Litigation Capital Mgmt : TREASURY CONSULTATION REQUEST – CHANGES TO LAWS AFFECTING CLASS ACTIONS

CONSULTATION ON EXPOSURE DRAFT LEGISLATION

TREASURY LAWS AMENDMENT (MEASURES FOR CONSULTATION) BILL

2021: LITIGATION FUNDERS

SUBMISSION OF LITIGATION CAPITAL MANAGEMENT LIMITED

6 October 2021

Litigation Capital Management Limited ABN 13 608 667 509

Registered Office: Level 12, The Chifley Tower, 2 Chifley Square Sydney NSW 2000 Australia

[phone] | www.lcmfinance.com

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PART A: LITIGATION CAPITAL MANAGEMENT LTD

1. Litigation Capital Management Limited and its subsidiaries ("LCM") is a provider of litigation finance products and from that perspective makes the following submission in response to consultation on the exposure draft of "Treasury Laws Amendment (Measures For Consultation) Bill 2021: Litigation Funders" ("Exposure Draft").
2. Founded in 1998, LCM was one of the first professional litigation funders in Australia, and it is one of the longest-standing litigation funders globally. LCM holds an Australian Financial Services Licence and is a publicly listed Australian company, headquartered in Sydney and with offices in Melbourne, Brisbane, Singapore and London.
3. Since its inception, LCM has continued to assist claimants to pursue meritorious claims and recover funds from the legal avenues and actions available to them. LCM funds commercial, insolvency and arbitral proceedings, as well as representative actions.

PART B: EXECUTIVE SUMMARY

4. By this submission, LCM responds to the Exposure Draft as follows:

1. Part C of this submission outlines apparent errors in the Exposure Draft by which the wording of the proposed legislation is inconsistent with its Explanatory Materials. LCM submits that it is critical for amendments to be made in order for these errors to be addressed;
2. Part D of the submission comments on the Exposure Draft deeming class action litigation funding schemes to be managed investment schemes ("MIS");
3. Part E of the submission comments on guaranteed minimum returns to class members; and
4. Part F of the submission comments on the Exposure Draft's broader detriment, including the curtailment of 'open' class actions and conversion of class actions into an 'opt-in' model, fettering of judicial discretion, and setting a precedent for Australian financial products and investment schemes.

PART C: EXPOSURE DRAFT ERRORS

5. LCM submits that there are apparent errors within the text of the Exposure Draft, which must be rectified in order to ensure that the Bill meets its stated objectives without causing dramatic unintended consequences. These issues arise in respect of:

1. The definition of "class action litigation funding scheme" (section 9AAA);
2. The definition of "class action proceedings" (section 9);
3. The definition of "common fund order" (section 601LF(2)(c));
4. The definition of "claim proceeds" (section 9);
5. The costs chargeable by a Responsible Entity (section 601GA(5)(e));

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1. The definition and treatment of "legal costs" (sections 9 and 601LG); and
2. The transitional provisions (section 1688).

"Class action litigation funding scheme"

1. Both the title of the definition itself and the content of the Explanatory Materials make it plain that the definition of "class action litigation funding scheme" is to only relate to class actions. By way of just one of many available examples, the Explanatory Materials at [1.34] state:
   "A class action litigation funding scheme is a scheme in which a litigation funder seeks to fund a class action proceeding for the benefit of the scheme's general members" (Our emphasis)
2. However, nothing in the words of the drafted definition actually limit its application to class action proceedings.
3. Not only does the section not mention class actions or any defining markers of a class action, it refers to seeking remedies for "one or more" persons. This clearly includes claims that seek remedies for one person and, in any case, less than seven persons, which claims are not able to be commenced as a class action.
4. As presently drafted, the wording of the definition could apply to any claim in any Court, including personal injury, minor civil, debt recovery or insolvency actions. The consequent risk that all funding, of all claims, in all Courts could be included into the definition and thereby deemed to be an MIS would cause drastic and obviously unintended consequences for such actions.
5. For completeness, LCM notes that the Federal Court of Australia Act (Cth) 1976 ("FCA Act") defines a class action representative proceeding as a proceeding commenced under that Act's section 33C, which states:
   "33C Commencement of proceeding
6. 1. Subject to this Part, where:
   2. 1. 7 or more persons have claims against the same person; and
      2. the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and
      3. the claims of all those persons give rise to a substantial common issue of law or fact;

a proceeding may be commenced by one or more of those persons as representing some or all of them."

…

(Our emphasis)

1. LCM submits that for ideal drafting the definition of "class action litigation funding scheme" should exactly mirror the above definition.
2. However, at an absolute minimum, LCM submits that it is imperative that the wording of the definition must be amended as follows:
   "A scheme that has all of the following features is a class action litigation funding scheme:

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1. the dominant purpose of the scheme is to seek remedies to which one sevenor more persons (the claimants) may be legally entitled arising out of:
2. 1. the same, similar or related transactions or circumstances that give rise to a common issue of law or fact; or
   2. different transactions or circumstances but the claims of the claimants can be appropriately dealt with together;
3. the possible entitlement of each of the claimants to remedies relates to transactions or circumstances that occurred before or after the first funding agreement (dealing with any issue of 24 interests in the scheme) is finalised;
4. the steps taken to seek remedies for each of the claimants include one or more lawyers providing services in relation to:
5. 1. making a demand for payment in relation to a claim; or
   2. lodging a proof of debt; or
   3. commencing or undertaking legal proceedings under Part IVA of the Federal Court of Australia Act (Cth) 1976 or corresponding provisions of State Court Acts; or
   4. investigating a potential or actual claim; or
   5. negotiating a settlement of a claim; or
   6. administering a deed of settlement or scheme of settlement relating to a claim;
6. a person (the funder) provides funds or indemnities, or both, under an agreement (the funding agreement) (including an agreement under which no fee is payable to the funder or lawyers if the scheme is not successful in seeking remedies) to enable the claimants to seek remedies;
7. the funder is not a lawyer or legal practice that provides a service for which some or all of the legal fees or disbursements, or both, are payable only on success;
8. if commenced, legal proceedings to seek remedies for each of the claimants
   would be commenced under Part IVA of the Federal Court of Australia Act (Cth) 1976 or corresponding provisions of State Court Acts."

13. LCM stresses that without the above amendment, the proposed Bill will have potential application to all funded matters, which is clearly contrary to its stated intention. The implementation of the Exposure Draft in its current form will force all funders operating in Australia to seek urgent and immediate relief from the Australian Securities and Investments Commission ("ASIC").

"Class action proceedings"

1. Building on the above comments in relation to "class action litigation funding scheme", the definition of "class action proceedings" suffers from the same error and again makes no reference to class actions or any defining markers of a class action.
2. For the reasons stated above, LCM submits that, at an absolute minimum, it is also imperative that the wording of this definition must be amended as follows:
   "class action proceedings, for a class action litigation funding scheme, means legal proceedings in a Court commended under Part IVA of the Federal Court of Australia Act (Cth) 1976 or corresponding provisions of State Court Actsto seek remedies for each of the scheme's general members, whether or not remedies are also sought in the proceedings for one or more other persons."

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"Common fund order"

1. At [1.28], the Explanatory Materials state:
2. 
   "Litigation funders cannot enforce the claims proceeds distribution method if, in the relevant class action, the Court makes an order to impose the funder's fee or commission on claimants who are not members of the class action litigation funding scheme (a common fund order). Such orders do not include orders that ensure all claimants (including those who are not members of the class action litigation funding scheme) contribute to the legal costs of the proceeding." (Our emphasis)
3. LCM submits that the drafting of the "common fund order" definition lacks clarity and can be interpreted as contradicting the above Explanatory Materials.
4. Therefore, LCM submits that the definition ought to be amended as follows:
5. 1. 
      "(c) in, or in relation to, the proceedings, the Court does not make an order (a common fund order) for the purposes of:
   2. fixing the remuneration (however described, but not including contributions to the reimbursement or payment of legal costs) of the funder for the scheme as a portion of the total money obtained as remedies for one or more persons as a result of a judgment made, or settlement approved, by the Court in relation to the proceedings; and
   3. requiring one or more persons who obtain such a remedy, but who are not general members of the scheme, to contribute to the funder's remuneration fixed under (i)."

"Claim proceeds"

1. As noted above, at [1.28], the Explanatory Materials state:
   "Litigation funders cannot enforce the claims proceeds distribution method if, in the relevant class action, the Court makes an order to impose the funder's fee or commission on claimants who are not members of the class action litigation funding scheme (a common fund order). Such orders do not include orders that ensure all claimants (including those who are not members of the class action litigation funding scheme) contribute to the legal costs of the proceeding." (Our emphasis)
2. At [1.40] the Explanatory Materials further state:
   "The gross amount obtained as a remedy by the general members of the scheme are referred to in the schedule as the claims proceeds. Claim proceeds are intended to be only the amount obtained as a remedy to the substantive claims advanced in the proceeding and not any other money obtained during the proceedings, such as an order for the other side to pay costs." (Our emphasis)
3. LCM submits that the drafting of the "claim proceeds" definition lacks clarity and could be interpreted as contradicting the above Explanatory Materials.
4. Therefore, LCM submits that the definition ought to be amended as follows:
   "claim proceeds, for a class action litigation funding scheme, means the total money obtained as substantiveremedies for one or more of the scheme's general members, as