Commonwealth Numbered Regulations - Explanatory Statements
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CORPORATIONS AMENDMENT REGULATION 2012 (NO. 6) AMENDMENT REGULATION 2012 (NO. 1) (SLI NO 308 OF 2012)
EXPLANATORY STATEMENT
Select Legislative Instrument 2012 No. 308
Issued by authority of the Minister for Financial Services and Superannuation
Subject - Corporations Act 2001
Corporations Amendment Regulation 2012 (No. 6) Amendment Regulation 2012 (No. 1)
The Corporations Act 2001 (the Act) provides for the regulation of corporations and financial markets, products and services, including in relation to licensing, conduct, financial product advice and disclosure.
Subsection 1364(1) of the Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed by regulations, or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act.
The Corporations Amendment Regulation 2012 (No. 6)was made on 12 July 2012 with a commencement date of 13 January 2013. The intention of the Corporations Amendment Regulation 2012 (No. 6) was to clarify that litigation funding schemes, as well as similar arrangements, were not managed investment schemes (MIS), and therefore not subject to the regulatory requirements applying to MIS. The regulatory requirements of MIS include registration, licensing, conduct and disclosure.
The Corporations Amendment Regulation 2012 (No. 6) Amendment Regulation 2012 (No. 1) (the Regulation) makes a number of technical changes to Corporations Amendment Regulation 2012 (No. 6). These changes ensure that the Corporations Amendment Regulation 2012 (No. 6) operates effectively. One of the technical changes the Regulation makes is to remove the requirement that the funder and lawyer not be members of the litigation funding scheme. If the requirement was not removed, then should a funder or lawyer be part of a litigation funding scheme the scheme would still be considered a MIS and be subject to the regulatory requirements of a MIS.
The Regulation also excludes a litigation funding arrangement (which involves a single claimant) from the definition of a MIS to ensure that litigation funding involving a single claimant is subject to the same regulatory requirements that apply to litigation funding schemes.
Furthermore, in response to the High Court finding in International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed) [2012] HCA 45 that a litigation funding arrangement was a credit facility, the Regulation makes litigation funding schemes and arrangements financial products. It also expressly excludes litigation funding schemes and arrangements from being credit facilities. The result is that litigation funding schemes and arrangements are subject to the regulatory requirements of the Corporations Act.
The Regulation also, by making the litigation funding schemes and arrangements financial products, subjects them to conflict of interest obligations. The Regulation does not subject conditional fee arrangements between a lawyer and a client (not involving a third party funder) to conflict of interest obligations.
Details of the Regulation are set out in the Attachment.
The Regulation commences the day after registration.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Legislative Instrument
The purpose of the legislative instrument is to ensure that litigation funding schemes and litigation funding arrangements are not managed investment schemes or credit facilities for the purposes of the Corporations Act 2001. It is also to subject litigation funding schemes and litigation funding arrangements to conflict of interest provisions.
Human rights implications
This Legislative Instrument engages Article 14 of the International Covenant on Civil and Political Rights. Article 14 guarantees that all persons shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law in the determination of his rights and obligations in a suit at law. This regulation promotes access to justice by providing an alternative mechanism for claimants to pursue their rights in court. This permits claims to be brought that might not otherwise have been brought in the absence of this reform. For example, the claimants may lack the financial resources to finance their lawsuit or where the compensation for individual claimants is likely to be too small to justify a lawsuit but where the compensation for the entire class is likely to be substantial.
Conclusion
This Legislative Instrument is compatible with human rights.
ATTACHMENT
Details of the Corporations Amendment Regulation 2012 (No. 6) Amendment Regulation 2012 (No. 1)
Section 1 - Name of Regulation
This section specifies the name of the Regulation as the Corporations Amendment Regulation 2012 (No. 6) Amendment Regulation 2012 (No. 1).
Section 2 - Commencement
This section provides for the regulation to commence the day after registration.
Section 3 - Amendment of the Corporations Amendment Regulation 2012 (No. 6)
This section provides that Schedule 1 amends the Corporations Amendment Regulation 2012 (No. 6).
Schedule 1 - Amendments
Item 1 amends the commencement day of the Corporations Amendment Regulation 2012 (No. 6), so that it commences on 12 July 2013, a further six months after the original commencement date of the Corporations Amendment Regulation 2012 (No. 6) of 13 January 2013.
Item 2, pursuant to paragraph (n) of the definition of managed investment scheme in section 9 of the Corporations Act 2001 (the Act), substitutes Schedule 1 Item 1 of the Corporations Amendment Regulation 2012 (No. 6) with a new provision excluding a litigation funding scheme and a litigation funding arrangement from the definition of a managed investment scheme.
The definition includes the key elements of a litigation funding scheme, which are that general members of the action are obtaining funding from a third party to pay for legal services in order to seek remedies based on either similar circumstances giving rise to common issues of law or fact, or are otherwise appropriately dealt with together. Similarly, the item includes the key elements of a litigation funding arrangement, which are that a person seeking remedies is obtaining funding from a third party to pay for legal services.
Item 1A, pursuant to paragraph 764A(1)(m) of the Act, lists a litigation funding scheme and a litigation funding arrangement as financial products.
Item 1B excludes a litigation funding scheme and a litigation funding arrangement from being credit facilities.
Item 3 amends items [5] to [10] of Corporations Amendment Regulation 2012 (No. 6).
Item 5 ensures that any person providing a financial service in relation to a litigation funding scheme or arrangement does not need to obtain an Australian financial services licence.
Item 6, pursuant to paragraph 926B(1)(c) of the Act, requires that litigation funders have practices and procedures for managing conflicts of interests. It provides that a person breaching those requirements is committing an offence under the Corporations Act and is liable to a penalty of 50 penalty units.
Item 7 exempts financial services licensees and authorised representatives of licensees from the requirements in Part 7.7 of the Act for financial services provided to retail clients who are not in Australia. Part 7.7 contains a range of disclosure and other requirements.
Item 8, pursuant to paragraph 992C(1)(a) of the Act, excludes a person offering a litigation funding scheme or litigation funding arrangement from the prohibition on hawking in s992A of the Act.
Item 9, pursuant to paragraph 1020G(1)(a) of the Act, excludes litigation funders from part 7.9 of the Act. Part 7.9 contains a range of requirements relating to product disclosure, and other provisions relating to the issue, sale and purchase of financial products.
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