Trending Now
  • An LFJ Conversation with Lauren Harrison, Co-Founder & Managing Partner of Signal Peak Partners
Commercial Regulatory Issues

Looks Dubious – The Third Ground to Restrain a Lawyer from Acting

April 5, 2023

Looks Dubious – The Third Ground to Restrain a Lawyer from Acting

The following piece was contributed by Valerie Blacker, commercial litigator focusing on funded litigation, and Amelia Atkinson, litigation and dispute resolution lawyer at Piper Alderman. Strata Voting Pty Ltd (In Liq) v Axios IT Pty Ltd and Anor[1] is a funded single plaintiff action. It involved a recent examination of the Court’s power to prevent a lawyer from acting in proceedings for a conflict of interest. The authors represented Strata Voting in its successful defense of the restraint application. The Third Ground Less frequently invoked than the first and second grounds (misuse of confidential information and breach of fiduciary duty), the third category upon which to restrain a lawyer in a position of conflict from acting in a matter is known as the “inherent jurisdiction” ground. The Court can restrain lawyers from acting in a particular case as an incident of its inherent jurisdiction over its officers and control of its processes.[2] The jurisdiction is enlivened where there is an objective perception that a lawyer lacks independence such that the Court is compelled to interfere and remove the lawyer from acting in the matter. In other words, the position of the lawyer makes the Court uneasy. The test for intervention is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice, including the appearance of justice, requires that a legal practitioner should be prevented from acting.[3] Axios’ failed application The jurisdiction to enjoin a solicitor from acting is to be regarded as exceptional, and to be exercised by the court with caution. That was the basis on which his Honour Judge Dart of the South Australian Supreme Court dismissed the application brought to restrain Piper Alderman from acting for the liquidators. Here, Piper Alderman is acting for the company in relation to a dispute which was in existence before the winding up commenced.  The liquidator retained Piper Alderman to continue acting for the company for the purpose of the litigation, the subject of the existing dispute. The supposed conflict was said to have arisen from a proof of debt which Piper Alderman lodged for about $47,000 in fees incurred prior to the administration. The argument was that Piper Alderman’s impartiality was impaired by the fact that unless the litigation is successful, Piper Alderman will not be paid its outstanding fees because there will be no funds in the winding up to do so. Axios contended that “the conduct of the solicitor was so offensive to common notions of fairness and justice that they should, as officers of the Court, be restrained from acting”. However, his Honour considered the firm’s status as creditor to be unremarkable. Even in a case where a substantial sum (over $830,000) was owed to lawyers by their insolvent client,[4] there was no risk to the proper administration of justice. As everyone knows, solicitors routinely act in matters where they are owed money including conditional costs agreements, risk share arrangements, contingency fee arrangements and agreements that include uplift fees, to name a few. The restraint application in Strata Voting was unsurprisingly and swiftly[5] dismissed with costs. Conclusion If an opposing party asserts that a lawyer should be restrained from acting for the opponent, it is necessary for a clear case to be made that the lawyer is in a position where he is fixed with an interest of such a nature that he may fail in his overriding duty to the court. It requires proof of facts, and not mere speculation as to motive. The risk to the due administration of justice has to be a real one. Otherwise, a litigant ought not to be deprived of the lawyer of his choice. — About the Authors: Valerie Blacker is a commercial litigator focusing on funded litigation. Valerie has been with Piper Alderman for over 12 years. With a background in class actions, Valerie also prosecutes funded commercial litigation claims. Amelia Atkinson is a litigation and dispute resolution lawyer at Piper Alderman with a primary focus on corporate and commercial disputes. Amelia is involved in a number of large, complex matters in jurisdictions across Australia. For queries or comments in relation to this article please contact Amelia Atkinson | T: +61 7 3220 7767 | E:  aatkinson@piperalderman.com.au [1] Unreported, Supreme Court of South Australia, Dart J, 23 January 2023 (Strata Voting). [2] Kallinicos & Anor v Hunt [2005] NSWSC 118 at [76] (Kallinicos). [3] Ibid. [4] Naczek & Dowler [2011] FamCAFC 179, [84]. [5] In a 5-page judgment.

Commercial

View All
Commercial

MWE Guide Outlines Compliance Priorities for Litigation Fund Managers

By John Freund |

Fund managers exploring or operating within the litigation finance space face a complex and often underappreciated regulatory landscape. A recent guide from McDermott Will & Emery provides a detailed roadmap for how litigation fund managers can navigate this evolving environment, with a particular focus on securities laws, fiduciary obligations, and conflicts of interest.

The memo serves as a primer on key legal considerations, especially for those managing funds in the United States or marketing to U.S. investors. It emphasizes that litigation finance funds may be subject to the same regulatory scrutiny as traditional investment vehicles. Managers must consider registration requirements under the Investment Advisers Act of 1940, as well as exemptions, such as those for foreign private advisers or venture capital fund advisers. The authors also explore the application of the Investment Company Act of 1940, cautioning that even non-traditional funds can be pulled into regulatory oversight if structured improperly.

Fiduciary duties take center stage in the memo’s discussion of fund governance. Managers are reminded that they owe duties of care and loyalty to their investors, which can become complicated in litigation finance where the fund’s interests may diverge from those of claimholders or legal counsel. Disclosure, consent mechanisms, and robust internal compliance protocols are strongly recommended to mitigate potential conflicts.

The guide also highlights the increasing focus by regulators and policymakers on transparency and ethical boundaries within the litigation finance industry. Fund managers are urged to prepare for heightened scrutiny and evolving disclosure expectations.

Commercial Regulatory Issues

Op-Ed in The Hill Targets Foreign Investment in Litigation Funding

By John Freund |

A growing chorus of voices is calling for greater scrutiny of third-party litigation funding, with a new op-ed warning that opaque capital is compromising the integrity of the U.S. civil justice system.

An opinion piece in The Hill by Lindsay Lewis and Phil Goldberg of the Progressive Policy Institute argues that American courtrooms are being quietly transformed into a financial marketplace, with hedge funds, foreign sovereign wealth funds, and other investors channeling billions into U.S. litigation. The authors highlight an alleged lack of disclosure, warning that litigation funders can influence or outright control high-value cases, often without the knowledge of courts, litigants, or the public.

The litigation funding industry has long cited a lack of evidence regarding such accusations, yet the pressure from industry critics persists. The article points to mass torts as a flashpoint for abuse, claiming funders are building lawsuits “too big to fail” by bankrolling advertising campaigns and scientific claims to pressure companies into mass settlements regardless of the merits.

The op-ed also echoes previously-made critiques around national security and economic concerns, citing recent reports of Chinese, Russian, Saudi, and Emirati-backed funds investing in U.S. litigation. These foreign entities, the authors argue, could use lawsuits to access sensitive corporate data or strategically target American companies, all while avoiding U.S. taxes on any litigation proceeds.

Lewis and Goldberg call for reforms mandating disclosure of litigation funders, establishing ethical walls between financiers and legal strategy, and regulating foreign involvement in U.S. lawsuits.

Commercial Regulatory Issues

Increased Access to Justice for Claimants to Take on Powerful Organisations in Court

Ordinary people will have greater access to justice thanks to Government’s plans for legislation to help claimants receive the funding they need to take on powerful organisations in court.    

Since the Supreme Court ruling in PACCAR in 2023, claimants have faced uncertainty about whether they can secure funding from third parties in order to bring a civil case against a well-resourced opponent.  

Third-party litigation funding allows people to bring complex legal cases against powerful organisations when they cannot afford the costs themselves. Under these arrangements, a funder pays for the legal case in exchange for a share of any compensation won.   

The PACCAR judgment, which classed these funding arrangements as “Damages Based Agreements”, made it harder to access to third-party funding and has resulted in a drop in collective action lawsuits. Today, the government is confirming that it will take action to remove this barrier to justice by clarifying that Litigation Funding Agreements are not Damages Based Agreements, protecting victims and claimants.   

Minister for Courts and Legal Services, Sarah Sackman KC MP, said:  “The Supreme Court ruling has left claimants in unacceptable limbo, denying them of a clear route to justice. Without litigation funding, the Sub-postmasters affected by the Horizon IT scandal would never have had their day in court. These are David vs Goliath cases, and this Government will ensure that ordinary people have the support they need to hold rich and powerful organisations to account. Justice should be available to everyone, not just those who can afford it."   

David Greene, co-president of the Collective Redress Lawyers Association (CORLA) said: “This announcement is good news for ordinary people seeking access to justice. However, whilst the government has recognised the urgent need to reverse PACCAR, the proposal to regulate litigation funding agreements as part of the proposed legislation is likely to add considerable delay. We therefore urge the government to introduce an urgent bill to reverse PACCAR, and that the thornier issue of what light touch regulation of litigation funding might look like be considered separately.”

The UK’s legal services industry is worth £42.6 billion a year to the economy, with a highly skilled workforce of 384,000.  

A new framework will ensure that agreements are fair and transparent, so that third-party litigation funding actually works for all those involved.  These changes follow a comprehensive and wide-ranging review by the Civil Justice Council (CJC), published earlier this year. The government will continue to consider the recommendations set out in the CJC review.