Litigation funder cashes up as class action crackdown looms
Australia's biggest litigation funder, IMF, is raising money amid expectations the government will review the sector.
IMF and labour law firm Maurice Blackburn expect the review following comments in July by new Attorney-General George Brandis that "greater regulation of litigation funding of class actions should be examined".
IMF investment manager Wayne Attrill said he expected any changes to include a requirement for litigation funders to have an Australian financial services licence, plus prudential and capital adequacy requirements, as raised in a Productivity Commission report this year. He said IMF, which recently relinquished its financial services licence, would support such changes.
Litigation funders are third parties that provide funding for litigation in return for a share of the proceeds if the case is successful, while bearing the financial risk of an adverse result.
Though they are estimated to constitute less than 0.1 per cent of civil litigation by volume, the Productivity Commission said litigation funders were exploring opportunities outside their traditional areas of insolvency, commercial cases and class actions.
Engineering company Leighton Holdings and pay-day lender Cash Converters are the latest listed companies to be hit with class actions, both by Maurice Blackburn.
Both companies have said they would defend the claims. Andrew Watson, the head of class actions at Maurice Blackburn, said any government review of the area needed to ensure it increased "access to justice" for plaintiffs, by ensuring there was a functioning market for litigation funding that was not excessively regulated.
"That is something you would have intuitively thought the Coalition would support," he said.
But litigation funders have raised the ire of the Australian Institute of Company Directors, which argued that "the operation of litigation funders in the Australian marketplace has allowed third parties, with no interest in litigation (other than profit), to be involved in and to exercise a substantial degree of control over large-scale litigation against corporations."
Senator Brandis' office this week failed to respond to repeated requests for comment on plans for the sector, but a recent Productivity Commission issues paper said there "appears to have been relatively little legislative and regulatory guidance from government".
"Concerns have been raised over the adequacy of litigation funding regulation in relation to addressing conflict-of-interest issues, consumer protection in the event of default or misconduct and whether litigation funders should be required to hold an Australian financial services licence," it said. IMF, which has just raised $31 million and is seeking to raise a further $10 million to help fund overseas expansion, said its clients included retail investors, self-managed super funds, institutions and large industry super funds.
IMF has collected $1.3 billion for clients since forming in 1999 and taken an average cut of 34 per cent.
Its targets have included the global ratings agency Standard & Poor's and banks over their fees.
It is investigating funding cases against the operator of Queensland's Wivenhoe Dam and collapsed toll-road company BrisConnections.
Its shares are up 15 per cent in the year to date.