AU Litigation Funders See Agreements Grandfathered Through MIS Regime

An Australian court recently offered guidance regarding when litigation funding agreements will be grandfathered, vs when they’ll be subjected to the Managed Investment Scheme regime. This came in the form of a Federal Court decision in Stanwell Corporation Limited v LCM Funding Pty Ltd (2021).

MONDAQ details that funding agreements that were signed prior to August 22 of last year can be grandfathered even if the case was in an early investigative phase at the time. At the same time, calling a class action an MIS is something that may be brought before an appellate court. Before 2009, the MIS regime didn’t apply to litigation funding.

Decisions made with regard to a work program for investigations and book building can still be considered part of an MIS when they share the same dominant purpose—to facilitate class members seeking remuneration.

The decision on grandfathering was determined because, according to amendments made by CALF regulations, a litigation funding scheme is not an MIS, nor will it require an AFSL, if it was entered into before August 22 of 2020. This is provided that the ‘dominant purpose’ (a term that is defined objectively) of the scheme is for claimants to seek remedies for damages incurred.

In the case, LCM was accused of operating an unlicensed MIS. When cross-claims were made by LCM, judges determined that even if the scheme had not been eligible to be grandfathered, the scheme itself was arguably not an MIS. It was asserted that the true dominant purpose of the program was not to help claimants seek remedies for damages, but rather, was for LCM’s sole benefit.

Ultimately, the case determines that book building or early investigations can be part of a litigation funding scheme—even when group members are not yet involved.