2. Litigation funding and access to justice



  1. 2.1 The entry of litigation funding into Australia’s legal system, and the growth over the past 20 years in the number of providers and diversity of services they offer, have improved access to justice. Litigation funders have enabled plaintiffs to bring legal action that they would not have otherwise contemplated because of the financial risks of losing.
  2. 2.2 Under the costs-shifting rule, the losing party is usually ordered to pay the other side’s reasonable legal costs (an adverse costs order). The prospect of being burdened with an adverse costs order if the litigation is unsuccessful, in addition to their own legal costs, is particularly daunting in class actions, where the representative plaintiff alone is liable and the costs are significant.
  3. 2.3 In large class actions, the representative plaintiff will commonly be charged around $10 million in legal costs, plus disbursements, even though their individual claim may be for a few thousand dollars. They could also have to pay as much again, or more, in adverse costs if the litigation is unsuccessful. Few legal firms have the financial capacity to provide their services on a ‘no win, no fee’ basis in a class action. Where they do, the representative plaintiff will be relieved of paying their own legal costs if they lose but will remain liable for adverse costs and possibly disbursements.1
  4. 2.4 The costs-shifting rule creates a financial risk that litigation funders are able to underwrite, and fosters demand for the financial assistance they provide. The funder reduces the risk for the plaintiff by covering their legal costs and indemnifying them against an adverse costs order, in return for a share of the recovered amount if the claim succeeds. The market for litigation funders in Australia has grown in the absence of local competition from forms of financial assistance that are employed overseas to mitigate the risk of losing: ‘after the event’ insurance, and lawyers charging contingency fees.2
  5. 2.5 Litigation funders are providing services which were illegal until 1967 and have expanded incrementally since then. They have been permitted to fund insolvency proceedings since 1996 and were first seen in class actions in 2001. They were not recognised by the High Court as a legitimate means of funding multi-party proceedings until 2006.3 Over the five-year period from 1 June 2012 to 31 May 2017, they funded 46.2 per cent of all class actions nationally.4
  6. 2.6 Procedural developments in response to the involvement of litigation funders in class actions have also encouraged the litigation funding market to grow. For example, judicial acceptance of closed class actions,5 which allow class membership to be limited to class members who have signed funding agreements, contributed to a surge in the number of funded class actions filed in the Federal Court from 2008.6 It has also been suggested that the approval of common fund orders for litigation funding costs, which allow a litigation funder to obtain a funding fee from every registered class member even if they have not signed a funding agreement, will encourage continued growth in the market.7
  7. 2.7 Although much of the discussion about litigation funding in this report focuses on class actions, this is only one aspect of the industry. Litigation funders continue to invest in insolvency proceedings, as well as in other areas of law such as commercial and contractual disputes, intellectual property and estates.
  8. 2.8 In addition, sophisticated and diverse products for a broader range of markets have been emerging. For example, funding is now offered to law firms against a portfolio of different cases, where the funder’s return depends on the overall net financial performance of the portfolio as opposed to the outcome of any particular claim.8 Litigation funders also offer finance for specific risks and costs, such as compliance with an order to provide security for costs, or the payment of disbursements. Some funders provide ‘after the event’ insurance, which may be taken out at the beginning of, or during, proceedings to protect against the risk of having to pay adverse costs.
  9. 2.9 Another trend has been for litigation funders to provide funds direct to companies, rather than through an arrangement with a law firm. The company uses its litigation as collateral to secure the finance in order to pursue or defend a claim (by, for example, its in-house legal team) or for other corporate purposes.
  10. 2.10 As companies increasingly operate globally, there has been an upsurge in international disputes that the parties seek to resolve through international commercial arbitration. The value of the claims can be very high. Large established international litigation funders are actively pursuing the opportunity to fund these disputes and provide additional services, such as enforcing arbitral awards. In Hong Kong and Singapore, where traditional restrictions on litigation funding remain in place, exceptions have been made to permit litigation funding in international commercial arbitration.9
  11. 2.11 Perhaps not surprisingly, hedge funds and private equity houses are seeing investment in litigation as an attractive ‘alternative asset class’ with returns that are uncorrelated to movements in the stock market or bond returns.10
  12. 2.12 In Australia, even though there has been an increase in the predominance and impact of litigation funders in civil proceedings, the industry is only lightly regulated.11 The Productivity Commission has recommended strengthening the existing Commonwealth regulation. Concern about the continued lack of national oversight of the industry was expressed in several submissions and during consultations. While this is not a topic within the terms of reference, the absence of robust Commonwealth regulation means that parties to funded litigation need to rely more on the courts, and court processes, to

    safeguard their interests. For this reason, the chapter begins with a discussion of the need for national regulation.
  13. 2.13 In Victoria, there is scant reference to litigation funders in legislation and court procedures. The terms of reference ask the Commission to report on whether there is scope for the supervisory powers of Victorian courts or Victorian regulatory bodies to be increased in respect of proceedings funded by litigation funders, in particular by increasing disclosure obligations or controlling fees.
  14. 2.14 The initiatives suggested in the terms of reference, and raised during the Commission’s review, need to be considered in the context of the problems they are intended to address. This chapter provides an overview of litigation funding practices and the issues they raise. It then discusses proposals concerning disclosure and the control of funding fees in funded litigation generally. Cost controls in funded class actions is discussed in Chapter 5.
  15. 2.15 The question of whether the issues presented by litigation funding would be mitigated by removing the existing prohibition on law firms charging contingency fees is examined in Chapter 3.

National regulation of litigation funders

Maintenance and champerty

  1. 2.16 For centuries, financial services of the type offered by litigation funders were illegal. They were proscribed by the torts and offences of maintenance (providing financial assistance to a litigant without lawful justification) and champerty (a form of maintenance involving the sharing of the proceeds of litigation). The policy underlying the offences was to prevent the legal system from being subverted by persons who were not parties to proceedings but had a financial interest in the outcome.
  2. 2.17 Criminal and civil liability for maintenance and champerty was abolished in Victoria by the Abolition of Obsolete Offences Act 1969 (Vic) and similarly in other Australian jurisdictions.12 However, the underlying policy of the law was retained: a contract can still be treated as contrary to public policy or illegal if it is found to be in aid of maintenance or champerty.13
  3. 2.18 Uncertainty about the legality of any financial agreement between a third-party funder and a litigant to assist the litigation in return for reward was overcome by two judicial decisions:
  • The 1996 Federal Court decision in Movitor Pty Ltd (rec and mgr apptd) (in liq)
    v Sims
    14allowed for commercial litigation funders to raise capital to provide funding
    to insolvency practitioners.15
  • The 2006 High Court decision in Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd16 (Fostif) provided certainty that litigation funders have a legitimate role in financing multi-party proceedings, including class actions, and can exercise broad influence over how they are conducted.
  1. 2.19 While endorsing the funder’s role in Fostif, the High Court acknowledged that the involvement of a third-party litigation funder can corrupt court processes. However, it concluded that the court could rely on its inherent powers if necessary to address any difficulties that arise, on a case-by-case basis. Any particular problems found in proceedings financed by a litigation funder, including class actions, could be solved through court procedures for that type of proceeding. Any associated conflict of interest issues for lawyers could be addressed by their duties to the court and professional rules.17
  2. 2.20 One of the strongest messages emerging from the Commission’s consultations is how well the judicial system has responded to issues that have arisen in individual cases as
    the litigation funding industry has grown and the number and types of class actions have changed. As noted in Chapter 1, there is broad support for the courts continuing to be able to exercise broad discretion in managing class action proceedings. This support is distinct from, and accompanied by, calls for stronger systemic regulation of the
    industry itself.

Calls for stronger regulation

  1. 2.21 The courts can supervise the involvement of litigation funders in legal proceedings only on a case-by-case basis. Systemic protection from the risk of the legal system being subverted by the activities of third-party litigation funders calls for industry-wide regulation. Moreover, legislation—rather than court procedure—is the appropriate vehicle for reform where policy issues are involved.
  2. 2.22 In a series of decisions between 2009 and 2012, the courts found that litigation funding should be regulated under existing legislation variously as a financial product,18 a managed investment scheme,19 and a credit facility.20 The Commonwealth Government’s response to the decisions was to legislate to minimise consequential regulatory burdens. It declined to regulate litigation funders to the same degree or in the same way as providers of other financial, investment or credit services. There was concern that if they were subject to stronger regulation, they would pass on the costs to consumers and thereby reduce access to justice.21
  3. 2.23 Litigation funders operating in Australia are free from mandatory licensing, financial disclosure requirements, reporting obligations and prudential supervision, unless they are listed on the Australian Securities Exchange.22 Unlike other providers of financial products and services, litigation funders are not required to hold an Australian Financial Services Licence (AFSL).They are exempt from the requirement as long as they have adequate practices in place to manage conflicts of interest.23 Failure to have such practices in place and follow certain procedures for managing conflicts is an offence.24
  4. 2.24 The exemption is provided by the Corporations Regulations.25 The Australian Securities and Investments Commission (ASIC) has issued a regulatory guide which sets out ASIC’s expectations for compliance with the obligation to maintain adequate practices to manage conflicts of interest.26 ASIC has not undertaken a specific program to obtain information from litigation funding scheme operators to monitor compliance with the guide. However ASIC continues to monitor compliance through its other detection means such as reports from members of the public and others. As at August 2017, there had not been significant or widespread issues with industry compliance with the regulatory guide that had been brought to ASIC’s attention.
  5. 2.25 The Commonwealth Government is under pressure to strengthen the regulation of the litigation funding industry. In particular, there have been calls for litigation funders to be licensed to ensure that they hold adequate capital to manage their financial obligations.27 This is seen as a way to protect plaintiffs and defendants from an impecunious litigation funder by ensuring that the funder has adequate capital and liquidity to meet its obligations under the litigation funding agreement.
  6. 2.26 In its 2014 report Access to Justice Arrangements, the Productivity Commission concluded that the potential barriers to entry created through licensing requirements were justified in order to ensure that only ‘reputable and capable funders enter the market’.28 It recommended that:

The Australian Government should establish a license for third party litigation funding companies designed to ensure they hold adequate capital relative to their financial obligations and properly inform clients of relevant obligations and systems for managing risks and conflicts of interest.

• Regulation of the ethical conduct of litigation funders should remain a function of the courts.

• The licence should require litigation funders to be members of the Financial Ombudsman Scheme.

• Where there are any remaining concerns relating to categories of funded actions, such as securities class actions, these should be addressed directly, through amendments to underlying laws, rather than through any further restrictions on litigation funding.29

  1. 2.27 Many submissions conveyed unease about the limited regulation of the industry and expressed support for the Productivity Commission’s recommendations. Chartered Accountants Australia and New Zealand, for example, called for greater regulatory controls:

While we support the role that third party litigation funders can play we are concerned that in the current unregulated environment, the rise of funders utilising litigation as an investment vehicle has been largely unchecked. This has introduced potential for misuse and unintended impacts on the productivity and cost of doing business. The continuing evolution of funding participants and models has the potential to extend the impact of such funding. We believe that regulation is required to protect the validity of the legal process and the legitimate interests of plaintiffs and defendants. The recommendations of the Victorian Law Reform Commission from 2008 and the Productivity Commission from 2014 remain valid, particularly in relation to licencing and capital adequacy.30

  1. 2.28 The Australian Institute of Company Directors observed that courts do not have the time or expertise to properly assess the prudential position of litigation funders. It identified uncertainty, in the absence of any form of licensing, about whether:
  • only fit and proper persons may provide funding services
  • adequate conflict management processes are in place
  • the terms of litigation funding agreements can be enforced against foreign litigation funders.31
  1. 2.29 Allens also endorsed the Productivity Commission’s recommendations. It proposed that minimum content standards for all litigation funding agreements be mandated by legislation, adding that regulation at the state level might be necessary if Commonwealth legislation is not introduced.32 Additional comments in support of a licensing scheme for litigation funders, or other prudential regulation by the Commonwealth, were made in submissions from Ashleigh Leake and colleagues;33 Michael Duffy;34 the US Chamber Institute for Legal Reform;35 the Law Council of Australia;36 and IMF Bentham.37
  2. 2.30 The views expressed were not unanimous. Other submissions argued that the existing powers of the Court are adequate to manage the risks. Julie-Anne Tarr cautioned against unnecessary regulation.38 Slater and Gordon maintained that introducing substantial capital adequacy requirements could create regulatory burdens that would close off the market and reduce competition among funders.39 Litigation Funding Solutions also
    argued that a capital adequacy requirement would not be conducive to a competitive market place:

The Funders who are based offshore have most of their assets overseas even though they are heavily involved in Australian matters. They hold little or no capital here in Australia. Imposing a minimum capital requirement for litigation funders to operate in Australia could remove a large quantity of funding from Australia. If this occurred, the access to justice would be adversely impacted for many people.40

  1. 2.31 The courts have responded to the challenges arising from the involvement of litigation funders in individual proceedings, and need to continue to do so, but court procedures cannot, and should not, be seen as a substitute for industry-wide regulation. The Commission considers that industry-wide issues require national responses, and the responsibility for regulating the litigation funding industry rests squarely with the Commonwealth Government.

Review by Australian Law Reform Commission

  1. 2.32 On 15 December 2017, the Commonwealth Attorney-General referred to the Australian Law Reform Commission (ALRC), for report by 21 December 2018, consideration of:

whether, and to what extent, class action proceedings and third-party litigation funders should be subject to Commonwealth regulation, and in particular, whether there is adequate regulation of the following matters:

• conflicts of interest between lawyer and litigation funder;

• conflicts of interest between litigation funder and plaintiffs;

• prudential requirements, including minimum levels of capital;

• distribution of proceeds of litigation, including the desirability of statutory caps on the proportion of settlements or damages awards that may be retained by lawyers and litigation funders;

• character requirements and fitness to be a litigation funder;

• the relationship between a litigation funder and a legal practice;

• the costs charged by solicitors in funded litigation, including but not limited to class action proceedings; and

• any other matters related to these Terms of Reference.41

  1. 2.33 The Attorney-General further asked the ALRC to consider what changes, if any, should be made to Commonwealth legislation to implement its recommendations. The results of the inquiry will be awaited with interest. In the meantime, this issue should not be confined to jurisdictions with class action regimes: it should be raised at the national forum of the Council of Australian Governments.


  1. 2 The Victorian Government should advocate through the Council of Australian Governments for stronger national regulation and supervision of the litigation funding industry.


Litigation funding in Victoria

Funded class actions

  1. 2.34 The growth of the litigation funding industry has had national consequences for the management of class actions, but the impact varies from one jurisdiction to the next. Vince Morabito has concluded from his extensive research that the Victorian class action regime ‘has not been particularly attractive to litigation funders’.42
  2. 2.35 There have been 85 class actions filed in the Supreme Court of Victoria since part 4A of the Supreme Court Act 1986 (Vic) commenced.43 Litigation funders have funded only
    10 of them; four of these were transferred to the Federal Court.44
  3. 2.36 Litigation funders are more active in the three other class action jurisdictions in Australia, particularly the Federal Court. As at 31 May 2017, 96 (82.7 per cent) of the 116 funded class actions ever filed in Australia were brought in the Federal Court.45 The last Victorian class action supported by a litigation funder was filed on 16 May 2016. Since then, more than 34 funded class actions have been filed in the Federal Court and in the Supreme Courts of New South Wales and Queensland.46
  4. 2.37 Of the 10 funded class actions that have been filed in Victoria, six were shareholder class actions47 and two were investor class actions.48 The predominance of funded class actions of this type in Victoria is consistent with experience in other jurisdictions.
  5. 2.38 Only two other types of funded class action have been filed in Victoria. The litigation funder in each case is based offshore:
  • A class action, funded by Omni Bridgeway, where the holders of abalone fishery licences alleged that the State of Victoria and Southern Ocean Mariculture negligently allowed the release of a herpes-like virus from an abalone aquaculture farm operated by Southern Ocean Mariculture to the wild abalone population, causing loss and damage to the class members.49
  • A claim by companies which manufacture, install and distribute home insulation for loss and damages suffered because of the early termination of the Commonwealth Government’s national home insulation scheme.It is funded by Harbour Litigation Funding.50

Other funded proceedings

  1. 2.39 It is not known how many other types of civil proceedings in Victoria have involved litigation funders. The plaintiff’s financial arrangements and costs in these cases are not subject to the same degree of court supervision and public scrutiny as class actions. Generally, apart from class actions, commercial litigation funders support insolvency proceedings and commercial litigation with large claims. It is reasonable to conclude that they are involved in cases with these characteristics in Victoria.
  2. 2.40 One funded case is reportedly a catalyst for this reference: a claim made by trustees for former employees of Huon Corporation Limited against CBL Insurance Ltd51 (Huon Corporation). The trustees would have been unable to proceed with the claim without the financial support of a litigation funder. After a protracted dispute between the parties, the Supreme Court found in the trustees’ favour. The outcome attracted public attention because the former employees on whose behalf the litigation was conducted ultimately received nothing from the amount awarded. The Commission has received submissions from the National Union of Workers and Litigation Capital Management, who were directly involved in the case.
  3. 2.41 Clearly, although the outcome of Huon Corporation was a result of particular circumstances, it illustrates the importance to funded plaintiffs (and to anyone on whose behalf litigation is conducted) of clear communication from their legal representatives about the progress and costs of the proceedings. Because of the public interest in the case, as well as the insight it provides into some of the issues arising from the terms of reference, it is further discussed at [2.75]–[2.87].

Issues presented by litigation funding

  1. 2.42 The Commission has identified three core issues that have affected, or could affect, the extent to which litigation funders make access to justice possible:
  • case selection—the types of case selected for funding
  • costs—the size of the funding fee and any other funding costs
  • client interests—the juxtaposition of the commercial interests of the funder and the interests of the plaintiff.
  1. 2.43 These issues are inherent in the commercial nature of litigation funding: litigation funders invest in litigation to make a profit. They invest in claims that are low risk and aim to maximise their returns. The cases they select are confined to distinct areas of commercial activity and their funding fee is the largest single expense that a plaintiff pays. Although they have supported claims for altruistic reasons,52 it would be unsustainable for them to give priority to public benefit over commercial considerations.
  2. 2.44 In addition, the entry of a participant who is not a party to litigation, but has a financial stake in how it is conducted and the result achieved, changes the dynamics of the proceeding. It introduces the risk of a conflict of interest that could produce an unfair process or outcome.
  3. 2.45 Disclosure obligations and cost controls for litigation funding are discussed below against the background of these issues.

Case selection

  1. 2.46 Litigation funders invest in claims that have strong prospects of recovering a significant financial return, and the selection process has become more sophisticated as the industry has matured. Broadly, litigation funders consider the following criteria when deciding whether or not to fund a claim:
  • the prospects of success
  • the amount likely to be recovered if the claim is successful
  • the costs and risks in prosecuting the claim
  • the complexity of the claim
  • the estimated time until the claim will be resolved
  • whether there are risks in enforcing a favourable judgment, such as the solvency of a defendant.53
  1. 2.47 The cases that tend to meet these criteria are high value, low-risk commercial claims for damages or compensation, often involving liquidators, bankruptcy trustees, shareholders and investors. More recently, funders have been investing in international arbitration as well. Claims aimed at obtaining non-monetary results (such as an injunction or declaration) are not funded, and nor are claims that rely on evidence which may give rise to a number of litigation risks, including claims for personal injury or workers’ compensation, family law cases and defamation cases.
  2. 2.48 Although there will be exceptions, a claim for less than $1 million is unlikely to be funded by a commercial litigation funder. The reasoning is apparent from the following explanation by Litigation Funding Solutions:

It is important that the damages which are capable of being recovered justify the cost of litigation. Legal claims often involve layers of potential damages. For a legal claim to be successful it must have a strong inner core of liability.

Many claims can potentially be stretched to increase quantum. However, generally speaking, the further you move from the centre of a claim the more risky and expensive the claim becomes to litigate. There are often much greater costs involved to establish ‘outer boundary’ recovery levels. A funder looks for an action that has a solid core. Once a funding decision is taken the potential of greater recovery becomes icing on the cake and can be used to pressure the defendant to settle.


As a rule of thumb, [the] ‘inner core’ quantum of a claim needs to be $1,000,000 or more to warrant a funder’s interest and make the cost of funding justifiable for the claimant and its stakeholders. One reason for this is that the cost and expenses to run a $1,000,000 damages case often involves comparable costs to cases for much bigger amounts.54

  1. 2.49 The minimum claim value for funding multi-party claims is generally higher than for single-party claims. IMF Bentham, for example, usually funds single-party claims above $5 million in value, and multi-party claims above $20 million in value.55 Maurice Blackburn commented that it is almost impossible to secure litigation funding for a class action involving claims of less than $30 million.56
  2. 2.50 The practice of filtering out applications for funding that do not meet stringent legal, process and commercial criteria removes claims that do not have merit (as well as those that do have merit but do not meet other criteria). For example, IMF Bentham informed the Productivity Commission that fewer than five per cent of the applications it receives are funded.57 The diversion of unmeritorious claims allows the resources of the legal system to be allocated more efficiently.
  3. 2.51 Careful selection processes are also likely to have contributed to the success rate of funded proceedings, although data compiled by Vince Morabito about the settlement rates of all class actions has revealed that there is no direct correlation between funding arrangements and results.
  4. 2.52 In the Federal Court, where most funded cases are filed, 79 per cent of funded class actions have settled, compared to 43 per cent of unfunded class actions. In state jurisdictions, the settlement rate for funded class actions is much lower than for unfunded class actions. Only 30 per cent of funded class actions in state jurisdictions have settled, compared to 70 per cent of unfunded class actions.58
  5. 2.53 The results indicate that the involvement of a litigation funder does not necessarily increase the prospects of a successful outcome; nor does it reduce them. The involvement of litigation funders in the legal system does not cause an upsurge in speculative and insubstantial claims.
  6. 2.54 Clearly, litigation funding creates opportunities for claimants to seek compensation or damages for meritorious claims and supports them usually to a successful conclusion. The extent to which funders enable access to justice in this way is determined by the criteria they use for selecting the cases they fund. The next two sections discuss, in turn, the significance for class action litigation and other litigation.

Funded class actions

  1. 2.55 Most revenue generated by the litigation funding industry is derived from class actions, particularly shareholder class actions.59 The first class action in Australia—and the world—to involve a litigation funder was in 2001.60 By 31 May 2017, 116 funded class actions had been filed across all jurisdictions. Of these, 74 (63 per cent) were filed after 1 June 2012.61
  2. 2.56 A relatively narrow variety of class actions attract the most attention of litigation funders, reflecting the focus on low-risk claims that are likely to generate a return on the funder’s investment. The range is shown in Table 1.

Table 1: Class actions funded by litigation funders: types filed to 31 May 20176263



Supreme Court of Victoria

Type of claim


of total


of total











Consumer protection















  1. 2.57 Australia has robust mandatory continuous disclosure rules for ASX-listed companies, comprehensive prohibitions on misleading and deceptive conduct, and a high rate of share ownership.64 A failure to comply with these laws affects a large number of people in similar situations, and class actions are an inherently suitable means of seeking damages or compensation for broad-based harm. Litigation in these areas of the law presents a sound investment opportunity for litigation funders, as explained by John Walker, Suzanna Khouri and Wayne Attrill when working for IMF (Australia) Ltd in 2009:

The statutory causes of action provided in the continuous disclosure, product liability and anti-cartel legislative regimes are generally more straight-forward to establish than the equivalent actions at common law and, in the context of shareholder non-disclosure claims in particular, are determined in large part on publicly-available evidence, including documents filed with the Australian Securities Exchange.65

  1. 2.58 Seventy-one per cent of all shareholder class actions filed in Australia on or before
    31 May 2017 were supported by litigation funders.66 However, as IMF Bentham submitted, litigation funders have funded many types of class action besides shareholder and investor cases.67
  2. 2.59 Nevertheless, none of the 87 non-investor class actions that had been filed nationally for the benefit of vulnerable people as at March 2014 were financed by litigation funders.68 Legal services in these cases were usually provided on a ‘no win, no fee’ basis, although some proceeded only with the support of government agencies or the community or because the lawyers were prepared to work without charge.69
  3. 2.60 The largest class actions conducted under the Victorian class action regime have been underwritten by law firms acting on a ‘no win, no fee’ basis.70

Other funded proceedings

  1. 2.61 Commercial litigation funding began as a source of finance for insolvency proceedings. Claims arising out of insolvent companies about preferences, insolvent trading, and other claims brought by liquidators continue to be an important area of activity for funders.
  2. 2.62 Litigation funding has expanded into proceedings in other areas of law, notably commercial claims about breach of contract, misrepresentation and negligence. Funding
    is also commercially available for intellectual property and estates matters. Proceedings that involve a major litigation funder are likely to be large claims as they are more economic to run.
  3. 2.63 Although the commercial funding of claims valued at less than $1 million is generally not viable for litigation funders, the number of litigation funders is growing. A funder observed during informal consultations that newer entrants are focusing on claims valued at less than $5 million. In addition, litigation funders are offering an increasing variety of products, such as limited funding only for adverse costs or disbursements, which may be more viable than providing full funding services for smaller claims. IMF Bentham gave, as an example, a funding solution called ‘Cost-certain access to business litigation’, offered by a firm that provides services to small-to-medium-sized businesses. Under this arrangement, for claims over $500,000, a ‘no win, no fee’ fee agreement can be combined with litigation funding.71
  4. 2.64 The access to justice that litigation funding provides is necessarily determined by the commercial nature of the activity. It is reasonable to expect that litigation funders will continue to expand the market for their services. It is also inevitable that some meritorious claims will not be funded if—because of the value of the claim, the complexity of the matter, the likelihood of success or other factors caught by the selection criteria—they will not generate an adequate return on the funder’s investment.
  5. 2.65 Measures to generate financial support for meritorious class actions that are not perceived as commercially viable by litigation funders, or law firms operating on a ‘no win, no fee’ basis, are discussed in Chapters 3 and 5.


Components of funding costs

  1. 2.66 Litigation funders reduce the cost barrier of litigation for plaintiffs by underwriting the cost of bringing proceedings and indemnifying them against adverse costs. They monitor and influence the legal costs to different degrees, and some may charge a project management fee for doing so, but they do not determine the lawyer’s share of any recovered amount. The terms on which the funding is provided are set out in a funding agreement with the plaintiff.
  2. 2.67 Normally, the litigation funder agrees to pay the plaintiff’s legal costs and disbursements and, if the litigation is resolved in the defendant’s favour, any adverse costs order. It will also pay any security for costs if ordered by the court. The plaintiff is obligated to pay the funder only if the proceedings resolve in the plaintiff’s favour.
  3. 2.68 If the plaintiff wins, the litigation funder’s costs are deducted from the amount awarded by the court or negotiated between the parties. These typically include:
  • a funding fee, expressed as a percentage of the settlement or judgment amount
  • reimbursement of the legal costs and disbursements that the litigation funder paid during the proceeding (less any contribution from the defendant in the form of adverse costs)
  • court fees
  • a project management fee, calculated as a percentage of the legal costs, for monitoring the progress of the litigation and managing the associated legal costs and disbursements.72
  1. 2.69 The amount of the funding fee is determined by the structure of the funding agreement, which varies in nearly every case. This was pointed out by Justice Murphy in Earglow Pty Ltd v Newcrest Mining Ltd:73

It should be kept in mind that it is not enough to consider the funding commission rate on a stand-alone basis. The funding arrangements reached may be structured in a variety of ways which can affect the costs and risk taken on by the funder and therefore affect the reasonableness of the

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