LCM Funding Pty Ltd v Stanwell Corporation Limited

LCM Funding Pty Ltd, a subsidiary of Litigation Capital Management Limited, appeals the decision of the primary judge in Stanwell Corporation Limited v LCM Funding Pty Ltd [2021] FCA 1430. The primary judge dismissed LCM Funding's cross-claim seeking declarations that a litigation funding scheme (the "Scheme") was not a managed investment scheme ("MIS") within the meaning of s 9 of the Corporations Act 2001 (Cth) ("the Act"). The primary judge declined to refer the question of whether the Scheme was a MIS to the Full Court, finding that he was bound by the majority decision in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11 ("Brookfield FC").

The primary issues for determination on appeal were whether the primary judge ought to have found that the Scheme did not have the features of the definition of a MIS as set out in ss 9(a)(i) and 9(a)(ii) of the Act, and whether the primary judge erred in refusing to make the declarations sought by LCM Funding in its cross-claim. The Full Court allowed the appeal and remitted the matter to the primary judge. The Full Court found that the primary judge’s analysis of the reasoning in Brookfield FC was correct and that the reasoning of the majority in Brookfield FC was plainly wrong. The primary judge had declined to make the declarations sought by LCM Funding because he was bound by the majority decision in Brookfield FC, but the Full Court found that the primary judge was not bound by that decision and should have made the declarations sought by LCM Funding.

The Full Court found that the reasoning of the majority in Brookfield FC was plainly wrong because it mischaracterised litigation funding arrangements as an investment by group members of property to achieve benefits, when such arrangements principally provide a mechanism for persons who share commonality in their unlitigated and separate choses in action to secure the payment for legal services necessary to vindicate those choses on a contingent basis. The Full Court found that the statutory regime applying to registered managed investment schemes is simply unfit for purpose if it is sought to apply its requirements to litigation funding schemes concerning representative proceedings principally controlled under the open class regime of Pt IVA of the Federal Court of Australia Act 1976 (Cth). The Full Court found that the majority in Brookfield FC arguably placed undue weight on the potential width of each element viewed separately within the composite language of the definition of a managed investment scheme in s 9, and as a consequence construed the definition as capturing an arrangement that could not realistically have been within the legislature’s contemplation and which shares little with the kinds of schemes understood to constitute managed investment schemes. The Full Court found that the majority in Brookfield FC arguably adopted a construction inconsistent with one that would promote the purpose or objects of the Corporations Act.

The Full Court remitted the matter to the primary judge to make the declarations sought by LCM Funding in its cross-claim. The primary judge was to determine whether the Scheme had the features of the definition of a MIS as set out in ss 9(a)(i) and 9(a)(ii) of the Act, and whether LCM Funding was operating a MIS. The Full Court found that the primary judge had declined to make the declarations sought by LCM Funding because he was bound by the majority decision in Brookfield FC, but the Full Court found that the primary judge was not bound by that decision and should have made the declarations sought by LCM Funding. The Full Court found that the primary judge had significant doubts concerning Brookfield FC and that it was arguable that the majority mischaracterised litigation funding arrangements as an investment by group members of property to achieve benefits, when such arrangements principally provide a mechanism for persons who share commonality in their unlitigated and separate choses in action to secure the payment for legal services necessary to vindicate those choses on a contingent basis.

The Full Court found that the primary judge had declined to make the declarations sought by LCM Funding because he was bound by the majority decision in Brookfield FC, but the Full Court found that the primary judge was not bound by that decision and should have made the declarations sought by LCM Funding. The Full Court found that the primary judge had significant doubts concerning Brookfield FC and that it was arguable that the majority mischaracterised litigation funding arrangements as an investment by group members of property to achieve benefits, when such arrangements principally provide a mechanism for persons who share commonality in their unlitigated and separate choses in action to secure the payment for legal services necessary to vindicate those choses on a contingent basis. The Full Court found that the primary judge had declined to make the declarations sought by LCM Funding because he was bound by the majority decision in Brookfield FC, but the Full Court found that the primary judge was not bound by that decision and should have made the declarations sought by LCM Funding. The Full Court found that the primary judge had significant doubts concerning Brookfield FC and that it was arguable that the majority mischaracterised litigation funding arrangements as an investment by group members of property to achieve benefits, when such arrangements principally provide a mechanism for persons who share commonality in their unlitigated and separate choses in action to secure the payment for legal services necessary to vindicate those choses on a contingent basis.

The Full Court found that the primary judge had declined to make the declarations sought by LCM Funding because he was bound by the majority decision in Brookfield FC, but the Full Court found that the primary judge was not bound by that decision and should have made the declarations sought by LCM Funding. The Full Court found that the primary judge had significant doubts concerning Brookfield FC and that it was arguable that the majority mischaracterised litigation funding arrangements as an investment by group members of property to achieve benefits, when such arrangements principally provide a mechanism for persons who share commonality in their unlitigated and separate choses in action to secure the payment for legal services necessary to vindicate those choses on a contingent basis. The Full Court found that the primary judge had declined to make the declarations sought by LCM Funding because he was bound by the majority decision in Brookfield FC, but the Full Court found that the primary judge was not bound by that decision and should have made the declarations sought by LCM Funding. The Full Court found that the primary judge had significant doubts concerning Brookfield FC and that it was arguable that the majority mischaracterised litigation funding arrangements as an investment by group members of property to achieve benefits, when such arrangements principally provide a mechanism for persons who share commonality in their unlitigated and separate choses in action to secure the payment for legal services necessary to vindicate those choses on a contingent basis.