Insight 4

The Australian third-party litigation funding market is considered one of the most sophisticated in the world. Initially used primarily in insolvency-related legal claims, litigation funding has expanded to cover a broader range of civil and commercial disputes and arbitrations since the early 2000s. However, the market in Australia remains relatively underutilized.

In 2021, the total legal market spend on litigation in Australia was estimated at AUD 4.8 billion, with the addressable market for third-party litigation funding estimated at half that amount, or AUD 2.4 billion. However, the revenue of the Australian litigation funding market was only around AUD 173.5 million in 2020-21. Despite this, the litigation funding market has been growing at an estimated rate of 8.7% per year between 2017 and 2022. The growth rate is predicted to slow down to 4.1% per year over the next five years.

The Australian market has seen a decline in funded class actions as a proportion of overall class actions filed in the past five years. Class actions now represent less than half of all class actions filed, whereas they previously represented a larger share. However, class action filings themselves (both funded and unfunded) were at their lowest levels since 2017-2018 in 2021 and 2022, reflecting a slowdown in this market segment.

The demand for litigation funding in Australia is influenced by various factors, including the strength of the local economy, the rate of corporate insolvencies, the demand for legal services, regulatory settings, and government intervention. The economic impact of the COVID-19 pandemic in Australia was mitigated to some extent by government assistance and intervention, resulting in lower-than-expected corporate insolvencies in 2020 and 2021. However, in 2022, corporate insolvency appointments returned to almost pre-pandemic levels, driven by factors such as the Australian Taxation Office’s more aggressive approach toward recovering overdue tax debts. This recent increase in corporate insolvencies, along with the anticipated growth in demand for legal services and improved regulatory settings, is expected to drive growth in the litigation funding industry in the coming years.

In terms of the legal and regulatory framework, prior to 2006, the common law doctrines of maintenance and champerty prohibited encouraging litigation and funding another’s claim for profit in Australia. However, these doctrines were progressively abolished as crimes and torts in most Australian states, with the 2006 landmark decision in Campbells Cash and Carry Pty Ltd v. Fostif Pty Limited clarifying that third-party litigation funding of a class action was not an abuse of process or contrary to public policy.

Litigation funders in Australia are subject to consumer provisions of the Australian Securities and Investments Commission Act 2001 (ASIC Act) and general regulatory requirements under the Corporations Act 2001 (Corporations Act). Litigation funders were initially considered managed investment schemes and required registration and compliance with specific regulations. However, in 2010, exemptions were granted to lawyers and litigation funders involved in funded class actions from certain regulatory obligations. In 2020, the regulatory landscape changed with the introduction of the Corporations Amendment (Litigation Funding) Regulations 2020, which required litigation funders to hold an Australian financial services license (AFSL) and comply with the managed investment scheme regime. This change faced controversy and has led to ongoing legal challenges to determine compliance with the regulations and transitional provisions.

Overall, the Australian third-party litigation funding market is expected to continue growing, driven by factors such as increased demand for legal services, improved regulatory settings, and a rebound in corporate insolvencies. The legal and regulatory framework surrounding litigation funding has evolved, with key court decisions and regulatory changes shaping the industry’s landscape.

In MHN, we provide financial resources to plaintiffs who may not have the means to pursue their legal rights without assistance. We seek to support those who have strong legal claims but lack the financial resources to pursue them fully, enabling them to obtain the justice they deserve.

Our litigation finance solutions are targeted at individuals and businesses involved in a wide range of legal disputes, including but not limited to:

• Commercial litigation
• Personal injury claims
• Class actions
• Family cases
• Criminal cases

We work with plaintiffs and their legal teams to evaluate the merits of each case and to determine the appropriate level of funding required to support the litigation.