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High Court gives litigation funders the green light: Campbells Cash and Carry Pty Limited v Fostif Pty Limited
Yesterday the High Court paved the way for a much more significant role for litigation funders in class actions in Australia. It is now beyond doubt that litigation funders can control class action litigation with the purpose of profiting from it.
For companies vulnerable to class actions, this decision may mean a different style of litigation - against an opponent who is detached, professional and profit driven.
The increased level of control that litigation funders will now seek to exert over proceedings could also mean that there will be greater investor certainty in the litigation funding industry and more funds to launch class actions.
Companies should consider the adequacy of their directors’ and officers’ insurance policies in light of the decision.
Background
A tobacco retailer launched a representative action to recover tobacco licence fees in the New South Wales Supreme Court. The case was funded by a litigation funder, Firmstones.
Firmstones financed the proceeding and stood to take one-third of any money received by the retailers from the tobacco wholesaler, as well as all costs awarded.
Class actions controlled by litigation funders: not an abuse of process
Firmstones sought out potential plaintiffs, controlled the litigation and stood to make a substantial profit. The High Court said that none of these things, by themselves or together, are contrary to public policy or an abuse of process.
The High Court said that “fears about adverse effects on the processes of litigation” as a result of these sorts of arrangements were not enough to establish a rule of public policy to prohibit representative actions financed by litigation funders.
What kind of control did the litigation funder have?
Firmstones had power to control the case. It could give instructions, enter into and execute settlement agreements and releases and receive judgment or settlement money.
It is clear that Firmstones would make all the important decisions - it was its decision as to how the claims were to be moulded and what evidence to rely upon.
What is new in this judgment?
This judgment gives litigation funders clear High Court support for taking control of proceedings.
The market should now expect that litigation funders take a much more open and directive role in identifying potential class actions and for making all the important decisions about the proceedings, including settlement.
Already IMF, Australia’s largest litigation funder, has been quoted in the press as saying that it will consider re-writing its funding agreements to give it a greater say in the litigation it pays for.