Parkston Limited (in liquidation), Application of

Parkston Limited (in liquidation) was the subject of an application brought forth by the liquidators seeking clarification and direction on the equitable distribution of litigation funding proceeds. The central dispute involved four creditors who were vying for their share of recovered funds from litigation that had been financed by two of the creditors. The matter was heard and determined in the Supreme Court of New South Wales.

The court was tasked with several legal issues, including how to assess the risk associated with the litigation over its continuing period, the appropriate method for distributing recovered proceeds among the funding creditors, and whether the full recovery should be allocated to the funding creditors or a lesser amount. Additionally, the court had to consider the implications of one of the funding creditors withdrawing from their initial commitment to fund but subsequently continuing to contribute. The court also had to determine the meaning of "indemnity" in the context of the legislation, the relevance of the non-funding creditors' awareness of the litigation, and whether an all-or-nothing approach was appropriate in distributing the recovered funds.

The court reasoned that the risk associated with the litigation should be assessed at the time of funding and not in hindsight. It concluded that the full recovery should be allocated to the funding creditors, as the meaning of "indemnity" included actual contributions made, regardless of whether they were pre-committed or not. The court found that the preservation of a right of action was also covered under the legislation. Furthermore, the court held that the risk of a cost order against non-party funders of litigation was relevant, as was the foreseeability of the litigation risk at the time of funding. It was also pertinent that the non-funding creditors were aware of the litigation and had not been asked to contribute, and that there was no realistic prospect that they would have funded the litigation despite their assertions to the contrary. The court determined that an all-or-nothing approach was appropriate rather than attempting to value the chance of success. It found that the relevance of other sources of recovery for the non-funding creditors was not pertinent, and that the joinder of parties was not necessary in this instance.

The court ordered that the recovered proceeds from the litigation be distributed entirely to the two creditors who funded the litigation, in accordance with the terms of their funding agreements. The non-funding creditors were not entitled to any share of the recovered funds.