On 5 October 2012, the High Court unanimously allowed the appeal and decided that the litigation funding agreement between Chameleon Mining NL (Chameleon) and International Litigation Partners Pte Ltd (ILP) was a “credit facility” within the meaning of the Corporations Act and thus, was not a “financial product” under the Corporations Act 2001 (Cth) (Corporations Act). This meant that the licensing requirements of Chapter 7 did not apply to the litigation funding arrangement. A copy of the full judgment in International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed)  HCA 45 can be accessed here.
The case concerned a litigation funding agreement between Chameleon and ILP (the Agreement) entered into in October 2008, under which ILP undertook to fund litigation commenced by Chameleon in the Federal Court of Australia against Murchison Metals Ltd, in return for a percentage of any sum awarded upon resolution of the proceedings. The Agreement also allowed for early termination if a change of control of Chameleon occurred, subject to payment of an early termination fee. When a change of control in fact occurred, Chameleon purported to rescind the funding agreement under section 925A of the Corporations Act on the basis that the Agreement was a financial product, and that ILP was not licensed to issue or deal in such a product.
At first instance, Justice Hammerschlag did not accept that the Agreement was a financial product. Thus, Chameleon could not rescind the Agreement and was liable to pay the early termination fee.
In March 2011, the New South Wales Court of Appeal overturned this decision, holding that the Agreement was a financial product and that, because ILP did not hold an Australian financial services license (AFSL), Chameleon could rescind the Agreement. For a more detailed summary of the reasoning behind the Court of Appeal’s decision, please see our earlier article.
The High Court allowed the appeal, holding that:
As ILP succeeded on the above grounds, it was unnecessary for the High Court to consider the other issues that were argued in the appeal, such as the meaning of “financial product” and “derivative” under the Corporations Act.
The High Court’s decision in the Chameleon case has been the latest in a series of cases regarding litigation funding arrangements and suggests that such arrangements will fall outside the Australian financial services and managed investment scheme (MIS) licensing requirements of the Corporations Act.
Despite case law developments, from 13 January 2013, the position in respect of litigation funding agreements for class actions will be governed by the Corporations Amendment Regulation 2012 (No. 6) (Cth) (Regulation).
Since our Q3 edition of Class Action, the Regulation has been amended (Corporations Amendment Regulation 2012 (No. 6) Amendment Regulation 2012 (No. 1) (Cth) (Amendment Regulation)) to address technical issues with the Regulation's operation and to respond to the High Court’s finding in the Chameleon case that the litigation funding arrangement was a credit facility under the Corporations Act. The Regulation now provides that:
A full copy of the Regulation and the Amendment Regulation can be accessed here and here.
Moira Saville presents a summary of this edition.
Based on the U.S. experience, the enactment of legislation requiring organisations to report breaches of security measured taken to protect personal information has the potential to induce a proliferation of class actions in Australia. Read more.
A recent Supreme Court of Victoria decision has highlighted the difficulty for plaintiff’s legal representatives to attempt to adopt overseas procedure to aid class actions commenced in Australia. Read more.
The Victorian Court of Appeal has again considered the circumstances in which it was appropriate to require class action group members to provide particulars and discovery of documents. Read more.
On 18 October 2012, Bromberg J declined to grant orders sought by the respondents in two class action proceedings for class closure in their respective proceedings. Read more.