Wednesday 2 May 2018
Litigation funding is currently under the spotlight with two Law Reform Commission reports on the industry to be delivered in 2018. One of the issues being considered is the relationship between funders, claimants and lawyers and how it should be managed. The outcome of a similar debate in the UK was self-regulation of the industry through the Association of Litigation Funders, in which Augusta is a founding member.
The issues being examined by the Commissions are of great importance to both access to justice and the future conduct of litigation in Australia. Augusta’s funding model in relation to these issues, having experienced them in the UK, is discussed below.
Conflicts of interest between lawyer and litigation funder. Interests are generally aligned as all desire a successful resolution. However, conflicts may arise over how the litigation should be conducted. Augusta regards its role as collaborating with the law firm to achieve the best outcome for everyone. Augusta has a hands-off approach to the conduct of cases it has funded once it is satisfied the case is properly formulated and resourced.
Conflicts of interest between litigation funder and claimants. The greatest potential conflict revolves around differing views on settlement amounts. In Australia, funders are required to have a conflict policy and dispute resolution process. Augusta’s approach is largely to rely on the lawyers and counsel to determine whether a settlement proposal is reasonable.
Prudential requirements, including minimum levels of capital. Augusta understands why the lawyers and claimants want assurance that there are sufficient funds to run a matter to trial. As a well-capitalised funder, Augusta is open to capital adequacy measures to address this concern.
Currently, Augusta deals with this by placing funds into the lawyer’s trust account upfront. The lawyers draw down amounts to cover approved invoices, allowing for quicker access to the funds. If it is a large matter, Augusta usually deploys the funds in three tranches that coincide with stages in the litigation. For example, a final tranche may be for the trial.
Distribution of proceeds of litigation Including the desirability of statutory caps on the proportion of settlements or damages awards that may be retained by lawyers and litigation funders.
Funding is non-recourse and there is great uncertainty in litigation in terms of outcome and duration. Funding also requires skilled professionals to diligence and monitor cases. The fees charged need to recognise these capital risks and costs.
The obvious area of concern is that a case resolves successfully yet the legal costs and funder’s fees leave little for the claimant. This may occur simply due to damages awarded being far lower than anticipated or that fees are too high. Whilst recognising this concern, Augusta notes the countervailing forces to excessive fees.
The best outcome for both the claimant and funder is to avoid litigation risk and settle a claim on reasonable terms. If the legal costs and funder’s fee are too high relative to the anticipated recovery, the likelihood of a settlement is diminished. Augusta seeks to ensure that costs are proportionate to the damages (i.e. a damage to costs ratio of at least 4:1) to ensure the claimant recovers at least 50% of the gross damages.
The other balancing force is competition. There are a number of funders operating in Australia either with local offices, like Augusta, or funding through overseas offices. If the funder attempts to charge too much, other funders will likely compete on price.
Finally, sections 33V and 33ZF(1) of the Federal Court of Australia Act 1976 (Cth) enable the Court to intervene where it considers a funder’s commission is excessive. The benefit of this approach is the Court is well-placed to consider the reasonableness of the commission in the context of a particular case.
Costs charged by lawyers in funded litigation
Augusta is aware of criticism surrounding legal fees charged in certain funded cases. As mentioned above, it is of great importance to Augusta that the ratio of legal costs to damages is satisfactory to ensure sufficient return to all interested parties.
This is why Augusta has developed a robust procedure to ensure that budgets are proportionate, reasonable and sufficient. Augusta asks the lawyers to complete a detailed budget for each phase of the litigation. An independent costs lawyer reviews the budget to ensure the time estimates for the phases and disbursements are reasonable. This can result in an increase or decrease in the budget depending on the cost lawyer’s views. The lawyers submit invoices that are consistent with the budget. If there is a need for a budget variation, the lawyers submit a budget variation with an explanation. Reasonable variations are approved.
Augusta’s goals are to work closely with lawyers and claimants to achieve a successful resolution to cases and provide a product that is flexible and innovative which enables access to justice at a reasonable price.
For more information or to discuss funding commercial litigation claims (including class actions) please contact Neill Brennan on 02 8311 0555.