A court ruling may have far-reaching consequences on class action litigation in Australia after the full bench of the Federal Court delivered a recent decision. In Brookfield Multiplex and ILF Partners the court accepted that a litigation funding arrangement was required to be registered under, and to comply with, the managed investments scheme provisions of the Corporations Act 2001.

Deacons Melbourne insolvency & restructuring group partner David Porter said that if this ruling stands, it has the potential to become a serious hurdle to class-action lawsuits in Australia. “The long-term implications for defendants and their insurers are not clear,” he said. “Unless this decision is overturned by the High Court, or the government amends the Corporations Act to exclude class-action schemes from regulation, it is likely to be a significant impediment to class-action litigation in Australia.”

The October ruling in question was handed down in a case that stems from a class action launched against construction group Brookfield Multiplex, for allegedly failing to disclose losses resulting from the redevelopment of Wembley Stadium in London in 2005. The case against Brookfield Multiplex is being funded by International Litigation Funding Partners (ILF).

Under the agreement between the litigation funder and the plaintiffs, none of the lawyers’ fees or expenses will be paid by the plaintiffs, nor do they have to pay any adverse costs orders. However, if the class action results in a win for the plaintiffs, ILF will be paid back all of those expenses as well as a percentage of the damages or settlement money, with the remainder going to the plaintiffs.

The court ruled that this arrangement constitutes a managed investment scheme (MIS) and as such must be registered with ASIC. Deacons partner David Porter said that all litigation funders will now need to examine their funding arrangements for class actions. “If those arrangements are similar to those described above, the litigation funders will need to consider whether they are operating an MIS requiring registration,” he said.

Yet the case is now somewhat up in the air, with no substantive orders having yet been made by the court. All parties have been told to file submissions as to the form of orders the court should make. These could range from winding up the unregistered MIS, to ILF obtaining an exemption and continuing its operations. Alternatively, ILF may seek special leave to appeal to the High Court.

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