1. Background
1.1. A business providing financial services to litigation schemes and/or litigation arrangements is exempt from the requirements that would otherwise apply under Chapter 7 of the Corporations Act 2001 (“Corporations Act”), but must maintain, for the duration of the scheme or arrangement, adequate practices for identifying and managing any conflicts of interest that may arise.
1.2. ASIC’s Regulatory Guide 248 (“RG 248” or the Regulations) sets out the approach on how a person who provides a financial service can satisfy the obligation to maintain adequate practices and follow certain procedures for managing potential and actual conflicts of interest in relation to a litigation scheme or a proof of debt scheme as follows:
1.2.1. Each entity is responsible for determining its own arrangements to manage interests that may conflict; and
1.2.2. Each entity must be able to demonstrate that it has adequate practices to manage conflicts of interest, including documenting, implementing, monitoring and reviewing those arrangements.
2. Purpose
2.1. The purpose of this document is to set out LLS’ policy with respect to identifying, managing and monitoring conflicts of interest, so as to ensure compliance with the Regulations and to enhance the protection of claimants’ interests.
2.2. The policy also sets out which roles within LLS are responsible for completion of the various tasks and responsibilities outlined in the document.
3. Scope
3.1. This policy applies to all of LLS’ cases, including those under which LLS provides either funding and/or an indemnity, and applies regardless of whether there is a single Claimant or a group of Claimants. The definitions of a litigation funding scheme and a litigation funding arrangement are outlined in the Corporations Act.
4. General Principles
4.1. Delegations and responsibilities are to positions and not to individuals.
4.2. The work undertaken in respect of the policy is to be documented, so as to substantiate compliance with the obligation to maintain adequate practices and follow certain procedures for managing conflicts of interest.
4.3. Compliance with the obligation may vary according to the nature, scale and complexity of each type of funding arrangement.
4.4. All individual positions nominated are responsible for understanding the responsibilities assigned to them and are obligated to execute their responsibilities as outlined within this document.
4.5. Any breaches of this policy should be reported to the CEO and Chairman of the Board.
4.6. This policy will be reviewed annually (in January), by the CEO, in conjunction with the Investment Managers (“IM”). Any proposed changes are to be approved by the Board, and the revised policy implemented subsequent to Board approval.
4.7. After each annual review of the policy by the CEO, a statement will be issued to the Board confirming that the review has been completed and the regulation requirements have been met.
5. Conflicts of Interest
5.1. According to RG 248.11, the nature of the relationships between the parties involved in a litigation funding arrangement has the potential to lead to a divergence of interests between the claimants and the interests of the funder and the lawyers because:
5.1.1. The funder has an interest in minimising the legal and administrative costs associated with the funding arrangement and maximising their return;
5.1.2. Lawyers have an interest in receiving fees and costs associated with the provision of legal services; and
5.1.3. The claimants have an interest in minimising the legal and administrative costs associated with the claim, minimising the remuneration paid to the funder and maximising the amounts recovered from the defendant.
5.2. The divergence of interests may result in conflicts between the interests of the funder, lawyers and the claimants. These conflicts can be actual or potential, and present or future.
5.3. Conflicts of interest between the funder, lawyers and claimants may arise in a litigation scheme where:
5.3.1. The lawyers act for both the funder and the claimants;
5.3.2. There is a pre-existing legal or commercial relationship between the funder, lawyers and/or claimants/defendants; or
5.3.3. The funder has control of, or has the ability to control, the conduct of the proceedings.
5.4. The divergence of interests between the funder, lawyers and claimants in a litigation arrangement could affect:
5.4.1. The recruitment of prospective claimants;
5.4.2. The terms of any funding agreement;
5.4.3. A claim where there are difficulties with the case of the representative party, but not with the cases of other claimants of the class; and
5.4.4. Any decision to settle or discontinue the action.
5.5. A conflict may arise if a prospective litigation matter involves, in any capacity:
5.5.1. A person or entity which holds at least 5% of the issued share capital of LLS (‘Significant Shareholder’); or
5.5.2. An entity in which a Significant Shareholder holds at least 5% of the issued share capital (‘Significant Shareholder Associate’)
5.6. It is the responsibility of the Significant Shareholders to advise the Company Secretary of LLS of any changes to its Significant Shareholder Associates.
5.7. The Company Secretary will maintain a Register of Significant Shareholders and Significant Shareholder Associates that will be considered by LLS for the purpose of identifying any actual or potential conflicts of interest.
6. Measures in Place to Mitigate Conflicts of Interest
6.1. LLS has in place the following measures which serve to mitigate potential conflicts of interest:
6.1.1. Neither LLS nor its employees provide legal advice or legal services to claimants;
6.1.2. Each Director of LLS provides an annual Declaration of Existing Interests which states any interests held by that Director (direct or indirect) in incorporated or unincorporated entities, including any directorships, committee memberships or positions of office;
6.1.3. In every funding agreement, LLS contracts with the claimant as a principal;
6.1.4. LLS does not engage the same lawyers to act for it in a particular matter as those that are engaged to act for the claimant, and LLS will not seek to influence the claimant’s lawyers to cede control of the claim to LLS, or otherwise to act in breach of their professional duties;
6.1.5. Any funds arising from a settlement or judgment are paid into the trust account of the claimant’s solicitor and distributed to LLS by that solicitor according to the terms of the funding agreement;
6.1.6. The funding agreement provides for dispute resolution in the event of any actual conflict of interest arising between LLS and the claimant, being referral to a third-party Counsel;
6.1.7. LLS will not enter into any agreements to provide funding for any claims against the company’s appointed statutory auditor (or other professional services provider);
6.1.8. LLS will not enter into any agreements to provide funding for any claims where the company’s appointed statutory auditor is joined or likely to be joined;
6.1.9. Prior to accepting any litigation funding contract, the IM will make appropriate enquiries to ensure that all parties involved in the claim or likely to be joined in the matter are appropriately identified and documented so that, should LLS’ auditor be named, the person(s) making the final decision to proceed will be adequately informed so that clauses 6.1.7 and 6.1.8 can be put into effect before proceeding; and
6.1.10. LLS will not enter into any agreements to provide funding for any claims involving Significant Shareholders or Significant Shareholder Associates (without the explicit written consent of the Significant Shareholder).
7. Procedures for Identifying Situations in Which Interests May Conflict
7.1. At the time LLS determines that it will provide an offer of funding to a party (“the claimant”), the IM will review the claimant’s claim and will seek to identify any interests LLS has that may be divergent to those of the claimant.
7.2. At the time LLS determines that it will provide an offer of funding to the claimant, the IM will review at least the Declaration of Existing Interests of LLS Board members and will seek to identify any interests LLS Board members may have that may be divergent to those of the claimant.
7.3. At the time LLS determines that it will provide an offer of funding to the claimant the IM will review the Register of Significant Shareholders and Significant Shareholder Associates of LLS and will seek to identify any interests these Shareholders may have that may be divergent to those to the claimant.
7.4. The IM will discuss those divergent interests (as outlined in 7.1, 7.2 and 7.3) with the Company Secretary and CEO and determine whether LLS may proceed with the offer of funding.
7.5. The IM will document those divergent interests in its Register of Actual or Potential Conflicts of Interest (“Conflicts Register”), and the key agreed outcomes.
7.6. The IM will conduct a half yearly review of each case, with a view to assessing whether a conflict of interest has arisen between LLS’ interests and those of a claimant or claimant(s). The review will be documented in the Conflicts Register.
7.7. The IM will discuss any conflicts of interest that are identified as part of that half yearly review with the CEO, and summarise the agreed key outcomes in the Conflicts Register.
7.8. The CEO will review the Conflicts Register on a half yearly basis, and sign off that all potential and existing conflicts of interest have been identified and appropriately documented.
7.9. After each half yearly review of the Conflicts Policy by the CEO, a statement will be issued to the Board confirming that the review has been completed and the regulation requirements have been met.
8. Procedures for Disclosing and Managing Conflicts of Interest
8.1. If prior to entering a funding agreement, LLS has identified that a potential conflict exists, it will notify the claimant, via the claimant’s lawyers, of those potential conflicts. The disclosure can be made in a form agreed by the CEO. The notification date and a copy of the disclosure will be filed in the Conflicts Register.
8.2. If prior to entering a funding agreement, LLS has identified that an actual conflict exists, it will notify the claimant, via the claimant’s lawyers, of those conflicts, together with a proposal for managing those conflicts of interest.
8.3. If, during the course of providing funding for a claim, LLS determines that a conflict of interest has arisen between LLS’ interests and those of a claimant or claimants, LLS will notify the claimant(s), via their lawyer, of the conflict it has identified, and will provide the claimant with a proposal to seek to manage the conflict as follows:
8.3.1. In the first instance, LLS will recommend to the claimant(s) that they seek independent legal advice in relation to the conflict.
8.3.2. If the conflict cannot be resolved between the parties after LLS has notified the conflict to the claimant(s), LLS will propose to the claimant(s) that the conflict be referred to a third-party Counsel (i.e. one who is not already briefed in the matter) for an advice as to an appropriate and reasonable resolution of the conflict.
8.4. In respect of 8.2 and 8.3 above, the date the notification and proposal are provided to the claimant will be documented in the Conflicts Register, along with a copy of that notification, the proposal and any subsequent response. The agreed processes (if any) for managing that conflict will also be filed in the Conflicts Register, and procedures will be put in place to adhere to that agreement.
8.5. Disclosure to existing or prospective funded claimants about actual or potential conflicts of interest in relation to funded litigation shall in most cases be in writing unless oral disclosure has been approved by the CEO. If oral disclosure is made, a file note of the conversation will be filed in the Conflicts Register.
8.6. Disclosure of an actual or potential conflict shall not be made where, in the reasonable opinion of the CEO, the source of the conflict is confidential and it would not be in the interests of the funded claimant(s) to disclose that conflict. The CEO shall fully document his or her decision and retain this document as part of the Conflicts Register.
9. Recruitment of Prospective Members/Claimants for Class Actions or Representative Proceedings
9.1. Recruitment is usually undertaken by the lawyers for the claimants, not by LLS. LLS however will take steps to ensure that as far as possible and reasonable, it will review the process of recruitment of prospective claimants to any litigation funding arrangement. This review will include an IM reviewing the terms of any advertisements made to the public to ensure that no misleading or false statements are made in relation to aspects of the funding arrangement.
9.2. LLS will recommend to the lawyers engaged in the recruitment process that any documents provided to prospective claimants must clearly state any risks to claimants in entering into a litigation funding arrangement, as well as the amount or percentage return to be paid to the funder.
10. The Terms of the Funding Agreement
10.1. LLS will ensure that it includes terms within any funding agreements to which it is a party that provide:
10.1.1. A clear statement as to the total amount of funding that LLS is providing for the claimant’s costs and disbursements, any undertaking by LLS to provide security for costs or to pay any adverse costs ordered against the claimant and any other financial liability which LLS is undertaking to meet for the benefit of the claimant;
10.1.2. That it agrees to keep the existence and terms of the funding agreement confidential and that it will not, without the claimant’s consent, disclose the funding agreement to any third party other than LLS’ legal and financial advisers or as required by law;
10.1.3. The terms on which LLS may provide input into the management of the claim, including any settlement negotiations or offer which the claimant is proposing to submit or accept;
10.1.4. A mechanism for resolution of any dispute between LLS, the claimant and/or the lawyer, including but not limited to any dispute in relation to settlement, being referral of the dispute to a third-party Counsel;
10.1.5. That in the event the claimant and LLS disagree on whether or not the claim should be concluded, or the terms upon which the claim is concluded, LLS acknowledges that the lawyers ultimately act for the claimant;
10.1.6. In relation to Class Actions and Representative Proceedings, a cooling off period, to enable the potential claimant an opportunity to obtain legal advice; and
10.1.7. The terms on which LLS and the claimant, respectively, may terminate the funding agreement.
10.2. LLS will provide a prospective claimant with the opportunity to negotiate amendments to the terms of a funding agreement, and a reasonable time within which to consider whether or not the claimant wishes to enter into the funding agreement with LLS on the terms offered by LLS.
11. Procedures for Dealing with Situations Where the Lawyer Holds Obligations to Both the Funder and Claimants
11.1. If the lawyers are engaged on terms that they act for LLS as well as for the claimant (generally not the case), LLS will instruct the lawyers that their primary obligations are to the claimant and in the event there is a divergence of interests between those of LLS and those of the claimant, the lawyers must immediately notify LLS but then must act to prefer the interests of the claimant over those of LLS.
11.2. In a situation where there is no direct contractual relationship between the lawyers and any of the claimants to a litigation scheme, LLS will ensure that the lawyers are aware that in the event there is a divergence of interests between LLS and the claimants, the lawyers hold an obligation to the claimants to protect their interests.
12. Procedures for Dealing with a Pre-existing Relationship Between any of the Funder, Lawyer and Claimants
12.1. In the event LLS has an existing relationship with the lawyers instructed on a particular matter (i.e., LLS has previously worked on a matter with the lawyers), it will disclose such relationship to the claimant, including the term of the relationship and the nature of the relationship, and invite the claimant to consider whether it wishes to proceed with the funding arrangement.
12.2. The IM will record in the Conflicts Register the date that the disclosure was provided to the claimant as outlined in 12.1, along with a copy of that correspondence (or a summary of the notes from that meeting). The claimant’s response will also be documented in the Register.
13. Procedures for Oversight of a Settlement in a Situation Where No Proceedings Have Been Issued
13.1. If settlement of a litigation scheme is being considered by the parties prior to proceedings having been issued, LLS will ensure that the proposed settlement has been considered by Counsel and that Counsel has indicated that it is an appropriate settlement. The IM will file a copy of the correspondence to Counsel (or a copy of the notes for the meeting with Counsel) in the Conflicts Register.
13.2. In considering the settlement, Counsel will be asked to take into account all or some of the following:
13.2.1. The amount offered to each claimant;
13.2.2. The prospects of success of the claim;
13.2.3. The likelihood of the claimant(s) obtaining judgment for an amount in excess of the settlement sum;
13.2.4. Whether the settlement sum falls within a realistic range of likely outcomes;
13.2.5. The terms of any advice received from an independent expert on the issues that arise in the case;
13.2.6. The attitude of the group claimants to the settlement;
13.2.7. The likely duration and cost to claimants of proceedings if continued to judgment;
13.2.8. The terms of any funding agreement that specify the procedure that will be applied in reviewing and deciding whether to accept any settlement offer, including the factors that will and will not be taken into account in deciding to settle;
13.2.9. Whether the funder might refuse to fund further proceedings if the settlement is not approved; and
13.2.10. Whether the settlement involved unfairness to any claimant or categories of claimants for the benefit of others.
13.3. The IM will record in the Conflicts Register the date that LLS received the advice from Counsel as outlined in 13.1, as well as a copy of Counsel’s advice.
13.4. LLS will be bound by Counsel’s advice in regard to the settlement.
14. Monitoring and Review of the Conflicts Register, Reporting to the Board
14.1. The IMs will conduct a half yearly review of all existing funded matters, as well as the Conflicts Register in order to ensure that LLS is fully compliant with the policy, and that the Conflicts Register is current. This review will be documented in the Conflicts Register.
14.2. The CEO will summarise the key conflicts as part of his/her CEO Report to the Board on a half yearly basis. Further, the CEO will use his/her discretion in reporting significant conflicts of interest to the Board as they arise. These reports will be filed in the Conflicts Register.
