13 August 2012Print This Post

Australia rejects regulation of third-party funders

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jpg” alt=”” width=”200″ height=”300″ /> Australia: rules on conflicts of interest

The Australian government has rejected a regulatory regime for third-party litigation funders, requiring them only to manage conflicts of interest

The requirements on funders in Australia will be far less than on those now subject to self-regulation in England and Wales

Secondary legislation has been introduced to counter a 2009 Federal Court ruling that a funded class action was a ‘managed investment scheme’ under Australian corporate law

Had this been allowed to stand, it would have imposed a wide range of requirements on funders, such as registration, licensing, conduct and disclosure

Bill Shorten, minister for financial services and superannuation, said in an explanatory statement: “The government considers that these requirements are not appropriate for litigation funding schemes

The government supports class actions and litigation funders as they can provide access to justice for a large number of consumers who may otherwise have difficulties in resolving disputes

“The government’s main objective is therefore to ensure that consumers do not lose this important means of obtaining access to the justice system

The new regulation does, however, require funders to maintain “adequate arrangements for managing c

onflicts of interest”

But there are no other features of the recently adopted code of conduct in England and Wales, such as capital adequacy or membership of an association

The regulation also includes a carve-out from ‘anti-hawking provisions’ so that funders can make unsolicited invitations to people to become members of a class action or other litigation funding scheme

However, according to The Australian newspaper, the government said a licensing regime was outside the scope of the statutory instrument and indicated that a separate review of whether express regulation of funders is needed is under consideration

A briefing from leading Australian law firm Clayton Utz said the conflict arrangements will include conducting a review to identify potential conflicts, monitoring of potential conflicts, disclosure and what the regulations describe as “protecting the interests of

members of the scheme”

The firm said this last requirement “could give rise to effective obligations

The protection of interests may encompass such things as creating a mechanism for resolving differences between the funder and a plaintiff as to important discussions in the litigation such as discontinuance or settlement

“This is currently managed through a ‘QC clause’ whereby an independent opinion is sought from a senior barrister as to the merits of the decision to be made

It may also mean prohibiting a funder from controlling proceedings or seeking to influence the legal practitioners retained in proceedings or placing limits on a funder’s right to terminate a funding agreement

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