It's been a long hard slog for investors trying to recover any of the $500 million they pumped into retirement village empire Prime Trust, which collapsed in October 2010.
Since then, they've watched with helpless anger as Prime Trust founder Bill Lewski walked away from the wreck with $60 million reaped by selling management rights over the villages - rights the investors say should belong to the trust.
They've been able to do nothing about the decision by Lewski to gift that money to his sons, who are involved with an online betting operation in tax haven the Isle of Man. But the intervention of an Adelaide-based litigation funder this week gives investors hope that perhaps they will see some money shaken loose from Lewski and others involved in the debacle.
A $100 million lawsuit over the management fee, brought against Lewski, other directors including former health minister Michael Wooldridge and their lawyers and advisers, was sitting moribund in the Victorian Supreme Court until Tuesday, when LCM Litigation Fund agreed to back the action.
LCM's move comes as the litigation sector is under unprecedented scrutiny, with calls from Attorney-General George Brandis for a crackdown on the industry because of its ''ethical and moral hazards'' and scrutiny from the Productivity Commission, which has simultaneously proposed more regulation of existing funders and allowing law firms effectively to become litigation funders - something that is currently illegal.
In the stoush over the future of litigation funding, investors, lawyers and funders who stand to profit from legal actions that would otherwise be impossible, clash with company management and defendant lawyers who say funding promotes frivolous lawsuits that would otherwise never have seen the inside of a courtroom.
The writ kicking off the Prime Trust lawsuit had been sitting in the Supreme Court registry for a year, gathering dust. It hadn't been served on any of the defendants, which would normally have killed it off. But with the prospect of a backer emerging, the court gave extra time for it to be served.
''There's been no payment to investors for certainly the last four years,'' says Steve O'Reilly, one of the heads of the Prime Trust Action Group, which represents more than 6300 investors. ''It's just horrendous what the cost has been to investors - not just the financial cost but the human cost. They're really angry and upset that firstly there's no remorse and secondly that money is shifting over to the Isle of Man and it's business as usual.''
But while investors stand to benefit if the court eventually rules in their favour, the lawsuit is not one of the high-profile class actions usually associated with litigation funding. Rather, it's a normal commercial lawsuit, brought by Stirling Horne, the liquidator of the company that ran the trust.
Class actions grab headlines - this week alone law firm Maurice Blackburn won a record $500 million class action payout from power company SP AusNet, which was unfunded, while rival firm Slater & Gordon unveiled a shareholder claim against goldminer Newcrest, backed by former partner Peter Gordon's US-based Comprehensive Legal Funding.
However, funders say they are increasingly stumping up cash to back the best of the commercial lawsuits that make up the bulk of civil court lists - cases that may never be covered by the media even though millions of dollars are at stake.
In addition to cases brought by insolvency practitioners, who were early adopters of litigation funding, listed funder Bentham IMF says it has backed lawsuits covering everything from breach of contract actions through intellectual property to tax appeals.
Litigation funding has certainly paid off for Bentham IMF - and its clients. According to figures Bentham IMF supplied to the Productivity Commission, since 2001 it has won about $1.29 billion from funded cases, almost $850 million of which - about two-thirds - has gone to clients. The company's share came to $429 million and costs ate up the remainder of about $141 million.
''It's working,'' says Bentham IMF director of operations Clive Bowman. ''Clients are getting money back.
''I think it's a hard argument to say that because you may be ignorant of your rights or you may lack the capacity to take your claims you should therefore be excluded from the justice system.''
Leading the charge against litigation funding are company directors and the defendant law firms who work for them.
The main themes are set out in an October paper prepared by King & Wood Mallesons partners Moira Saville and Peta Stevenson, together with senior associate Caroline Rodgers, for the US Chamber of Commerce's Institute for Legal Reform.
They argue that litigation funding can increase unmeritorious claims, poses a conflict of interest for lawyers and risks prejudicing group members who don't sign up with the funder.
''Litigation funders often claim that they provide increased access to justice in an attempt to justify the role they play, and the limited oversight in the area,'' the lawyers say. ''However, in reality, litigation funders choose cases solely to maximise their profits, which means that only a narrow category of cases are funded, and funded class actions are being tailored to the needs of large institutional class members.''
This is said to encourage ''closed'' classes, where only claimants who have signed up with the funder are eligible to share in the spoils of victory. For example, in a shareholder class action brought by Maurice Blackburn against developer Multiplex for failing to reveal cost blowouts at projects including Wembley Stadium, the class members were large institutions that held about 99 per cent of the total claim.
Saville, Stevenson and Rodgers also complain that funders, seeking ever-bigger fees, are causing the size and number of class actions to balloon, as well as making them more complex.
There are also concerns that offshore funders that work in the Australian market may prove elusive to track down if they back a loser and courts decide they should stump up costs - which in a large case can run into the tens of millions of dollars.
The collapse in June of globe-spanning Ponzi scheme Centaur Litigation, a fund that raised up to $160 million from investors, shows how offshore funding can go badly wrong.
Based in a series of tax havens, Centaur was the ultimate funder of a $250 million class action being run by Maurice Blackburn in the Federal Court in which horse owners and racing industry figures are suing the Commonwealth over an outbreak of equine influenza in 2007.
Centaur had all the trappings of legitimacy: it and companies in its group had offices in London, Hong Kong and Sydney.
One offshoot, Jersey-based Argentum Capital, was even listed on the Channel Islands Securities Exchange and boasted a board that included retired English High Court judge Sir David Keene. But in late February, just a week after finance news website OffshoreAlert broke news that the money came from a Ponzi scheme, the CISX cancelled Argentum's listing.
The collapse had global ramifications. In addition to the horse flu case, and a previously reported stake in a British class action against RBS, the Centaur/Argentum group had its finger in lawsuits around the world.
Documents obtained by BusinessDay show it was backing everything from a £2 million lawsuit alleging negligent property conveyancing by a British firm of solicitors to a $US300 million arbitration claim at The Hague, brought by a Finnish businessman who alleges Egyptian authorities stole his iron mine and threw him in jail for three years.
Liquidators in the Cayman Islands, Hong Kong and Sydney are now trying to secure and value the group's case portfolio.
The debacle left Maurice Blackburn, which dumped the Centaur group the month before it went under, looking for a new funder for the equine flu case. A new deal is expected to be signed within the next fortnight.
Bentham IMF says Centaur's woes illustrate the dangers of unregulated offshore funders.
''They certainly should be subject to licensing in respect of their activities in Australia,'' Bentham IMF's Wayne Attrill says.
''It becomes more important with them because of course it may be difficult to recover from them if a case they've funded is lost and there are adverse costs to be paid.''
The equine flu case was already controversial because Maurice Blackburn used it to dip its toe into funding cases. It had hoped to offer clients an alternative to signing with Argentum: Claims Funding Australia, a company owned by the law firm's principals.
The law firm said Claims Funding Australia offered a better deal: it would take 25 per cent of any winnings, against the 27.5 per cent stake claimed by Argentum.
But Attorney-General Brandis was less than impressed. He made it clear he was opposed to any arrangement where lawyers acted as funders, forcing Maurice Blackburn to withdraw the offer.
Brandis was unavailable for interview, but a spokesman said the Attorney-General stood by remarks he made to Sky News in May.
''I've for quite some time now been concerned about the ethical and moral hazards that some of the current models of litigation funding pose,'' Brandis said.
''I've never been satisfied that the ethical obligations of the lawyers in their capacity as legal advisers to the plaintiffs are sufficiently protected from the conflict of interest and moral hazards implicit in those arrangements.''
He said litigation funding had increased risk for public companies which ''might issue a profit warning to the stock exchange and all of a sudden find themselves subject of an adventitious class action which they may have little choice but to settle''.
''It is a cost to business that didn't exist before and it now does. And let's be under no illusions that the reason these are being promoted is to line the lawyers' pockets.''
He promised to set up an expert panel to review litigation funding - although this hasn't yet happened and it is now unlikely to be in place before the Productivity Commission makes its final report in September.
Perhaps unsurprisingly, class action lawyers and litigation funders don't agree with Brandis' assertion that litigation funding creates lawsuits that are ''adventitious'' (happening as a result of external factors or by chance).
But they are divided on whether lawyers can be trusted both to run and profit from cases, as would happen under the Productivity Commission's proposal to allow ''contingency'' or ''damages-based'' billing.
The blurring of roles in class actions came to the fore this week when the Victorian Supreme Court ruled that Melbourne lawyer Mark Elliott could not run shareholder class actions he had brought against Treasury Wine Estates and Leighton Holdings at the same time as his company Melbourne City Investments was the lead plaintiff.
''Whether it is good or bad, the reality is that group proceedings are lawyer driven,'' Justice Anne Ferguson said.
''I have a concern that, whilst MCI is the plaintiff and Mr Elliott its solicitor, despite their best intentions, there is a risk (which cannot be dismissed as remote) that self-interest will dominate over the interests of group members.''
Contingent fee arrangements are a step up from the existing no-win-no-fee deals, offered by both Slater & Gordon and Maurice Blackburn and familiar to viewers of television ads touting Slater & Gordon's personal injury practice.
Lawyers offering a no-win-no-fee arrangement are limited to charging their normal fees, plus a 25 per cent ''uplift'' (except in NSW, where uplifts in damages claims are against the law).
Under contingent billing, the limits would come off and law firms would share a percentage of the spoils, effectively turning them into litigation funders.
''We've always been supportive of the idea of contingency fees,'' Slater & Gordon class action lawyer Ben Phi says. ''It would introduce some new competition into the market and also potentially reduce some duplication, reducing costs.
''The idea of us on our own balance sheet carrying large contingent liabilities in respect of cases were know are hopeless is fanciful.''
Bentham IMF's Attrill admits competition from lawyers would give ''greater options for people seeking access to justice''.
''But our primary position is that the current arrangements are superior, that is ones in which litigation funders operate at arm's length from the lawyers.
''We think you can better manage the conflict, it's more transparent, it offers greater protection to consumers.''
But if it is allowed, the funder believes lawyers should be subject to the same licensing requirements as are funders.
Bentham IMF is in favour of the Australian Securities and Investments Commission regulating funders - it held an Australian Financial Services Licence until 2012, when the High Court found that litigation funding was not a financial service.
''So we have experience of acting under that regime,'' Bentham IMF's Bowman says. ''We think that's a valuable protection for consumers.''
Labor shadow attorney-general Mark Dreyfus has, like his political opponent Brandis, made it into the top tier of legal advocates in Australia as a Queen's counsel.
But Dreyfus thinks little of Brandis' concerns about the funding of blue-sky lawsuits.
''It makes no commercial sense to recklessly fund litigation,'' he says.
He says litigation funders are already regulated by the courts and he would ''take some convincing'' that they needed to be brought under ASIC's regulatory umbrella.
''I think litigation funding's a good thing. It increases access to justice, and it's very straightforward.
''I don't accept Australian lawyers by and large bring unmeritorious claims and they are governed by professional rules that prevent it.
''I'd point out that the Productivity Commission pointed out it had not received any evidence it would lead to problems.''
But he is ''not convinced'' that contingency fees ''necessarily add anything to the existing situation''.
''I think it's at odds with very, very long-standing practice in the Australian legal profession.''
Away from what he calls the ''fancier stuff'' of shareholder class actions, Patrick Moloney has been funding litigation through LCM Litigation Fund for more than 15 years. He spent more than six months looking at the Prime Trust action before taking the plunge this week.
''As people become more aware that litigation funding is available to them, its certainly growing,'' he says.
He says investors can earn 20 to 30 per cent a year by backing cases.
''Returns are representative of the risk - it's not an investment that's without risk.''
He accepts that additional regulation of the sector is inevitable, but believes it would be better done through ASIC than through the rules governing lawyers.
And he believes allowing lawyers to become funders would create ''perversities in the relationship between lawyers and their clients''.
Johnson Winter & Slattery partner Paul Buitendag, who is running the Prime Trust lawsuit, says insolvency practitioners are increasingly turning to litigation funders.
''The liquidator might have substantial claims but is always concerned about security for costs and adverse costs,'' he says. ''In general, that would always make a liquidator hesitant in claims of these nature.''
He says litigation funders put cases under the microscope before agreeing to stump up cash.
''It's frustrating for me as a lawyer. It's even more frustrating to the general public because they tend to think liquidators are taking too long to prosecute in the interests of the general body of creditors, but it's most likely [they're] taking time to get all the ducks in a row.''
Frustration is something familiar to Prime Trust investors such as Steve O'Reilly, and even with LCM's backing there's no guarantee they won't experience more.
Lewski is a tough and experienced legal opponent, and if the case does succeed there are many hands out for a slice of the winnings.
O'Reilly estimates that of a $100 million recovery, $40 million would go to LCM, secured creditors would get $24 million and the liquidator would get $36 million. It's only the latter pool on which investors have a claim.
Nonetheless, O'Reilly believes it's better than nothing. And he points out that there are a number of other potential claims over the collapse that could net more money - if they get funded.
''ASIC has sort of delegated some of its duties to the litigation funders because they always claim they have insufficient resources to do this,'' O'Reilly says.
