Litigation Funding in Australia

Michael Legg+, Louisa Travers*, Edmond Park and Nicholas Turner#

Abstract
Litigation funding has been argued to be an important development in Australian civil litigation that provides access to justice, allows for the spreading of the risk of complex litigation and can improve the efficiency of litigation by bringing commercial considerations to bear.  Since the High Court decision in Campbells Cash and Carry Pty Limited v Fostif Pty Ltd (2006) 229 CLR 386, the Australian litigation funding industry has enjoyed significant growth.  However, the operation and proper constraints on litigation funding remains a live issue with concerns that the relatively unregulated nature of the litigation funding market creates the possibility for harm to consumers and the abuse of court processes.  This paper reviews the development of litigation funding in Australia and the proposals for its regulation, including the decision in Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11 where the Full Federal Court found that the litigation funding arrangements under consideration constituted a 'managed investment scheme' that was subject to the requirements of the Corporations Act 2001 (Cth).

Contents
1.	Introduction
2.	What is Litigation Funding?
2.1	Background
2.2	Typical Funding Arrangements
3.	Campbells Cash and Carry Pty Limited v Fostif Pty Ltd
4.	Precedent Development to Assist Litigation Funding
4.1	Sons of Gwalia v Margaretic
4.2	The Closed Class
5.	Litigation Funders and Security for Costs
5.1	Jeffery & Katauskas Pty Limited v SST Consulting Pty Ltd
5.2	Relevant principles for security for costs
5.3	The nexus between the litigation funder and security for costs
5.4	Policy reasons for requiring litigation funders to provide security for costs
5.5	Quantum of security
6.	Litigation Funders Management of Proceedings and Access to Documents
6.1	Express and Implied Undertakings
6.2	The Privilege Issue
7.	Regulation of Litigation Funding
7.1	Australian Financial Services Licence
7.2	Litigation Funding as a Managed Investment Scheme
7.3	ASIC Relief
8.	Conclusion - The Future of Litigation Funding
8.1	Regulation
8.2	Further Precedent Development

Litigation funding is at its core a contractual arrangement whereby a third party pays the cost of litigation and in return, if the case succeeds, receives a percentage of the proceeds. Litigation funding has been argued to be an important and legitimate development that provides access to justice, allows for the spreading of the risk of complex litigation and can improve the efficiency of litigation by bringing commercial considerations to bear.
Since the High Court gave its ruling in Campbells Cash and Carry Pty Limited v Fostif Pty Ltd, the Australian litigation funding industry has enjoyed significant growth. There are six or seven litigation funding companies in Australia at present which account for about 95% of all litigation funding in Australia, including two (IMF (Australia) Ltd and Hillcrest Litigation Services Limited) listed on the Australian Securities Exchange. In the financial year ended 30 June 2009, IMF (Australia) Ltd received net income from litigation funding in the sum of $35,246,957, with total net income of $38,748,833. This represented a 21% increase in profitability from the previous year. 
However, the operation and proper constraints on litigation funding remains a live issue with concerns that the relatively unregulated nature of the litigation funding market creates the possibility for harm to consumers and the abuse of court processes.

Historically improperly encouraging litigation (referred to as ‘maintenance’) and funding another person’s litigation for profit (referred to as ‘champerty’) were torts and/or crimes in all Australian jurisdictions.  The common law prohibition of litigation funding was justified in part by a doctrinal concern, namely that the judicial system should not be the site of speculative business ventures. However, the primary aim was to prevent abuses of court process (vexatious or oppressive litigation, elevated damages, suppressed evidence, suborned witnesses) for personal gain.  Today, legislation in the , New South Wales, South Australia and Victoria has expressly abolished maintenance and champerty as a crime and as a tort.  It also seems likely that maintenance and champerty are obsolete as crimes at common law.  However, in these jurisdictions, while there is no criminal or civil liability for maintenance and/or champerty, the abolishing legislation does ‘not affect any rule of law as to the cases in which a contract is to be treated as contrary to public policy or as otherwise illegal’. 
Since 1995 under statutory powers of sale, insolvency practitioners may contract for the funding of lawsuits, if these are characterised as company property.  Many such actions are for voidable transactions or misfeasance by company officers.  Litigation funding companies emerged to service this market. More recently, litigation funding has been used to finance and manage class actions, particularly in the securities and competition law areas. The significance of the class action may be illustrated by the change in investments made IMF (Australia) Ltd. In 2006, IMF (Australia) Ltd had a claim value of $144 million in insolvency investments, $274 million in commercial investments, and $526 million in group actions, compared with the corresponding 2008 figures of $132 million in insolvency investments, $280 million in commercial investments and $928 million in group actions. 

In a typical litigation funding arrangement, the funder (usually a commercial entity) will enter into an agreement with one or more potential litigants. The funder pays the costs of the litigation (such as the lawyer's fees, disbursements, project management and claim investigation costs) and usually accepts the risk of paying the other party's costs in the event that the claim fails through providing the plaintiff with an indemnity. In return, if the claim is successful, the funder will receive a certain percentage of any funds recovered by the litigants either by way of settlement or judgment, and the litigants will assign the funder the benefit of any costs order they receive. The share of the proceeds is agreed with the litigants, and is typically between one third and two thirds of the proceeds (usually after reimbursement of costs). 
For a litigation funder to determine whether to fund an action they must calculate the risk associated with the litigation, that is, the prospects of success.  They must also quantify the amount of a successful recovery and their potential liability for the costs of the proceedings (the expenses they incur bringing the suit and the risk of having to pay the defendant's costs if the action fails).  In simple terms, litigation funders will fund litigation when the probability of a successful outcome multiplied by the .  Ideally the percentage of the recovery going to the funder should reflect the risk inherent in the proceedings.  The riskier the proceedings the greater the share of the proceeds that will need to be payable to the funder to make the investment attractive.  However, the litigation funder is able to spread the risk associated with a particular proceeding by adopting a portfolio approach to its inventory of cases.  If the funder is going to fund a claim involving novel theories of liability and therefore take a greater risk it can offset the risk by also funding a low risk case where liability is clear.  In summary, litigation funding is a business which decides whether to fund cases based on risk and return.   
At present in Australia, litigation funders tend to use two distinct business models.  The first is to be a company incorporated in Australia that obtains the funds to be invested in litigation from debt and equity sources.  Under this model, the company is listed on a stock exchange and as such will comply with prospectus requirements in obtaining equity and the usual requirements for listed public corporations such as continuous disclosure obligations.  The second model involves the funder sourcing funds from Australian and/or overseas high wealth individuals or corporations.  The second model is more opaque and in some instances may operate off-shore so as to take advantage of favourable tax regimes.  The interaction between investors and litigation funders has generally not attracted a great deal of attention, as compared to the interaction between the funder and the litigant receiving the funding (including group members in class actions) that is discussed further below. 
Litigation funding does not just make available the financing needed for identifying and prosecuting potential law suits. For example, central to class action litigation is the entrepreneur who can identify the potential law suit, undertake the due diligence to determine the feasibility of litigation, organise a representative party and group members, provide financing to fund the costs that are incurred and co-ordinate the resources needed to achieve a favourable settlement or judgment.  The litigation funder frequently performs this role, although assisted, more or less, by the lawyers for the representative party.

In Campbells Cash and Carry Pty Limited v Fostif Pty Ltd (2006) 229 CLR 386, Australia's highest court considered the legality of litigation funding for the first time. The High Court held 5:2 that litigation funding was not an abuse of process or contrary to public policy.  The joint judgment of Gummow, Hayne and Crennan JJ indicated that existing doctrines of abuse of process and the courts' ability to protect their processes would be sufficient to deal with a funder conducting themselves in a manner 'inimical to the due administration of justice'. The joint judgment also explained that in jurisdictions which had abolished maintenance and champerty as crimes and torts, New South Wales, Victoria, South Australia and the Australian Capital Territory, there were no public policy questions beyond those that would be relevant when considering the enforceability of the agreement for maintenance of the proceedings as between the parties to the agreement.  In other words, once the legislature abolished the crimes and the torts of maintenance, these concepts cannot be used to found a challenge to proceedings which are being maintained.  Their only relevance is in a dispute between plaintiff and funder about the enforceability of the agreement.  The Court did not decide the position for those states where legislation had not abolished maintenance and champerty as crimes and torts (Western Australia, Queensland, Tasmania and the Northern Territory).
The joint judgment also considered a range of factors specific to the instant litigation, that alone or in combination, were not contrary to public policy or led to an abuse of process.  They included:
•	the funder's seeking out of claimants, which the appellants described as "officious intermeddling";
•	the degree of control which the funder would have over the proceedings, the litigants' interests being said to be "subservient" to those of the funder; 
•	the funder's retainer of a solicitor to act for the plaintiffs and represented parties was said not to lessen the funder's control of the proceedings but to give rise to possible conflicts of duty for the solicitor; and
•	the funder obtained rights to litigate and did so with a view to profit.  The funder was "a speculative investor in other persons' litigation".
The joint judgment also rejected the need for special rules to protect against the risk of "blackmail settlements" in class actions as occurred in the United States.

Litigation funders, as repeat players in the litigation arena, have set about advocating changes to the law that promote their business model.  

The decision of the High Court in Sons of Gwalia Ltd v Margaretic signified an opening of opportunities for the litigation funding sector in that aggrieved shareholders could make certain compensation claims against the company in voluntary administration or liquidation without having to stand at the end of the queue thereby increasing the likelihood of recovery, and the utility of pursuing claims with the assistance of litigation funding.  
Background
Sons of Gwalia Ltd was a publicly listed gold mining company.  Shortly after Mr Margaretic bought shares in the company, administrators were appointed to the company and the shares that were acquired appeared to be worthless.  It was alleged that, in breach of ASX listing rules, the company failed to notify the ASX that the company's gold reserves were insufficient to meet its gold delivery contracts and that it could not continue as a going concern.  Accordingly, Mr Margaretic's pursued a compensation claim arising from contraventions of s 52 of the Trade Practices Act 1974 (Cth), s 1041H of the Corporations Act 2001 (Cth) and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth).
Shareholder claims
The pre-Sons of Gwalia orthodox position was that all claims by shareholders against the company of which they are shareholders were claims in their capacity as members and thus they ranked last in a voluntary administration or liquidation behind all unsecured creditors.
Section 563A of the Corporations Act provides that:
"Payments of a debt owed by a company to a person in the person's capacity as a member of the company, whether by way of dividends, profits or otherwise, is to be postponed until all debts owed to, or claims made by, persons otherwise than as members of the company have been satisfied."

Essentially section 563A subordinates any claims made by a person in their capacity as a member of the company, whether by way of dividends, profits or otherwise, below the claims of other unsecured creditors against the company.  The key issue in Sons of Gwalia was to determine which shareholder claims in an external administration fall within or outside section 563A.
Claims within and outside s 563A
Those claims which fall within section 563A involve a connection between the company's obligation and the shareholder-claimant's membership, often in relation to dividend, capital repayment or other rights arising from membership of the company.  Falling outside of section 563A are claims arising from "investor protection legislation" and not membership rights.
In Sons of Gwalia the claims concerned were not made by the shareholders in their capacity as members but instead as persons buying or subscribing for shares relying upon misleading or deceptive information or material non-disclosures.  Such persons are entitled to the rights and protections under statutory investor protection provisions, which are not restricted to members.  Where a shareholder is induced to acquire shares in the company as a result of actionable misconduct (tortious or statutory) and the company subsequently goes into insolvency, the shareholder is able to prove their debt ahead of ordinary members of the company as a judgment creditor and not in their capacity as a member.  Such a claim lies outside section 563A because it does not relate to the recovery of any paid-up capital, the avoidance of any liability to make a contribution to the company's capital, or rights or obligations linked to membership of the company.
Impact of decision on litigation funding
The High Court's decision establishes that section 563A is not about "a 'creditors come first, shareholders come last' approach".  Although this decision may promote the utility of pursuing aggrieved shareholder claims, the cost of participating in the insolvency process and if litigation ensued the cost of that litigation, including adverse costs orders, can be disincentives.  It may be more economically viable for shareholders to participate in a group with litigation funding support as this allows the cost of bringing the action to be spread across many claimants giving rise to economies of scale because as the number of group members increases costs increase by a lesser amount.  However, a corresponding decline in pro rata recovery may need to be factored into a shareholder's decision whether to participate.  Shareholders may welcome the assistance of the litigation funder who can not only assist them to navigate a voluntary administration or liquidation, but is able to provide the financial and legal resources necessary to pursue the shareholders' claims with the administrator or liquidator, including supporting litigation to challenge the rejection of a claim or the value attributed to the claim.
From the litigation funders perspective increasing the number of claimants is beneficial as the funder takes a percentage of the total of all claims that are subject to a funding agreement so that their remuneration increases as the total recovery of the group increases.  The nature of the voluntary administration or liquidation process in requiring the filing of a claim to be able to participate assists litigation funders in attracting shareholder claims and increasing the chances of capturing prospective claims.  
Litigation funding arrangements, however, do not remove or reduce the difficulties associated with satisfying the elements and meeting the forensic burden of the relevant tortious or statutory causes of action before a remedy can be granted.  Those difficulties include the task of establishing:
(a)	the relevant corporate misconduct and breach of relevant investor protection legislation or other law under which a damages claim may be made;
(b)	causation between the impugned conduct and the loss or damage incurred;
(c)	reliance upon the misrepresentation complained of;
(d)	loss or damage incurred.
Legislative intervention to reverse the effect of Sons of Gwalia
In January 2010, the federal government announced its intention to abrogate the effect of the decision in Sons of Gwalia by introducing legislation to amend the law so that it substantially corresponds to the position as generally understood prior to the High Court's decision.  This amendment will remove the right of shareholder claimants to vote as unsecured creditors in insolvency proceedings, unless the Court permits otherwise.  A shareholder will no longer be able to bring a claim under investor protection provisions on the same footing as a conventional unsecured creditor in a voluntary administration or a liquidation.
The reasons for the government intervention are summed up in the following comments in the ministerial press release announcing the proposed legislative changes:
"Any direct benefits to aggrieved shareholders arising from non-subordination [by s 563A] are outweighed by the negative impacts on shareholders generally as a result of restrictions on access to, and increases in, the cost of debt financing for companies."
"The Government also remains concerned that the Sons of Gwalia decision has the potential to further increase uncertainty and costs of (sic) associated with external administration."

However, such a reversal could be considered as going against the direction of investor protection law (particularly in the event of insolvency) and the reinforcement of market confidence and integrity through the promotion and enforcement of a continuous disclosure regime.
The proposed intervention would have the effect of confining shareholder claims under investor protection provisions to actions against solvent corporations that had the financial resources to pay such claims and persons other than the company such as directors, officers and other advisers.  Litigation funders would almost never support shareholder claims against an insolvent corporation as the likelihood of a sufficient return would be low.  Further, funders may be reluctant to support proceedings against smaller corporations where the claim value could be greater than the corporation's resources as insolvency would make such litigation futile for the shareholder and funder.
 
The legislation creating group proceedings in Australia at the federal level is Pt IVA of the Federal Court of Australia Act 1976 (Cth) (“FCA Act”), which was enacted in 1992. A class action brought under this legislation usually has three procedural hurdles to overcome, complying with the requirements for commencing the proceedings in section 33C, complying with the additional pleading requirements in section 33H and avoiding being discontinued pursuant to section 33N.  
In addition to the above requirements, class actions in the Federal Court are also characterised by a right to receive notice of a class action and be given the opportunity to opt out of the proceedings, i.e. affirmatively exclude themselves. If a group member falling within the defined class does not opt out then they are bound by the outcome of the proceedings.   
However, an opt in or limited group approach is favoured by litigation funders because they allow the funder to require each group member to accept the terms of their funding agreement thereby eliminating the so called 'free-riders'  who pursuant to an opt-out approach are able to participate in a successful outcome without entering a funding agreement. An opt in class action model may be commenced by an applicant alone or on behalf of a group but involves notices being sent to potential group members after litigation is commenced asking them to participate in the class action by giving their consent to inclusion. The limited group approach involves a class action being commenced on behalf of a group specifically created for, and prior to, the commencement of the class action.  
Attempts to employ an opt in model were unsuccessful in Dorajay Pty Ltd v Aristocrat Leisure Ltd ("Aristocrat class action"), but the use of a “limited group” or “closed class” method of group definition was permitted by the Full Federal Court of Australia in Multiplex Funds Management Ltd v P Dawson Nominees Pty Ltd ("Multiplex class action").  
In Multiplex Funds Management Ltd v P Dawson Nominees Pty Ltd, the Applicant commenced a Part IVA Class Action against Multiplex Limited and Multiplex Funds Management Limited (together Multiplex) on behalf of about 40 corporations who alleged that they suffered loss as a result of the Multiplex parties' failure to disclose delays and increased costs in the construction of the Wembley Stadium in the United Kingdom. 

The represented group was defined, inter alia, on the basis that they "had as at the commencement of the ... proceeding entered a litigation funding agreement with International Litigation Funding Partners, Inc. (ILF)."  The funding agreement contained provisions that the funded parties would not be liable for any fees, costs or disbursements as they were to be paid by ILF.  However, if the proceedings were successful by way of judgment or settlement the funded parties agreed that the sum received would be used to (a) reimburse ILF for the costs and disbursements of the action, (b) pay ILF 30-40% of the recovery, and (c) the remainder to be shared amongst the group.  The funding agreement terminated if a funded party settled their claim or opts out of the proceedings but the funded party would still be liable to apply any payment received as if the agreement was still on foot.
The Respondents sought to strike out the Part IVA Class Action by relying on section 33N(1) of the FCA Act which provides: 
(1)  	The Court may, on application by the respondent or of its own motion, order that a proceeding no longer continue under this Part where it is satisfied that it is in the interests of justice to do so because: 
(e)	the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or 
(f)	all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or 
(g)	the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or 
(h)	it is otherwise inappropriate that the claims be pursued by means of a representative proceeding. 

The Respondents also contended that the group definition amounted to an opt in approach contrary to the opt out nature of a Part IVA Class Action and that the litigation funding agreement imposed a fetter upon the ability to opt out contrary to section 33J.
At first instance Justice Finkelstein upheld the criterion which limited group membership in the Part IV Class Action against Multiplex to those who had entered into a funding agreement.  Multiplex appealed to the Full Federal Court composed of Justices French, Lindgren and Jacobson.
The lead decision was given by Justice Jacobson, with whom Justices French and Lindgren concurred.  Justice Jacobson applied the Australian rules of statutory interpretation which emphasised that "fundamental to the task is the giving of close attention to the text and structure of the language used by Parliament".  
Justice Jacobson interpreted the words "as representing some or all of them" in section 33C(1) to "expressly permit the representative party to commence a proceeding on behalf of less than all of the potential members of the group".  His Honour went on to say that this construction, though sufficiently clear from the wording of section 33C(1), was reinforced by the fact that in enacting section 33C, Parliament rejected the ALRC recommendation that proceedings be brought on behalf of all group members.  However, His Honour accepted that Parliament would not have considered how, or if, a Part IVA Class Action could be structured by reference to a group of people who had taken the step of instructing a certain solicitor or signing a funding agreement with a named funder.  The relatively new concept of litigation funding which was approved by the High Court in 2006 was not considered by the ALRC or Parliament in devising a class action procedure that was enacted in 1991.  Justice Lindgren went further and stated that it would be "unsafe" to rely on the class action landscape envisaged by the ALRC in 1988 to construe Part IVA of the FCA Act.  
Justice Jacobson considered the group definition in the Aristocrat class action and found that it impermissibly defined the group by reference to persons who retained MBC both before and after the commencement of the relevant proceeding.  Individuals were able to take a positive step that would enable them to become part of (i.e. opt in) representative proceedings already on foot.  A group definition framed that way was inconsistent with one or more sections of Part IVA (for example, section 33J(2)), and therefore, would not be permissible.  This, Justice Jacobson observed, was quite different from the Multiplex class action group definition, which limited the group at the time the proceedings were commenced. As such, in the Multiplex class action, there was no possibility of an individual opting in to existing proceedings.  However, it was noted that MBC was looking for further investor claimants and an application may be made to join further persons to the proceedings or initiate additional proceedings in respect of the same claims.
Justice Jacobson also considered the disincentives to opting out of the proceedings created by the terms of the litigation funding agreement.  His Honour accepted that disincentives existed but found that the right to opt out was still maintained so that section 33N was not enlivened.  
While Justice Jacobson concluded that a representative proceeding commenced on behalf of a limited group of aggrieved individuals is permitted, his Honour observed that defining a group by reference to persons who have signed a litigation funding agreement is not easily reconciled with the overall aim of representative proceedings, being increased "access to justice and judicial efficiency in the form of a common binding decision for the benefit of all aggrieved persons".  

Litigation funding has been argued to be an important and legitimate development that provides access to justice and can improve the efficiency of litigation by bringing commercial considerations to bear.  There can, however, be a negative aspect of litigation funding that undermines its integrity - when it allows the funder to support litigation where they stand to reap substantial benefits but "without assuming one of the central risks ordinarily attending litigation: the risk of having to meet an adverse costs order".  Litigation funding may permit incursions upon the administration of justice "where successful defence of an action will come at a considerable cost to the defendant".
The High Court's decision in Jeffery and Katauskas Pty Limited v Rickard Constructions Pty Limited ("Jeffery") precludes a defendant from seeking a costs order against the funder under the NSW rules of court where the funder has not indemnified the plaintiff against the defendant's costs.  However, the decision makes reference to the "need to revisit ... the principles governing security for costs" to address this asymmetry in the way the risks and burdens of litigation are borne.

Jeffery & Katauskas Pty Ltd ("Defendant") had initially obtained orders for security for costs of the trial, as to $47,750 by order of Rolfe J on 15 December 2000 and as to $140,000 by order of the trial judge McDougall J made on 6 October 2004, the day after the commencement of what became a 19 day trial.  However, the Defendant faced a shortfall between its costs of the trial and the security provided.  Although the Defendant was successful, it was unable to recover its costs and was left out-of-pocket in excess of $450,000. 
To recover the shortfall the Defendant argued that a costs award could be made against the litigation funder pursuant to the general statutory discretion under section 98 of the Civil Procedure Act 2005 (NSW) ("CPA") to order costs and rule 42.3 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") which provides specified circumstances in which costs may be ordered against non-parties.  The Defendant argued that there was an abuse of process where a "non-party" litigation funder bank-rolled litigation brought by an insolvent plaintiff but without providing the plaintiff with an indemnity against cost orders in favour of a successful defendant.  However, the High Court found there was no abuse of process and that the Supreme Court of New South Wales did not have the power to make a costs order against the litigation funder in such circumstances. 
The majority suggested that the Defendant could have prevented the shortfall and protected its interests by relying upon the "provisions and principles that govern security for costs".  Security for costs is a potential method of preventing defendants from being out-of-pocket in funded litigation.

What is the rationale of security for costs?
The purpose of a security for costs order is to protect the defendant's entitlement to recover legal costs from an unsuccessful plaintiff consistently with the general rule that "costs follow the event".  This rule means that a successful party receives costs as determined by the courts in the absence of special circumstances to depart from that entitlement.  Security for costs ensures that the orders of the court as to costs are not frustrated.
Discretion to order security for costs
The Courts have a broad and unfettered discretion to order security for costs.  The question arises whether it would be appropriate to exercise the broad discretion in circumstances where there are persons who stand behind an impecunious or insolvent plaintiff and whose primary objective is to take the benefit from the success of the litigation without assuming the attendant risks and burdens (including, in particular, a potential adverse costs order).
There are several guiding principles which inform the exercise of the broad discretion:
•	The discretion should be exercised judiciously without any predisposition in favour of the award of security, having due regard and attributing weight to all relevant circumstances according to their intrinsic persuasiveness and the impact of other circumstances to be weighed.
•	Poverty will not prevent a person from litigating to secure their legal rights, but a corporate plaintiff may need to render security for costs.
•	Applications should be brought promptly.
•	The strength and bona fides of the plaintiff's case are relevant considerations.
•	Security for costs should be ordered against a party who is in substance a plaintiff, and not against parties who are defending themselves and thus forced to litigate.
•	In the case of an impecunious plaintiff, whether the impecuniosity was caused by the defendant's conduct the subject of the claim.
•	If the defendant's application for security is oppressive, in the sense that it is being used merely to deny an impecunious plaintiff a right to litigate, the plaintiff could argue against a security for costs order.  However, the mere fact that the ordering of security will frustrate the plaintiff's rights to litigate because of its financial condition does not automatically lead to the refusal of security.
•	Whether there are any persons standing behind the company who are likely to benefit from the litigation and who are willing to provide the necessary security.  For example, a plaintiff company in liquidation against whom an order for security for costs is sought must prove that it cannot fund the litigation from either its own resources or other resources available to it such as its shareholders or creditors.
•	Whether persons standing behind the plaintiff company have offered any personal undertakings to meet the plaintiff's liability for an adverse costs order.

These general guiding propositions in conjunction with the rules of court and s 1335(1) of the Corporations Act point to the possibility of exercising the broad discretion in favour of the defendant in circumstances where the litigation involves an impecunious or insolvent corporate plaintiff and is financed by a funder who has a commercial interest in the fruits of that litigation without any responsibility by way of an indemnity for the plaintiff's liability for the defendant's costs.  Judicial support for this possibility is to be found in Green v CGU where Hodgson JA focused on matters of legal policy:
"... a court should be readier to order security for costs where the non-party who stands to benefit from the proceedings is not a person interested in having rights vindicated, as would be a shareholder or creditor of a plaintiff corporation, but rather is a person whose interest is solely to make a commercial profit from funding the litigation. Although litigation funding is not against public policy, the court system is primarily there to enable rights to be vindicated rather than commercial profits to be made; and in my opinion, courts should be particularly concerned that persons whose involvement in litigation is purely for commercial profit should not avoid responsibility for costs if the litigation fails.
Campbell JA expressed similar concerns about litigation funding as a vehicle for the desire to make a commercial profit:
"One extremely relevant factor is the extent to which the litigation, if successful, will ultimately be for the private profit of the funder. That information is simply not known in the present case. The court is aware that the reported cases show a significant range of returns being asked by commercial litigation funders ... Similarly in the present case, the very fact of private profit from the litigation, and lack of satisfaction that there are available assets from which an unfavourable costs order against the liquidator would be met, are enough to show that some order of security for costs should be made."

Reward and risk should be aligned.  If the funder makes the litigation possible and they stand to benefit from a successful outcome then they should be liable for the consequences of an unsuccessful outcome - an adverse costs order.  Failure to enforce this norm in relation to litigation funding means there is no deterrence to unmeritorious litigation.
Security for costs in these circumstances provides a way of preventing a situation where:
"[Y]ou ... have no choice about whether to play this game; we are going to provide the means to start and continue it; if our side wins, you pay us; but if you win we will not pay you."

Vindication of a defendant would only be a pyrrhic victory if the plaintiff could not pay the defendant's costs, especially through its litigation funder.

The traditional reasons for awarding security for costs are set out above, namely to protect the efficacy of the exercise of the jurisdiction to award costs and to prevent a situation where a party’s success is pyrrhic.  If the Australian system of costs - costs follow the event or loser pays - is to be effective then funders should not be able to shield themselves behind impecunious plaintiffs.
Reward and risk should be aligned. If the funder makes the litigation possible and they stand to benefit from a successful outcome then they should be liable for the ramifications of an unsuccessful outcome - an adverse costs order.  Failure to enforce this norm in relation to litigation funding means there is no deterrence to unmeritorious litigation.  A side-effect of this is the encouraging of “strike suits” where a defendant facing a plaintiff of little means but backed by a funder may have to settle due to the prospect of substantial costs with little hope of recoupment even if successful in the defence of the proceedings.
Security for costs may also act as a form of consumer protection for the plaintiff who receives funding. The plaintiff is protected (as well as the defendant) as the security means that funds are available to pay an adverse costs order if the case is unsuccessful so that the plaintiff is not left to foot the bill and possibly be bankrupt or wound up.  Security for costs prevents a funder terminating a funding agreement when the going gets tough and leaving a plaintiff exposed.  The risk of a plaintiff being deserted by their funder and being left to pay costs orders when the proceedings are discontinued will depend upon the terms of the specific funding agreement. An order to provide security for costs may mean the terms of the funding agreement do not need to be considered. However, security for costs does not completely protect consumers as it does not address the terms of the funding such as where funders take a percentage that is extortionate or far in excess of the risk of the litigation.
Requiring a funder to provide security for costs will also improve the development of the litigation funding industry as it ensures only funders of substance can support litigation or only big funders can bring big litigation.  Such a requirement would also offer some protection against a funder becoming insolvent part way through litigation as they must have the ability to post security.
Concern has been expressed that commercial litigation funders need to be distinguished from mere financial assistance from a third party, such as friends, relatives, insurance, legal aid, co-operative ventures such as trade unions, creditors and shareholders of a corporate litigant, or through retaining lawyers pursuant to a conditional costs agreement.  Otherwise security may be ordered too readily.  If a distinction is needed, security for costs could be limited to the profit-seeking funder who is entitled to a share of any potential recovery and has no pre-existing relationship with the plaintiff.  However, the rules and principles set out above provide a framework which allows a judge to weigh all the relevant circumstances and so do justice in the particular case.

Despite the availability of security for costs where a funder is involved, it may not be a panacea for the reasons given by Heydon J in the following warning on its efficacy:
"Judges are reluctant to order security for costs in large amounts, perhaps fearing that this will simply prolong the litigation in an ill-disciplined way. "The amount awarded as security is no more than an estimate of the future costs and it is not reasonable to expect a defendant to make further applications to the court at every stage when it appears that costs are escalating so as to render the amount of security previously awarded insufficient." The lack of judicial generosity is one of several signs that applications seeking security for costs have little attraction for judges. In part that is because they are interlocutory, satellite and hypothetical. Their interlocutory character is repellent to courts eager to deal with trials but hard pressed to do so. They are satellite in character because they often involve spending significant time examining complex questions of solvency which are irrelevant to the main proceedings. They are hypothetical in character because their point depends on the hypothesis, which may or may not be realised, that the defendant will succeed, so that through them stalks the fear in many instances that they are a waste of time. They generate additional costs of their own."

In practice, determining the appropriate amount of the security will be critical to any application for a security for costs order.  The relevant provisions in the various rules of court are couched in general language giving the courts a wide discretion to order security in such manner and form and on such terms as the courts direct.  The rules of court do not provide any guidance as to how much security or how the amount should be assessed.  Allied to the broad discretion to grant a security for costs order, is a discretion to order "such sum as the court thinks just, having regard to all the circumstances of the case".
A proper exercise of the court's discretion should consider the likely costs which the defendant will incur so far as it can be ascertained to ensure the security is neither too much nor too little.  Generally courts have adopted a conservative approach by emphasising that the amount of the security is not intended to be a pre-estimate or a complete indemnity of the actual amount of the costs recoverable by a successful defendant.  However, the discretion remains unfettered and each case depends on its own facts whereby the defendant bears the onus of providing the court with as much helpful and predictive information at the earliest opportunity, including a well explained estimate of future costs that may be reasonably incurred that takes into account the number, nature and prospects of the issues in dispute.
It may not be reasonable for a defendant to make further applications to the court at every stage when it appears that costs are escalating so as to increase the amount of security already ordered.  Instead, it may be preferable to ask the court to craft the security for costs order so that security is provided in tranches or instalments as and when each litigation milestone is achieved.  However in some jurisdictions the court may increase the amount of security ordered or may set aside or vary the security for costs order.  Given the rationale of security for costs, courts would be generally reluctant to exercise the discretion to allow a succession of "top ups" without good cause.
Defendants should consider the following steps in consultation with their legal advisers:
•	carry out due diligence and other reasonable enquiries about the financial position of the plaintiff, checking whether the plaintiff is impecunious, insolvent or there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if ordered to do so;
•	assess the likely litigation costs with the assistance of an expert costs consultant;
•	request the plaintiff to provide security for the defendant's costs; and
•	if the plaintiff refuses to provide security, apply to the court for security for costs, taking into account.
Provided that the discretionary factors can be readily explained to the court, the amount of the security must be determined as accurately as possible despite the inherent contingencies of estimating all reasonable future costs of the proceedings.  The security will only be as effective as its quantification.

Litigation funders will generally seek access to all confidential and privileged documents of the litigation in order to assess the ongoing viability of the litigation, although obstacles may arise in circumstances where the litigant is unwilling to provide such access, or the funder faces opposition to gaining access to documents discovered by the defendant in the funded litigation.
Recent decisions suggest that litigation funders will be provided with access to discovered documents, even those of a confidential nature, but such access will be subject to express undertakings with respect to the use and distribution of those documents.

It is necessary to seek orders allowing a litigation funder to be provided with documents discovered by another party because of the implied undertaking by solicitors for a party to whom documents are produced in discovery:
...that he himself will not use or allow the documents or copies of them to be used for any collateral or ulterior purpose of his own, his client or anyone else; and any breach of that implied undertaking is a contempt of court by the solicitor himself.

The application of the implied undertaking to Federal Court proceedings was asserted by Northrop J in National Mutual Holdings Pty Ltd v Sentury Corporation & Ors as follows:
It is clear that according to Australian law a person who acquires a document pursuant to the processes of the Court is under a duty not to disclose or make use of that document for purposes other than the Court proceedings without the leave of the Court or the person from whom the document has been obtained.

It has also been found that such undertakings could be modified to authorise use of discovered documents in other proceedings where there were "special circumstances". Following previous case law that discussed what constituted "special circumstances", Wilcox J in Springfield Nominees Pty Limited v Bridgelands Securities Limited said:
For "special circumstances" to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court's discretion, many factors being relevant. It is neither possible nor desirable to propound an exhaustive list of those factors. But plainly they include the nature of the document, the circumstances under which it came into existence, the attitude of the author of the document and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information), the circumstances in which the document came into the hands of the applicant for leave and, perhaps most important of all, the likely contribution of the document to achieving justice in the second proceeding.

Express, rather than implied, undertakings regarding the use of discovered documents have frequently come to be used in commercial litigation, especially in cases where the documents in question are particularly sensitive. In Hearne v Street, Hayne, Heydon and Crennan JJ noted that:
The point of insisting on an express undertaking, commonly employed in relation to documents which it is particularly desired to keep secret, is to bring explicitly home to the minds of those giving it how important it is that the documents only be used for the purpose of proceedings. It does not follow that the obligation in question does not exist in more routine cases without the need for an express undertaking.

Can Litigation Funders Access Discovered Documents?
In Cadence Asset Management Pty Ltd v Concept Store Ltd, a shareholders class action, Finkelstein J considered the issue of whether documents discovered by the respondents to the applicants should be made available to the applicants' litigation funder, IMF, for inspection. His Honour found that in that case IMF was not a stranger to the action, and had a sufficient interest to be provided with the discovered documents or at least those it needed to assess the merits of the action. His Honour noted:
The view that I take is that the implied undertaking does not prevent absolutely a party giving discovered documents to a non-party. There are circumstances in which a party has a legitimate interest in disclosing discovered documents to a non-party. Obvious examples include showing a discovered document to an actual or prospective witness or to an expert non-witness. Of course that is permissible; because in each case the document is being used for the action. There are also cases where a non-party has a legitimate interest in seeing discovered documents...The reason permission is not required is that the provision of the documents is not for an ulterior or foreign purpose. Another way of putting it is that the non-party is not a true stranger to the action.
In QPSX Limited v Ericsson Australia Ltd, French J, faced with a similar application in relation to IMF, took a different view to that of Finkelstein J in Cadence. His Honour expressed the opinion that "the general disclosure of discovered documents and information derived there from to a party's litigation funder raises concerns which are not answered by saying that the litigation funder has an interest in the case." French J further said:
...the generic risk associated with the wider disclosure of the discovered documents is something which the party discovering those documents is entitled to take into account and be concerned about. It is entitled to seek specificity as to the documents to be disclosed and the purpose for which they are to be disclosed. This is particularly so given that the litigation funder, as in this case, does not have an interest in the cause of action nor any right to direct or control the conduct of the proceedings.

His Honour agreed with the submission of the Ericsson parties that the Court should not entertain the application of the applicants until they had had a reasonable opportunity to consider confidentiality issues with respect to specific documents the subject of the application. His Honour noted that he did not think that "a general licence to disclose documents to IMF on the broad basis that it has a legitimate interest in the proceedings is a sufficient basis for such disclosure in light of the considerations to which I have earlier referred."
In Kirby v Centro Properties Limited, an issue arose in relation to a tranche of documents of which the respondent had given discovery. The applicant sought an order that his use and disclosure to other persons of more documents be subject only to the "usual implied undertaking", while the respondent contended that given the commercial sensitivity of some of the documents, the applicant's solicitors should execute an express undertaking. The respondent suggested another course for IMF, the litigation funder, being that the applicant's solicitors should indicate the categories or types of documents which they wished to provide to IMF, and that IMF should then give, in essence, an express Harman undertaking and undertake not to give access to the documents to any class members without the prior written consent of the respondents' solicitors. Ryan J saw no difficulty with such a course of action. His Honour noted that given that IMF's involvement in the proceedings was on a purely commercial basis, and that it was not constrained by the professional or ethical restraints which bound the parties' legal representatives, it was right for the respondent to be concerned, as said by French J in QPSX, about "the generic risk associated with the wider disclosure of the discovered documents", and that the respondent was "entitled to seek specificity as to the documents to be disclosed and the purpose for which they are to be disclosed". His Honour therefore did not see the requirement of an express undertaking from the relevant officers and agents of IMF as unusual or, in light of Hearne v Street, unreasonable. 

As noted above, it is essential for litigation funders to have complete access to all information held by the funded litigant which might be of relevance to the litigation, and the decision of the funder to finance it. This includes privileged documents. One way of dealing with this situation is for the relevant litigation funding agreement to make it clear that the litigant will be required to disclose such information and has given their informed consent to the waiver of any privilege in favour of the funder only. However, an arguably "better view" that has also been proposed is that a litigation funder is subject to the implied undertaking in Harman and is therefore entitled to have access to documents discovered by defendants in funded proceedings.

The Australian Standing Committee of Attorneys-General ("SCAG") examined the need for the regulation of litigation funding in 2006. It appears that the Commonwealth Minister for Financial Services, Superannuation and Corporate Law will now build upon the work done by SCAG, which may see legislative change aimed at specifying criteria for legally acceptable funding agreements, and adopting prudential regulation requirements for funders. However, litigation funding tends to remain relatively unregulated, and there is therefore some concern that funding agreements may be struck unfairly. This is particularly significant given that there is relatively little competition for funders and such agreements often entitle the funders to large fees in comparison to the fees charged by lawyers, which are regulated and subject to competition. 

A potential safeguard against litigation funders imposing unfair or extortionate terms on litigants would to be require all litigation funders to obtain an Australian Financial Services Licence ("AFSL") pursuant to Chapter 7 of the Corporations Act 2001 (Cth), and in doing so enable the Australian Securities and Investments Commission to take on a supervisory role in relation to the conduct of the funders' businesses pursuant to their AFSLs.  Further, the holder of an AFSL is required to meet the following obligations pursuant to section 912A(1) of the Corporations Act 2001 (Cth):
(a)  do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; and 
(aa)  have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the licensee or a representative of the licensee in the provision of financial services as part of the financial services business of the licensee or the representative; and 
(b)  comply with the conditions on the licence; and 
(c)  comply with the financial services laws; and 
(ca)  take reasonable steps to ensure that its representatives comply with the financial services laws; and 
(d)  unless the licensee is a body regulated by APRA--have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements; and 
(e)  maintain the competence to provide those financial services; and 
(f)  ensure that its representatives are adequately trained, and are competent, to provide those financial services; and 
(g)  if those financial services are provided to persons as retail clients--have a dispute resolution system complying with subsection (2); and 
(h)  unless the licensee is a body regulated by APRA--have adequate risk management systems; and 
(j)  comply with any other obligations that are prescribed by regulations made for the purposes of this paragraph. 

In Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11; [2009] FCAFC 147  ("Brookfield Multiplex") the Federal Court considered whether certain litigation funding arrangements constituted a 'managed investment scheme' as defined by s 9 of the Corporations Act 2001 (Cth) (MIS).  
To briefly restate the facts, several groups of investors brought a representative action against Multiplex based primarily on contravention of the continuous disclosure obligations in the Corporations Act.  The investors engaged Maurice Blackburn (MBC) to act on their behalf with funding coming from International Litigation Funding partners (Funder).  The defendants, Multiplex, alleged that the various arrangements between the group members, MBC and Funder constituted a managed investment scheme which was not registered under the Corporations Act.  Accordingly, Multiplex sought declaratory relief and injunctions that would have prevented the group members, MBC and the Funder from taking any further steps in furtherance of their arrangements, and effectively bring the litigation to a stand-still.
At first instance the primary judge, Finkelstein J, found that the litigation funding arrangements did not constitute a MIS.  This decision was reversed by a majority of the Full Federal Court (Sundberg and Dowsett JJ, Jacobson J dissenting).
Both judgments focussed on the precise wording of section 9(a) of the Corporations Act.  The section provides that: 
"managed investment scheme" means a scheme that has the following features:
(i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);
(ii) any of the contributions are to be pooled; or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders); and
(iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions.
Relevantly, section 9 also contains the following definition:
"interest" in a managed investment scheme means a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not).

Approach to the construction of s 9
The majority held that the preferred approach in identifying a scheme is to determine whether the s 9 definition is fairly satisfied.  They also considered the history of Chapter 5C but did not find this to be of assistance.  Mason J in Australian Softwood Forests was cited in support of the proposition that the s 9 definition should not be read down by some implied limitation derived from the Chapter 5C regulatory regime.  Even though the explanatory memorandum, and other statements, suggest that Chapter 5C was only intended to apply to a narrow range of investment schemes there was no basis from reading down the words in s 9, especially given the extensive list of express exclusions in s 9 (c) to (n) (which do not include litigation funding).  Accordingly, the majority began their construction by addressing the sub-paragraphs of the MIS definition 'separately and in accordance with their terms'. Consequently a more textual or literal approach was adopted by the majority.   
Both Finkelstein J in the primary proceedings, and Jacobson J in dissent, were more supportive of the use of extrinsic material in their construction of s 9 and were willing to accept that the consideration of the purpose of Chapter 5C was a useful aid to construction.
"A scheme that has the following features"
It was uncontroversial amongst both the primary and appellate judges that the litigation funding arrangement was a scheme.  The majority reached this conclusion, following the relatively expansive definition stated by Mason J in Australian Softwood Forests:
" ... all that the word 'scheme' requires is that there should be 'some programme, or plan of action' ...".

However, while the primary judge described the scheme as involving:

a.	putting in place a group of persons willing to participate against Multiplex;
b.	ensuring that those persons would not be exposed to costs; 
c.	retaining a firm of solicitors that would act on the group's behalf; and
d.	making sure that the legal fees would be paid
The majority preferred to characterise the scheme as having the following purpose;
•	to facilitate the realization of claims by group members against Multiplex, using legal services to be provided by MBC at the expense of the funder;
•	which company also undertakes to meet any order for costs made against group members or any order for security for Multiplex's costs;
•	with the intention that the Funder be reimbursed from, and derive a profit from, the proceeds of such realization; and
•	that the group members be otherwise protected fro any liability for their own costs, any order that they pay Multiplex's costs, or any order that they give security for costs in the relevant proceedings.
And being comprised of the following steps;
•	the Funder offering to undertake the payment of group members' costs, to meet any order for costs made against group members, and to provide security for costs if necessary;
•	MBC offering to accept instructions on the basis that it will look to the Funder for its costs and outlays in accordance with the terms of the scheme;
•	the group members accepting the Funder's offers and instructing MBC accordingly;
•	the subsequent conduct of the matter; and
•	the distribution of the resolution sums (being any money received in connection with a group members' claim such as proceeds from settlement or a favourable judgment).
"Contribute money or money's worth"
Both the primary and appellate judges (including Jacobson J) considered that group members contributed money or money's worth to the scheme.  The appellate judges characterised the element of "money's worth" as being the promises given by the group members and those given by the Funder. 
"As consideration to acquire rights to benefits"
The primary judge did not accept that the contributions were made as consideration to acquire rights to a benefit.  That is they were not made for the purpose of the scheme.  
The majority did not agree and found that the contributions were made for the purpose of the scheme, as the promises given by the individual group members and the Funder respectively were to be used collectively to provide legal services to individual groups of members, the whole group and itself as the promises were given for the purpose of advancing both the interests of the Funder and the group. 
The respondents also ran an argument that any benefits from the scheme were not acquired in consideration of the contributions of money's worth, but rather than the benefit flowed from the contractual arrangements (and not from the scheme itself).    The majority's view was that, even if the benefits for the group members and the Funder were derived pursuant to contract, that was merely the process by which the scheme operated and had no bearing on the purpose of the contributions.   
"benefits being produced by the scheme"
The majority characterised the rights derived by group members as being:
•	the provision of legal services at no cost to the group members;
•	absence of exposure to any adverse costs order;
•	the benefit of the Funder's promises to provide security for costs; and
•	the benefit of contractual rights to participate in the distribution of the Resolution Sums in accordance with the terms of the scheme.
The Funder derived the benefit of the right to participate in the distribution of the Resolution Sums in accordance with the scheme. 
The majority held that s 9(i) only requires production of a "benefit", it does not require the scheme to produce "profit" or "gain".  Benefit is said to have a wider meaning and can include non-monetary benefits.  Further, the benefit does not have to be produced once and for all at the end of the undertaking, but can be cumulative throughout the existence of the Scheme.
The primary judge found that group members did not acquire any benefits which were produced by the scheme, as: 
'the recovery of damages or compensation is not, by any meaning, a "benefit" a group member has acquired.  If any group member is entitled to recover damages or compensation from Multiplex it is because there is in existence a justiciable cause of action against Multiplex'.

For the majority the benefit was not the existence of the 'cause of action' but rather the creation of a process by which money could be recovered, whether by judgment or settlement.  Group members were said to have received benefits including access to legal services, protection from adverse cost orders and avoidance of a need to give security as a result of their participation in the scheme.

"Pooling" of contributions
The primary judge found that no pooling had taken place, as at best, group members had entered into a series of bilateral agreements with the funder which assigned their individual choses in action.  In his view, pooling was a 'physical concept' which required the interests to be held in an identifiable fund.
A wider meaning of pooled was adopted by the majority.  In their view, the definitive factor was the existence of a common purpose for which the "pooled" resources are to be used.  This purpose may be fulfilled 'simply by knowing where resources are located and that they are available.'  In this case, the pooling was effected by the group members making their individual promises available for the purpose of the scheme.
Jacobson J (in dissent) agreed on the purposive nature of "pooling", however he disagreed that the group members contributions, being their contractual authorisation to receive and disburse the Resolution Sums, were pooled to produce a financial benefit.  He saw the purpose of the contractual undertakings as allowing for the administration and distribution of the Resolution Sums, and not the creation of any financial benefit.
"Common enterprise"
The majority concluded that the scheme was also a common enterprise.  Unlike the primary judge, the majority's view of the scheme was that it was of a sufficiently business or commercial nature to be regarded as an "enterprise".  Additionally, the existence of a shared purpose, namely to prosecute the group members' claims for the benefit of group members, the funder and MBC, was sufficient to come within the definition of "common".
Finkelstein, in the primary proceedings, and Jacobson (in dissent) both found that the litigation funding arrangements were not a common enterprise.  Finkelstein J 's view was that the arrangement was not sufficiently commercial.  Jacobson J adopted the definition of "common enterprise" from Australian Softwood Forest, that a common enterprise must consists of two or more closely connected operations, each deriving a separate profit.  Consequently Jacobson J found that the contributions made by the group members and the Funder were not being used in separate operations, and hence the contractual arrangements making up the litigation funding arrangement were not a common enterprise.  The majority's view was that the definition in Australian Softwood was not exhaustive, but only defined a sub-set of what might be a common enterprise.
"to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme"
The majority held that the scheme produced the requisite financial benefit, or interest in property.  This followed from the arguments discussed above. In summary; the group members' promises are pooled to induce the funder to participate, which constitutes a benefit to the group members.  It is a financial benefit to group members as the scheme protects them from financial exposure (e.g. adverse cost orders).  Finally the intention of the scheme is for the successful realization of the group members claims, which would also confer a financial benefit for the members of the scheme.

ASIC has announced its intention to grant transitional relief from the MIS requirements until 30 June 2010 to lawyers and litigation funders involved in the conduct of class actions that were commenced before 4 November 2009.  This transitional relief is granted on an individual basis by ASIC issuing an instrument which expressly excludes "a scheme for participating in, conducting and funding legal proceedings" from the definition of "managed investment scheme" in determining how Chapter 5C applies to the parties named in each instrument.  It must be emphasised that the transitional relief only applies to class actions which were previously commenced, and will only be granted upon individual application by the parties.  Additionally, this relief is only temporary, and does not validate any past conduct.
Applications in respect of class actions to be commenced after 4 November 2009 will be considered separately.  However, ASIC has given no official guidance on whether or not, and on what terms, it will grant further relief. 
Effect of ASIC's arrangements on the relief flowing from Brookfield Multiplex
The relief to be granted following on from the Multiplex case was considered in Brookfield Multiplex v International Litigation Funding Partners Pte Ltd (No 2) [2009] FCAFC 182 ("Brookfield Multiplex (No.2)") on 22 December 2009.  This case strongly suggests that proceedings involving litigation funding arrangements which were commenced before 4 November 2009 are unlikely to be directly affected by the Brookfield Multiplex case, at least until 30 June 2010.  It appears that the Courts view the relief granted by ASIC as being effective in releasing operators of litigation funding arrangements from the requirements associated with operating a MIS.
In summary in Brookfield Multiplex (No.2):
•	the Court declared that the relevant funding arrangements constitute a managed investment scheme as defined in Chapter 5C of the Corporations Act. However, it refused to declare that any particular party had contravened the Corporations Act, in part because no real attempt was made to identify which of the respondents was operating the scheme.
•	the Court declined to grant injunctive relief preventing the respondents from operating the scheme due to the transitional relief granted by ASIC.  The reasoning was that any infringing conduct was now in the past, and there was no prospect of future contravention so long as the transitional relief remains in place.    
•	the appellants also sought orders that MBC notify group members of orders made by the Court, and of their rights under s 601MB of the Corporations Act.  The Court accepted the submission that there was no reason to believe that MBC would do otherwise than comply with its duty to its clients.  The order was not made.
Effect of Brookfield Multiplex  - obligations in the Corporations Act.
It must be borne in mind that there are further consequences flowing from the decision in Brookfield Multiplex in addition to the injunctive and declaratory relief sought.  Absent ASIC's relief, Funders and/or plaintiff lawyers may be subject to further obligations in Chapters 5C and 7 of the Corporations Act as operators of an MIS.  These include creating a Constitution and Compliance Plan, being a Responsible Entity and holding an appropriate AFSL.  The Responsible Entity and Officers of a Responsible Entity are also subject to a number of duties, including acting honestly, exercising the degree of care and diligence a reasonable person would exercise, ensuring that the MIS' Constitution and Compliance Plan are in accordance with the law and "acting in the best interests of the members and, if there is a conflict between the members' interests and its own interests, give priority to the members' interests". As an AFSL holder, the Responsible Entity also has certain, more general, obligations including provision of the services covered by the license efficiently, honestly and fairly, managing conflicts of interest adequately, providing a dispute resolution system to retail clients and ensuring that the Responsible Entity, and its representatives, are adequately trained and resourced to provide the services. Complying with these requirements in a non-trivial process, and not something which litigation funders and plaintiff law firms could undertake overnight in order to avoid an injunction.  Therefore, pending the outcome of an appeal to the High Court or legislative intervention, litigation funders and plaintiff law firms will be considering what steps to take when the transitional relief from ASIC expires.  Certain Funders have already taken pre-emptive action, e.g. IMF (Australia) Ltd has already obtained an AFSL allowing it to deal with interests in a MIS.
Effect of Brookfield Multiplex - potential breach of the Legal Profession Act
Recently in AWB Limited v IMF (Australia) Limited & Ors counsel for AWB raised a novel argument that plaintiff law firms may be prohibited from involvement in funded class actions due to provisions in the Legal Profession Act 2004 (NSW) prohibiting solicitors from conducting a managed investment scheme.  A judgment was not handed down prior to the settlement of the AWB class action.
Presumably, AWB has argued that the plaintiffs' lawyers, MBC, breach s 135 of the LPA, which provides that an incorporated legal practice can not conduct a managed investment scheme.
Regardless of the specific argument run it is unlikely that MBC is in contravention of the LPA, at least while the transitional relief granted by ASIC remains in effect.  The transitional relief alters the definition of 'managed investment scheme' such that a litigation funding arrangement is expressly excluded for the purposes of Chapter 5C.  As the definition of managed investment scheme in the LPA relies upon the definition in Chapter 5C, the same exclusion would apply.
As demonstrated by Brookfield Multiplex (No. 2) it is unlikely that a court would grant injunctive relief in these circumstances as there is no prospect of a future breach of the LPA while the transitional relief is in effect.

The acceptance of litigation funding by the High Court in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd, its further endorsement in Jeffrey & Katauskas Pty Ltd v SST Consulting Pty Ltd, and the general acceptance by government that litigation funding can assist in securing access to justice suggests that litigation funding has a bright future in Australia.  However, the lack of any specific regulation that has persisted since the Standing Committee of Attorneys-General Report in 2006 is unlikely to continue as government is asked to ensure protection of consumers and help prevent abuse of judicial process.  It remains to be seen whether a specific regulatory regime for litigation funders will be developed or whether litigation funding will become subject to more generic regulations that already exist in legislation such as the Corporations Act 2001 (Cth).  
The extent of regulation will have an important impact on barriers to entry to the market for litigation funding.  At present, new entrants need expertise in assessing and managing cases, sufficient capital to fund litigation, without any return for a number of years, be able to provide security for costs and, if unsuccessful on some cases, pay adverse costs orders.  However, an entity with insufficient capital is not prohibited from being a litigation funder and if it were to fund unsuccessful cases may need to seek the protection of the insolvency laws.  
If the form of new regulation includes prudential requirements such as having specified amounts of capital or cash at bank, then the entities that can participate in the litigation funding market will need to be more substantial.  This will have the positive effect of reducing the likelihood of insolvency which could severely disrupt a particular piece of litigation.  However it will also mean that the percentage that litigation funders can charge may remain above a competitive level because the users of litigation funders may have less choice.  It may also be the case that if litigation funding continues to result in significant returns that more entities, including those from outside of Australia, will enter the litigation funding market so as to be able to participate in those returns.  

As demonstrated above, litigation funders have been prepared to conduct litigation so as to develop precedents that favour their business model.  It is likely that this will continue in both the substantive and procedural areas of law. 
In the substantive law it is likely that litigation funders, and plaintiffs' lawyers, will seek to develop the securities and cartel causes of action that are pursued through class actions in the hope of making those causes of action easier to prove.  For example, in the securities law area it is likely that litigation funders will seek to have causation develop so that to prove loss caused by non-disclosure or misleading and deceptive conduct an entity simply needs to prove that the price paid for the security was inflated by the breach and not prove individual reliance.  Further in the area of cartel class actions that the law be developed so as to allow a plaintiff to recover from a cartel participant the full amount of any overcharge, irrespective of the extent to which that overcharge may have been passed on by the plaintiff to downstream consumers.
In the area of procedural law, litigation funders may wish to further secure their ability to recover a percentage of any successful class action.  As a result they may seek to have Australian law recognise the US common fund approach whereby the entity that facilitates the creation of a fund from litigation is paid a proportion of that fund without the need for a contractual right being obtained from each group member.  Further, or alternatively, they may promote the use of cy-pres damages so that the amount to be paid by an unsuccessful defendant is the loss or harm that they have caused rather than an amount that is needed to compensate the specific group members that come forward.  Litigation funders are also likely to push for insurers to be treated similar to litigation funders, for example, that the insurance policy that a defendant may have should be disclosed the same as the litigation funding agreement that a plaintiff may have.