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As we noted in the last edition of the Shareholder, the government has introduced regulations requiring funders to have written procedures for managing any conflicts of interest that may arise in litigation they fund in Australia. The regulations came into force on 12 July 2013 and are the first, and so far only, form of regulation applying to all litigation funders operating in this country.
The Australian Securities and Investments Commission (ASIC) has also published a detailed guide setting out ASIC’s expectations of how funders are to comply with the regulations. In ASIC’s view, a conflict may arise in a piece of funded litigation because the interests of the funder, the lawyers and the claimants in that litigation may diverge. This could be because:
In this sense, all litigation which is run for the benefit of one party but is paid for by someone else (including litigation conducted by lawyers on a “no win, no fee” basis) can give rise to conflicts. The regulations and ASIC’s guide call for such conflicts to be managed by funders so as to adequately protect claimants’ interests.
How does ASIC think funders should do this? ASIC emphasises that each funder is responsible for developing its own conflicts management policies, but recommends that funders have regard to the following points:
While we would have preferred the government to fully regulate the litigation funding sector in Australia, the regulations are at least a step in the right direction.
The need to manage conflicts of interest in funded litigation is not new to IMF. For many years, our funding agreements have contained terms designed to protect the interests of the claimants in the event a conflict arises. As one example, IMF’s funding agreements already require any disagreement between a claimant or representative and IMF over whether a claim should be settled in funded proceedings to be referred to senior counsel for their independent opinion on whether the settlement should be accepted.
It is therefore not difficult for IMF to comply with the regulations. We have adopted an updated conflicts management policy and have made some changes to the standard terms of our funding agreements in the light of ASIC’s guidance. If you are an existing client of IMF, you will be informed about these changes and our policy is available for existing and prospective clients to view on IMF’s new client PORTAL (see Welcome to the Portal and IMF's new website).
Please contact IMF on 1800 016 464 if you have any questions about this topic.
 IMF (Australia) Ltd, “Update on regulation of litigation funding”, The Shareholder, Issue 15 (March 2013): http://www.imf.com.au/newsletter/issue-15-march-2013/detail/2013/04/03/update-on-regulation-of-litigation-funding.
 Corporations Amendment Regulation 2012 (No 6) as amended by the Corporations Amendment Regulation 2012 (No 6) Amendment Regulation 2012 (No 1).
 ASIC, Litigation Schemes and Proof of Debt Schemes: Managing Conflicts of Interest, Regulatory Guide 248 (April 2013).