In a recent decision (Tamaya Resources Limited (in liq) v Deloitte Touche Tohmatsu (A Firm) [2016] FCAFC 2), the Full Court of the Federal Court of Australia (Gilmour, Perram and Beach JJ) observed that the same litigation funder was on both sides of the record and commented that “[t]he desirability of permitting such arrangements is something which warrants investigation by the legislature.”
Tamaya Resources Limited (in liq) (“Tamaya”) had appealed from a decision of a judge of the Federal Court to refuse leave to amend pleadings in two proceedings and the call for investigation was made in the course of the Full Federal Court giving its reasons for making orders to dismiss those appeals.
The two proceedings, one referred to as the “Deloitte Proceeding” and the other referred to as the “New Directors Proceeding”, are part of four related suits involving Tamaya which collapsed in 2008. Those proceedings, along with a third proceeding referred to as the “Original Directors Proceeding” are listed for final hearing in May 2016 and involve efforts by the liquidator of Tamaya to recover losses allegedly suffered by Tamaya as a result of various transactions:
- The Original Directors Proceeding, brought against various former directors of Tamaya, concerns the acquisition by Tamaya, through another company, of a Soviet era gold mine in Southern Armenia. It is alleged that the characteristics of the mine were such that it would have been virtually impossible for a company of Tamaya’s size to turn the mine into a commercially viable venture and that, accordingly, the acquisition had proceeded without adequate due diligence.
- The Deloitte Proceeding and the New Directors Proceeding, subsequently commenced against Tamaya’s auditors and certain former directors of Tamaya respectively, involve allegations that Tamaya’s audited financial statements for the year ended 2007 did not comply with relevant accounting standards, were not free from material misstatement and did not give a true and fair view of Tamaya’s financial position and performance as at 31 December 2007.
The fourth suit is a class action commenced in relation to the 2007 financial statements by shareholders of Tamaya. That action has been brought against Tamaya, some of its former directors and Tamaya’s auditors. It claims, amongst other things, that, but for the misstatements allegedly contained in the 2007 financial statements, the shareholders would not have acquired their shares at all or, if they had acquired them, that the market price of the shares at the time of acquisition would have been lower in a market which had been correctly informed of Tamaya’s position. The class action requires the leave of the court to proceed and a decision on an application for leave to proceed is currently reserved before a judge of the Federal Court.
The Full Federal Court observed that at some point the liquidators of Tamaya had entered into a litigation funding arrangement with International Litigation Partners No 2 Ltd. The Full Court further observed that the shareholder class action was also being funded by International Litigation Partners No 2 Ltd. It was in this context that the Full Court noted that the same litigation funder was on both sides of the record and said that the desirability of permitting such arrangements warranted investigation by the legislature.
