Legal Services Council – Uniform Law Update
New Uniform General Rule in relation to litigation funding schemes
Section 258 of the Legal Profession Uniform Law prohibits law practices in NSW and Victoria from engaging in certain activities in relation to 'managed investment schemes', as defined in the Corporations Act 2001 (Cth).
The Corporations Amendment (Litigation Funding) Regulation 2020 (Cth) has the effect that litigation funding schemes created on or after 22 August 2020 are no longer excluded from the statutory definition of managed investment schemes.
The Legal Services Council has made an urgent amendment to the Legal Profession Uniform General Rules 2015 to ensure that law practices in NSW and Victoria do not breach s 258 by:
- Promoting or operating a litigation funding scheme (s 258(1)(a)), or
- Providing legal services in relation to a litigation funding scheme or the responsible entity for the scheme if any associate of the law practice has an interest in the scheme or the responsible entity for the scheme (s 258(3)).
The Legal Profession Uniform General Amendment (Litigation Funding Schemes) Rule 2020 commenced on 22 August 2020 and ceases to have effect on 22 August 2021. The Council will undertake a public consultation before making an ongoing rule in relation to this issue.
Consultation on the Fidelity Fund interest
The Legal Services Council is inviting feedback on the interest rate payable on fidelity fund claims made under the Uniform Law. Part 4.5 of the Uniform Law provides for a fidelity cover scheme, which is a system that provides a source of compensation for clients who have lost trust money or trust property as a result of a default of a law practice.
The interest rate on fidelity fund claims is fixed by section 243(2) of the Uniform Law in the absence of specific provision in the Uniform General Rules.
The Legal Services Council considers it appropriate to reduce the interest rate from the current rate of 5% for the following reasons:
- The current rate does not reflect the rate of return which can be achieved by investing the corpus of the fidelity fund.
- Paying out disproportionately high amounts of interest, particularly on high-value claims, is problematic because it decreases the sustainability of the fidelity fund.
- This would more closely represent the rate of return which claimants might have expected to achieve had the claim been allowed immediately after it was made.
- Applying a formula to calculate the interest payable better reflects the policy reasons for paying interest irrespective of the economic conditions at the time.
Submissions can be sent to the Council at firstname.lastname@example.org on or before 18 September 2020, and will be published on the Council's website unless advised otherwise.