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 Brothers’s 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. Mid-tier corporate firm Piper Alderman argued the IMF–funded 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 IMF–funded 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 nonrecovery 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.

No one doubts that Johnson Winter & Slattery, a 70-lawyer Sydney firm, knows about complex financial products. The firm actually advised Lehman Brothers on the creation of the sort of collateralized debt obligations (CDOs) that are at issue in these cases. It’s now putting some of that knowledge at work for plaintiffs.

Johnson Winter is now advising 22 Australian clients who are part of a group of investors suing Lehman Brothers in New York federal court over the purchase of securities similar to those at issue in the IMF–backed case in Australia. (New York litigation firm Kasowitz Benson Torres & Friedman is handling the plaintiffs’ case in the U.S.)

Litigation partner Jim Hunwick, who is leading the firm’s work on the New York case, stresses that the firm has no conflict because none of the Lehman CDOs it advised on are at issue. He says the firm is also now considering taking on a class action in Australia, which IMF may fund, similarly focusing on securities rendered worthless during the financial crisis. (He declined to comment further, saying that it is too early to reveal more details about the case.)

IMF’s Walker says that increased competition and diminished client loyalty in the Australian market means that the divide between plaintiffs’ and defense firms is “absolutely diminishing.” As a result, he says, all firms are becoming less averse to participating in plaintiffs’ work.

McLachlan Thorpe Partners, a 20-lawyer Sydney firm, won its first IMF–funded class action against the Australian government in 2011. On behalf of Pan Pharmaceuticals’s former CEO James Selim, the firm successfully sued regulators it said had willfully and maliciously taken actions that led to the alternative-drug company’s collapase. McLachlan Thorpe then teamed with IMF to bring a class action a behalf of 162 of Pan’s creditors, whom a Federal Court judge awarded $70 million in compensation.

Partner Andrew Thorpe says his firm would “without a doubt” take on another IMF–funded class action, even if it meant bringing a case against a bellwether Australian company. He acknowleges, though, that MT Partners has more leeway in taking on such cases than many larger firms. “We’re of a size where conflicts are not an issue,” he says.

Johnson Winter is likely to be more cautious about the IMF cases it takes on, Hunwick says. Many of the firm’s clients are Australia Securities Exchange-listed companies. “We’re limited in what IMF matters we can take on because of those relationships,” he says.

IMF also funds a range of insolvency cases and commercial disputes. On such litigation matters, Walker says, they’ve funded cases handled by Australia’s largest firms, though a number of senior partners at firms like King & Wood Mallesons, Clayton Utz, and Minter Ellison contacted for this article were not aware their firms had ever received funding from IMF. The litigation funder has worked with about 150 Australian firms, although only about 25 of those firms have handled class actions.
For now, the established plaintiffs firms will continue to dominate the class action practice, says Ben Slade, who heads Maurice Blackburn’s New South Wales class actions team. Maurice Blackburn made a pitch to lead the Lehman Australia class action, he says, but lost out to Piper Alderman. Still, Slade asserts, the complexities involved with multiparty cases will prevent most corporate firms from making any serious moves into the space.

Slade notes that Maurice Blackburn’s willingness to take on class actions even without funding has given it a depth of experience in the area he thinks newcomers to the practice will find hard to match. He notes that only plaintiffs’ firms have the infrastructure necessary to manage classes that number in the thousands and have the most experience countering the endless motions practice defense firms utilize in trying to kill cases in their infancy.

“If there are other firms that can climb the barriers to entry in these cases, then we’d say, good on ‘em,” Slade says.