunity that comes with being first to court (or to market), there is, equally, an argument to be made that defendants (and, potentially more importantly, their insurers) will be more prepared to deal with those funders who are seen to have taken a more considered approach to both merits and damages issues from the outset.

s an Australian lawyer who primarily practises on the defendant’s side, I have been asked to offer some perspectives on issues which arise in funded litigation matters. In Australia, the debate about whether litigation funding is a “good” or “bad” thing has been exhausted by reason of a series of decided cases, community sentiment and the rapid growth of the litigation funding market. My observations are concentrated primarily on funded securities law class actions.

Pausing before starting


here are some aspects of the funded class action regime which, arguably, unhealthily encourage funders to commence proceedings quickly. There have been recent examples of publicly listed companies announcing bad news and litigation (or announcements of investigations into potential litigation) following very shortly thereafter. As the Australian litigation funding market becomes more competitive, the importance to some funders being the “first mover” may increase. This creates unnecessary difficulties for defendants.

The issue was neatly identified by Finkelstein J of the Federal Court of Australia in Kirby v Centro Properties Limited [2008] FCA 1505. In determining whether one of multiple class actions (based on identical facts and causes of action) should be stayed, Finkelstein J found the fact that one class action was commenced before another should not be taken into account. Finkelstein J stated, “It would I think, be very dangerous to adopt a first-past-the-post rule. It will, particularly in class actions, lead to a race to the courthouse with hastily drafted pleadings containing poorly supported allegations, possibly even incentivizing law firms to engage in inappropriate conduct in order to be the first to recruit a suitable plaintiff. I intend not to encourage those kinds of actions which foster poor lawyering and may easily have a blackmail effect and force innocent companies to settle.”

There may be circumstances where a cause of action is plainly obvious, thus meriting a quick decision. However, it is equally clear that funded litigation has been commenced or threatened in Australia where, on sober reflection, the cause of action and/or damages are, at best, questionable.



Capital adequacy


n Australia, argue that capital adequacy nothing more than a From a defendant’s not agree.

smaller funders having minimal requirements is barrier to entry. perspective, I do

The requirement of capital adequacy should extend to an ability to fund the whole of a matter

It is tedious and time wasting to spend substantial amounts of time and money seeking to secure appropriate and adequate security for costs orders from funders who are not prepared or able to provide adequate coverage upfront for the costs of substantial litigation. It is particularly curious that funders consider that they ought to be able to resist providing security for costs when there are now a number of bespoke insurance policies available which will, in most circumstances, provide adequate and appropriate coverage. As I write this article, the Victorian Supreme Court has just delivered a judgement on a security for costs application, ordering a foreign-based funder to provide a substantial amount of security. Whilst this debate has been going on, the proceedings have not progressed for approximately six months.

Level of control of the funder over the class


s a defendant, the level of control which a funder has over the critical decisions (be that settlement or otherwise) in running a matter will not usually be clear, unless the funding arrangements have been revealed by reason of an interlocutory dispute and/ or volunteered by the funder. It seems, from the very different roles taken by funders in mediations and/or settlement discussions, that this level of control (and/or the way in which it is exercised) can vary substantially.

The requirement of capital adequacy should extend to an ability to fund the whole of a matter. From a public policy perspective, if a funder does not have sufficient capital to fund a matter through to completion, the perceived benefits provided by the funder in terms of accessibility to justice will be undermined. I am not suggesting that there is necessarily a need for regulation of capital adequacy requirements, although the Australian Productivity Commission has made such a recommendation. It may well be that the marketplace will sort these issues out as “fly by night” funders become less attractive to law firms and/or litigants.

It can be difficult in a mediation and/or settlement discussion to communicate effectively with clients and/or the lawyers acting for the class



if (as does happen) the litigation funder is the dominant presence. Arguably, the preferable dynamic for achieving a settlement is when the litigation funder is not directly involved. Whilst the funder has a justifiable commercial interest in achieving the best possible financial outcome both for the funder and the class, defendants (perhaps unfairly) may form the view that the commercial imperatives of the funder are outweighing a rational analysis of settlement offers. This is particularly the case when insurers (and, in particular, tiers of insurers) are involved from a defendant’s perspective.

which are calculated to cause reputational harm. It does not matter whether this is occurring through the materials that are being used for a book build or in press releases/statements to the media. This sort of activity does little to engender anything other than animus by defendants, their lawyers and insurers. Such behaviour is very unlikely to be looked upon favourably by the courts.

In any settlement discussion, the parties can and should have an eye on how a settlement might affect their future economic interests and/or relationships. In a securities class action, investors may be both members of a class and continuing shareholders. It is not necessarily in their interests to obtain a punitive damages award which may have the effect of damaging the company. A litigation funder does not have that interest. Whilst, no doubt, sophisticated litigation funders will have these issues in mind both in terms of control and assessing settlement offers, that is not always the case. This dynamic can, and does, create difficulties for defendants.

any litigation funders have a deep (and constructive) understanding of the insurance issues which potential defendants must deal with when facing a class action. Often, and unsurprisingly, multiple defendants (including, for example, company directors) will have a complex and difficult process of notifying insurers and securing insurance coverage. It is surprising how some litigation funders do not properly consider these issues. Defendants in securities law class actions will have immediate and overriding duties to insurers if and when a claim is notified or announced. In these circumstances, “sabre rattling” is of no benefit or use to the funder at all.

Think about insurance


Promotional material for book build - keep it factual

By way of example, serving a draft claim seeking an unspecified amount of damages and demanding a payment or mediation within an unrealistically short timeframe does nothing to advance the prospects of having a sensible settlement discussion. What generally happens in that situation is that defendants, quite properly, focus their attention on ensuring that their insurance coverage is in place and any opportunity to engage with the claimants is lost for at least some considerable period of time.


hilst there may be a short-term marketing benefit, it is unproductive for litigation funders and/or the lawyers for the class to “sex up” claims when they are seeking to book build by making disparaging and/or florid claims against potential defendants



Take damage quantification seriously from the outset

The other difficulty is that damages claims, at least as originally formulated, may be so far in excess of insurance limits and/or the ability of the defendants to pay that their lawyers justifiably “hunker down� to fight the matter to trial on the basis that it is better to spend the money on legal costs. However, funders could benefit from conducting a deep analysis of those issues prior to commencing proceedings. Without some sensible and realistic parameters to work with on those issues, defendants’ lawyers have no capacity to provide any meaningful advice to their clients about the range of figures which may appropriately be offered to settle a matter.


ophisticated litigation funders have developed excellent models for assessing the costs and potential benefits (i.e. likely recoverable damages) associated with funded litigation. However, not all funders conduct a proper assessment of, in particular, potential recoverable damages at the outset. There are numerous examples (admittedly, whether in class actions or otherwise) of insufficient attention being paid to a proper damages analysis until a point where millions of dollars have been spent defending a claim. It may not be the fault of the litigation funder that these things occur, as overly optimistic lawyers/ experts may have provided advices on damages which have not had sufficient regard to a proper damages analysis. This presents a difficulty for funders, and will often mean that the insurance policies (and other resources) which have been used to defend the action will have been substantially (and, in some cases, wholly) eroded. In securities non-disclosure matters, determining the number of damaged shares and/or the amount of loss which may be attributable to a particular piece of information can be very complex and potentially expensive. It may be that, commercially, funders are not prepared to outlay the expenditure required to complete that analysis at the outset of litigation. However, failure to undertake such an analysis means that in many funded class actions, funders and plaintiff lawyers start out with views on damages claims which are wholly unrealistic.


Failure to undertake such an analysis means that in many funded class actions, funders and plaintiff lawyers start out with views on damages claims which are wholly unrealistic



Obtain realistic expert evidence

should consider this when contemplating funding an action. When third party cross claims are issued, there will be, again, a further erosion of the defendant’s ability (whether self-funded or through insurance) to settle the matter.


bviously, a claimant is entitled to and should advance its very best case both with respect to merits and damages issues. Securities class action matters often have as a feature “event studies”. These reports are designed to establish the extent to which inaccurate information may have contributed to a drop in the share price of a company. They are complex and difficult. Defendants’ lawyers can be frustrated by the unrealistic assumptions provided by class action lawyers to the economic experts who prepare event studies, as the resulting reports often do not have proper and sensible regard to confounding events other than the alleged information. Where event studies rely on unrealistic assumptions and therefore overstate damages, the effect is, again, that damages quantification is not taken seriously from the outset of a matter.

In conclusion, both litigation funders and defendants’ lawyers have made substantial progress over the past few years in ironing out the kinks which need to be dealt with as the class action system in Australia has developed. Some (but not all) of the issues which I have discussed above have been dealt with by the courts. Most have not, and will not. Ultimately, as long as both sides of the divide are willing and able to be flexible and realistic about the difficulties which are inherent in securities law class actions, these issues will continue to abate.

Defendants’ lawyers can be frustrated by the unrealistic assumptions provided to the economic experts

Think about the cross claims


t is all very well to commence an action against one or two defendants. However, litigation funders can be surprised when third parties are brought into proceedings by way of cross claims filed by defendants. In many cases, the involvement of third parties in proceedings will cause difficulty for the orderly and sensible conduct of the matter and cause the funder to be faced with a substantially higher legal bill than that initially budgeted. On reflection, it is often relatively simple to anticipate the likelihood that third party cross claims will be issued. Funders


Both litigation funders and defendants’ lawyers have made substantial progress over the past few years in ironing out the kinks with the class action system



Capitalising on the emerging market for funding in Asia By Ruth Stackpool-Moore


• Claims where parties have a legitimate common interest in the outcome of the litigation. Martell v Consett Iron Co Ltd [1955] Ch 363 involved an association formed to protect fisheries and prevent the pollution of rivers which was held to have a sufficient common interest for it lawfully to support an action brought by members who claimed that their fishery was being polluted by effluents from the defendant’s ironworks.

he opening of Harbour’s Asia Pacific office heralds a new era for funding in the region, providing an opportune moment to take stock of the current legal environment and look to the future. While Australia enjoys what is arguably one of the most developed markets for funding in the world, Hong Kong and Singapore, generally considered to be the leading centres for dispute resolution in the region, have some catching up to do. But, the future is bright, with various executive and judicial-led steps being taken to broaden the classes of cases in which litigation funding is available.

• Claims where “access to justice” considerations apply. Article 85 of the Basic Law of Hong Kong recognises access to the courts as a fundamental right. Where an attack on an arrangement said to constitute maintenance or champerty could result in a claim, good in law, being stifled where the plaintiff, deprived of the support of such an arrangement, would be unable to pursue it, the case should be excluded from the operation of the two doctrines.

The current state of play in Hong Kong and Singapore






• Claims involving practices which have been accepted as lawful, such as the sale and assignment by a trustee in bankruptcy of an action commenced in the bankruptcy to a purchaser for value or the development of the doctrine of subrogation as applied to contracts of insurance.


maintenance and champerty are still applied in both Hong Kong and Singapore,

case law already specifically permits the use of litigation funding in certain contexts.

In the landmark case of Re Cyberworks Audio Video Technology Limited [2010] 2 HKLRD 1137, the Hong Kong Courts upheld the legality of a liquidating company’s assignment to a litigation funder of a share of any proceeds from legal proceedings to collect debts, in exchange for funding for that litigation, recognising a further

In Hong Kong, while the Hong Kong Court of Final Appeal confirmed that the doctrines of maintenance and champerty are still valid, in Siegfried Adalbert Unruh v Hans-Joerg Seeberger [2007] HKCFA 9 the following three exceptions were identified.


legal exception to maintenance and champerty laws. This exception was confirmed in Re Po Yuen (To’s) Machine Factory Limited [2012] HKCU 816 where it was also recognised that the funding could be made in the form of a contingency fee arrangement with the third party.

In addition to its widely-recognised role in litigation, litigation funding is increasingly being used by parties engaged in arbitration. The speed of completion, the treatment of costs and uniformity of rules of enforcement under the New York Convention make arbitration well suited to funding.

In Singapore, like in Hong Kong, the common law torts of maintenance and champerty remain applicable, and, as recently as 2013, in The Law Society of Singapore v Kurubalan S/O Manickam Rengaraju [2013] SGHC 135, the Singapore High Court held that the doctrines would continue to exist until abolished by the legislature. In the same case the Court did however establish that litigation funding agreements may be enforceable in Singapore in certain circumstances. These include:

International arbitration is generally not subject to the application of common law torts so, aside from restrictions imposed by the legal system of the seat of arbitration, there is no historical bar to the adoption of funding in arbitration, and this is in fact the case in Hong Kong where in Cannonway Consultants Ltd v Kenworth Engineering Ltd [1995] 1 H.K.C. 179 the Courts specifically authorised the use of funding in arbitration.

• Where the litigation funder has a genuine commercial interest in the proceedings, such as was held to be the case in Lim Lie Hoa v Ong Jane Rebecca & Ors [2005] SGCA 24 where the litigation funder “had an interest in financing the litigation in the hope that the respondent would recover funds from the estate to enable her to discharge her liabilities”

The situation in Singapore is somewhat different where, in 2006, the Court of Appeal held in Otech Pakistan Pvt Ltd v Clough Engineering Ltd [2007] 1 SLR (R) 989 that the common law doctrine of champerty applies to arbitration proceedings as well as litigation, stating that “it would be artificial to differentiate between litigation and arbitration proceedings and say that champerty applies to the one because it is conducted in a public forum and not to the other because it is conducted in private.”

• Where the claimant is impecunious, in which case the consideration of equal access to justice is of overriding importance, see The Law Society of Singapore v Kurubalan S/O Manickam Rengaraju [2013] SGHC 135. In a very recent decision the Singapore High Court has also recognised in Re Vanguard Energy Pte Ltd [2015] SGHC 156 that funding may legally be provided in insolvency cases.



Looking to the future There is concern that Hong Kong may lose out on its competitiveness as a venue for dispute resolution to those common law jurisdictions that allow litigation funding


lthough restrictions exist regarding the use of funding in both Hong Kong and Singapore, various factors suggest that some of these will fall away in the near future, with the expectation widely held that both jurisdictions will adopt similar approaches to those of their common law cousins in the longer term. In Hong Kong, since the decision in Siegfried Adalbert Unruh v Hans-Joerg Seeberger, the courts have adopted a more liberal approach to funding. They are enforcing the existing rules of maintenance and champerty more flexibly, showing greater sensitivity to the totality of the facts of individual cases, and in particular balancing the interests of the parties and access to justice against the integrity of the judicial process. In that case the Court of Final Appeal itself noted, in relation to the second recognised exception, that “[i]t is ... obvious that [the] access to justice category is not static. The development of policies and measures to promote such access is likely to enlarge the category and to result in further shrinkage in the scope of maintenance and champerty.�

Legislative change may also shortly be introduced in Singapore. In late 2011, the Ministry of Law issued a public consultation paper inviting views on whether third-party funding would be appropriate in the context of international arbitration. To date no amendments have been made and the issue remains a subject of discussion, however it is hoped that issue will be the subject of reform in the near future.

In addition, it is likely that legislative reform will be undertaken to codify the position of third party funding in arbitration. In 2013 the Law Reform Commission of Hong Kong established a sub-committee to review the position of third party funding in arbitration. The Committee, in consultation with the local legal industry, has reviewed the current state of the law and, as foreshadowed in a speech by the Secretary of Justice in mid-June 2015, is expected to make recommendations for reform within the next few months.

In February 2014, the Law Reform Committee of the Singapore Academy of Law released its Report on litigation funding in cases of formal insolvency as well as approved schemes of arrangement. The Committee recommended that, because of the social and economic benefit, funding should be allowed in cases of formal insolvency (but not schemes of arrangement) within a regulated statutory framework that strikes a balance between the competing policies of access to justice and purity of justice in


Singapore. Codification is the most appropriate vehicle to create a neat, clear and limited statutory exception to the torts of champerty and maintenance. The Committee also recommended that funding arrangements be Court-approved and regulated in order to eliminate abuse. Again it is expected that measures will be taken to introduce the recommended reforms in due course. In July’s edition of the Hong Kong Lawyer, Stephen Hung Wan-Shun, President of the Hong Kong Law Society wrote “[w]ith the growing prevalence of private litigation funding in other jurisdictions, there is concern that Hong Kong may lose out on its competitiveness as a venue for international dispute resolution and arbitration to those common law jurisdictions that allow litigation funding.” Singapore undoubtedly shares the same concern. The opening of Harbour’s Asia Pacific office will provide a prime opportunity for it to engage with government representatives and the local legal professions to help shape the reform process and bring the benefits of litigation funding to a broader range of cases in the Asian region.



Harbour News

Our trip to Australia in June, was timely since Harbour has now approved 12 cases for funding there since December 2013.

New Hong Kong Office and appointment of Ruth Stackpool-Moore to lead our Asia Pacific business.


s well as fulfilling various speaking engagements, Susan Dunn and Stephen O’Dowd visited a number of law firms

and funders in Melbourne and Sydney.

Ruth Stackpool-Moore

Highlights included: 1.

A panel event at the University and Schools Club in Sydney, which was hosted jointly


ith our Asia Pacific operation growing fast, we are delighted to report that we have opened a new office in the heart of Hong Kong’s business district and appointed Ruth Stackpool-Moore as our Director of Litigation Funding for the region.

by ACA Lawyers and Experts Direct and entitled “Class Actions & Litigation Funding”. The panel comprised Susan Dunn, Moira Saville of King & Wood Mallesons, who is a class actions specialist and well-known commentator for the defence, and Michael

Ruth joins Harbour from the Hong Kong International Arbitration Centre (HKIAC) where, as Managing Counsel, she led the arbitration team and managed the centre as Acting Secretary-General during the second half of 2014. Her work at the HKIAC, one of Asia’s leading global arbitral institutions, has given her deep insight into the increasing number of claims handled in the region and has cemented her strong relationships within the Asian dispute resolution community. Her case management experience builds upon her solid private practice background having worked previously as an Associate specialising in international commercial arbitration and litigation with Debevoise & Plimpton in London, Orrick, Herrington & Sutcliffe in Paris and Coudert Brothers in Paris and Sydney.

Lee SC of Level 22 Chambers, considered one of Australia’s leading class actions barristers. Over 70 attendees from major law firms, insurers and institutions were treated to a relatively fiery debate, with Moira asserting that the floodgates in Australia had opened to class actions and funders. This assertion was challenged by Michael and Susan as unsupported by the statistics about the number of class actions in Australia which have remained constant for a number of years. As we have seen subsequently, KWM’s Review of Class Actions 2014-2015, of which Moira is an author and to which Harbour





Australia remain quite rare. No doubt this has much to do with their complexity and the resource and expense required to run them. KWM’s Review, which is excellent, can be seen here.







In Brief


lawyers, including partners from Allens Linklaters and Clayton Utz, who had asked to meet Harbour and understand more

A few changes

about our “claimant controls” business


e have refreshed our website to provide greater compatibility with mobile and tablet platforms and to present information in a more user-friendly way. We hope that you will find the changes helpful and that the brighter and more distinctive colours and logo used in this Harbour View as well as the website are fresh and memorable.

model as opposed to the “funder controls” model, which they are more accustomed to dealing with.

Please visit and see what is new.

With our Asia Pacific operation growing fast, we are delighted to report that we have opened a new office in the heart of Hong Kong’s business district

Team Activities


he team has been out and about talking to interested and enthusiastic audiences. Rocco Pirozzolo spoke at the Validatumorganised Pricing Conference in London on 30 June, whilst Susan Dunn and Peter Rees QC (on Harbour’s Investment Committee) spoke at the Chartered Institute of Arbitrators’ (CI Arb) London Centenary Conference on 3 July. Susan also spoke to at the CIArb’s conference in Singapore in early September. We are pleased to note that the engagement in the subject of funding continues to grow globally.

Overall, the trip was a great success. We received a warm welcome from claimant and defendant lawyers alike, and the opening of our new Hong Kong office means we are better positioned to make more regular trips in the future. Australia is a key jurisdiction for Harbour, where the funding market is advanced and where we believe Australian lawyers set the standards for costs and case project management.”


Featuring news from the Team at Harbour Litigation Funding. Visit our Website for more in depth details

Harbour View Q3 2015  

We are delighted to share with you Harbour View Quarter 3 2015 With the launch of our new offices in Hong Kong this edition offers a view o...

Harbour View Q3 2015  

We are delighted to share with you Harbour View Quarter 3 2015 With the launch of our new offices in Hong Kong this edition offers a view o...