Third party litigation funding and contingency fees

Tripartite relationship

The Victorian Law Reform Commission (the Commission) is conducting an Inquiry into litigation funding, including for class actions. The focus of the Inquiry is access to justice and ensuring litigants are not exposed to unfair risks or disproportionate costs. IMF Bentham fully supports these objectives and welcomes the opportunity to review current practices.

The Inquiry raises a number of topics, including the regulation of litigation funders, competing class actions and settlement distribution schemes. The Inquiry is also exploring whether lawyers should be able to charge contingency fees in future.

Summary of IMF Bentham’s submission

IMF Bentham’s submission acknowledges that the Victorian class action regime works well. The class action landscape is evolving and it is important for the Courts to have the flexibilty to respond on a case-by-case basis.

IMF Bentham’s submission recommends (in part) that:

  • there are parts of the Federal Court Practice Note that could usefully be adopted in the Victorian Supreme Court Practice Note for class actions;
  • the current system would be improved by further regulation of litigation funders, at the Commonwealth level; and
  • lifting the ban on contingency fees would not mitigate but, on the contrary, would be likely to increase the conflict issues that might arise in funded litigation.

Contingency fees  

IMF Bentham’s submission advocates that the current model of third party funding benefits claimants and reduces their risks, as the funder operates at arm’s length to the lawyers. The current tripartite system in funded proceedings (funder, lawyers, claimant) provides important checks and balances.

Allowing lawyers to charge contingency fees would likely increase conflicts issues.

If contingency fees were allowed, there would be no independent, objective advice to the client when the client’s and lawyer’s interests conflicted. Under IMF Bentham’s litigation funding agreements, when the lawyer believes there is a conflict between the obligations they owe to the client and to IMF, the lawyer is to advise and take instructions from the client. The client’s interests remain paramount, above and beyond the interests of the entity financing the litigation.

If lawyers were allowed to charge contingency fees, then the lawyers should also be liable for adverse costs if the litigation is unsuccessful.  This is currently required of third-party funders and protects clients.

IMF Bentham also considers that many of the criticisms about litigation funding raised in the consultation paper are unfounded. One important exception is capital adequacy. IMF Bentham has long supported further Commonwealth regulation of funders in this respect.

What’s next

The Commission is considering the submissions from various stakeholders and is due to produce its final report by 30 March 2018. IMF Bentham will continue to monitor closely the Inquiry's progress and provide an update on any outcomes.

For more information on our submission, please contact one of our Investment Managers.