The fast-growing number of shareholder claims in Australia, particularly in the wake of the Hayne Royal Commission, has seen litigation funders backing claims and the SIC saying the courts should police funding deals by the funders.
The AFR reports that the ASIC is resisting moves to license litigation funders and examine the impact of continuous disclosure laws on shareholder class actions, saying the laws provide “benefits to consumers”.
A submission to the Australian Law Reform Commission’s inquiry into litigation funding and class actions saw the corporate regulator says funding deals are not financial products and that the courts should be left to police claims.
The claim is of interest also to New Zealand litigation funders who have sought to have litigation funding governed by the courts and long argued for a level playing field that permits responsible funding moves by the companies. LawFuel’s interview with LPF Group executive Phil Newland reported on the opposition funders have received to their funding arrangements and the need for reform.
The Australian situation places the ASIC it in conflict with the ALRC’s two main recommendations and leading litigation lawyers expressed disappointment at ASIC’s submission, with one saying “the ball had been passed back to judge” and another saying a regulator should “set a benchmark for basic funder behaviour”.
Attorney-General Christian Porter (above) has given cautious backing for the licensing of litigation funders. Image: AFR.
In Australia funders have been specifically exempted from the requirement to hold an Australian Financial Services Licence, but the growth in shareholder claims has changed that with at least 10 claims currently underway following the Hayne Royal Commission.
ASIC has also opposed ALRC’s call for a review of the impact of continuous disclosure laws, which ASIC says are “critical to protecting shareholders, promoting market integrity and maintaining the good reputation of Australia’s financial markets”.
“The economic significance of fair and efficient capital markets dwarfs any exposure to class action damages.”
Herbert Smith Freehills partner Jason Betts says it is “long overdue time to have a regulator set a benchmark for basic funder behaviour”. Image: AFR
The NSW Law Society reflected the view of many submissions when it said a “funder is providing, in practical terms, a financial product” and that it was “difficult to argue that a funder should not be under an obligation to provide their services ‘efficiently, honestly and fairly'”.
The ASIC says litigation funding “should be regulated as a legal service as it is more closely aligned with the provision of legal services and the administration of justice, than with the provision of financial products and services”.
They say that they consider the courts to be better placed to regulate funders through their rules and procedure, oversight and security for costs.
Shareholder class actions “provide a number of benefits to consumers and financial markets and play an important role in improving shareholder access to justice” the ASIC says.
“Risks as may exist in relation to litigation funders are better addressed through other mechanisms – for example, court-ordered security for costs.”
“Further, given ASIC’s risk-based approach to regulation, it seems unlikely such an area would be a main focus of our work even if we had jurisdiction for it.”
“That is classic territory for regulation and most major funders actually agree with introducing regulation. This is a 10-year old debate and it is time to have a regulator set a benchmark for basic funder behaviour.”
Last week, Therium Capital Management, which has funded claims valued at $36 billion and is backing a claim against AMP, announced it was opening an office in Melbourne.
Therium founder Neil Purslow said the market for funding class actions, general commercial cases and insolvency matters was “well established and currently very buoyant”.