The High Court of Australia has clarified the legal status of one type of litigation funding.
In International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed) [2012] HCA 45 the High Court decided that ILP (a litigation funder) was entitled to recover its fees even though it did not have an Australian Financial Services licence under the Corporations Act: it was not required to have one as the arrangement was an exempt “credit facility”.
Chameleon was ordered to pay ILP $8,381,144.30 plus interest and costs relating to commercial litigation instituted by Chameleon funded by ILP.
The arrangement involved ILP paying Chameleon’s lawyers in the litigation directly.
The arrangement did not involve a managed investments scheme such as those used to fund class actions and which have been made exempt from an AFS Licence under Corporations Amendment Regulation 2012 (No. 6).
The issue was whether the funding agreement was a “financial product” as defined in s 763A(1) and therefore required licensing by Section 911A(1) which imposes the licensing requirement upon “a person who carries on a financial services business in this jurisdiction”. The expression “financial services business” means “a business of providing financial services” (s 761A). The term “financial service” includes dealing in a “financial product”.
ILP argued that the agreement was excluded from the definition of “financial product” as it was an exempt credit facility under section 765A(1)(h)(i).
Credit facilities are not covered by the definition of “financial product” and to the extent that they are consumer credit, they are regulated by the National Consumer Credit Protection Act 2009.
The majority of the High Court explained the exemption as follows:
“..the provision of “credit … for any period”, with or without prior agreement between the credit provider and the debtor and whether or not both credit and debit facilities are available, is a “credit facility” (reg 7.1.06(1)(a)). The term “credit” is defined in reg 7.1.06(3)(a) as meaning a contract, arrangement or understanding under which payment of a debt to the credit provider “is deferred”, and as including “any form of financial accommodation” (reg 7.1.06(3)(b)(i)). The use in this way of the concept “means and includes” is to avoid any doubt that what is identified by the inclusion falls within the scope of the designated meaning of “credit”. The result is that a contract, arrangement or understanding that is any form of financial accommodation is “credit”, and its provision “for any period” will be a “credit facility”.
The High Court was of the view that what the Funding Deed provided to Chameleon was a form of financial accommodation notwithstanding that ILP was to pay the Legal Costs incurred by Chameleon rather than advancing to it the moneys to enable it to do so.
The High Court concluded: “The Funding Deed was a “credit facility”, being for the provision for a period of a form of financial accommodation of Chameleon by ILP. The exclusion provision in s 765A(1)(h)(i) of the Act was satisfied.”
