Pioneering litigation funder IMF (Australia) Ltd. won a major victory last month when Australia's Federal Court handed down a more than $200 million decision in a class action that IMF backed against Lehman Bros.' local subsidiary.
But this time it wasn't one of the country's two big plaintiffs law firms -- Maurice Blackburn or Slater & Gordon -- that delivered the victory. Midtier corporate firm Piper Alderman argued the IMFfunded case on behalf of 72 municipalities, churches and community organizations that had bought now-worthless Lehman securities.
Piper Alderman, which has 210 lawyers, is also acting for the plaintiff in another pending IMFfunded class action against rating agency Standard & Poor's and Dutch state-owned bank ABN AMRO, also over toxic securities.
In Australia as in the United States, most corporate firms stay away from class actions, for fear of alienating corporate clients, who are frequently the targets of such cases. And partners at Australia's largest firms say unequivocally that their firms will not be involved in bringing class actions. "The bottom line is, we wouldn't do it," says Ross Freeman, a litigation partner with Minter Ellison in Melbourne.
But smaller corporate firms are starting to see things differently. Amanda Banton, the Sydney-based Piper Alderman partner who led the case against Lehman, says she saw it as a chance to work on complex litigation that would add a depth and breadth of experience to Piper Alderman's practice. She adds that the firm has received no negative feedback from existing corporate clients, and she doesn't think new ones will be put off.
"I imagine they would respect us because of the outcome we achieved," she says.
The attraction certainly isn't the kind of massive contingency-fee payday that plaintiffs firms in the U.S. might expect from class actions. In Australia, plaintiffs firms are not allowed to take a percentage of their clients' recoveries; their contingent fees are based on their normal hourly rate and sometimes a modest bonus. Moreover, unsuccessful claimants must pay the costs of the defense. The combination of high risk and low reward is one reason so few firms other than Maurice Blackburn and Slater & Gordon have been willing to step in the plaintiffs ring.
Litigation funders like IMF have changed the game somewhat, though. Unlike the lawyers, the funders can contract with the plaintiffs to take a percentage of a settlement. With that much greater financial reward in prospect, funders take the risk of non-recovery away from the lawyers, who are paid their normal fees, win or lose.
IMF has most frequently worked with Maurice Blackburn and Slater & Gordon in class actions. But the fallout from the 2008 global financial crisis has created a number of opportunities for the funder to work with firms that might have been more likely to appear on the other side.
"Where you have a case involving synthetic derivatives, you need lawyers who understand them," says IMF executive director John Walker, explaining his firm's decision to work with Piper Alderman in the Lehman case. The plaintiffs in that case claimed that Lehman sold them synthetic collateralized debt obligations, without informing them of the risks involved. Those SCDOs plummeted in value when the global financial crisis hit. After a trial in March 2011, Justice Steven Rares rendered a decision late last month. He called Lehman's conduct "misleading and deceptive" and ordered the bank to repay the group's losses.