Funding for class actions in turmoil after court ruling

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Funding for class actions in turmoil after court ruling

By Elisabeth Sexton

COMPANIES that provide funding for class actions are going back to the drawing board after a full Federal Court ruled that a shareholder suit against property developer Brookfield Multiplex was a managed investment scheme.

The class action is not registered as a managed investment scheme and so is in breach of the Managed Investments Act and the Corporations Act. It also lacks the legally required ''responsible entity'' to run it.

The law firm running the suit, Maurice Blackburn, is considering seeking leave to appeal to the High Court as well as exploring ways of amending the way the case is funded. A Maurice Blackburn principal, Andrew Watson, said his firm was reviewing all its funded class actions after the decision.

The court has not yet made orders, which gives Maurice Blackburn and its Canadian funder, International Litigation Funding Partners, an opportunity to approach the corporate regulator for an exemption before the ruling takes effect.

The majority judgment referred to this possibility.

''The obvious consequence of our view that the scheme must be registered is that a qualified responsible entity must be appointed unless the Australian Securities and Investments Commission takes action to excuse the scheme from registration,'' said Justices Ross Sundberg and John Dowsett.

In a dissenting judgment, Justice Peter Jacobson said the Multiplex case did not fit the ''evident purpose'' of the law on managed investment schemes, which he said was ''to protect the investment of pooled contributions, or contributions that are used in a common enterprise, by a person who has day-to-day control''.

The majority judges said investment protection could be relevant to members of a class action. ''There may be a risk that claims will be devalued by a decline in the fortunes or asset position of Multiplex, the funder or Maurice Blackburn, or by the likely incurrence of previously unexpected costs, necessitating some action to protect the group members' interests,'' they said.

Most of Maurice Blackburn's class actions are funded by IMF (Australia), which said yesterday that three alternatives were open to class actions.

These were to apply to ASIC for exemptions, to register each class action as a managed investment scheme, or to restrict each class action to sophisticated investors.

The plaintiffs in the Multiplex case are seeking compensation for losses from the company's belated disclosure of problems with building Wembley Stadium in Britain.

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