A series of recent decisions from superior courts has brought renewed attention to the legal and economic boundaries of funded litigation in the Australian market.

While none of the decisions is doctrinally adventurous or likely to surprise seasoned funders, each addresses an issue that has been under increasing consideration in the context of litigation funding.

This article briefly examines those decisions.

Funding commissions are not damages: Hunt Leather Pty Ltd v Transport for NSW [2025] HCA 53

In Hunt Leather Pty Ltd v Transport for NSW [2025] HCA 53, the High Court addressed an argument that has been circulating in the funding market for some time: whether a litigation funding commission could be recovered from a defendant as damages.

The clear answer was that it cannot.

The proceedings arose out of private nuisance claims brought by businesses affected by the prolonged construction of the Sydney Light Rail project. While the High Court partially reinstated liability findings in favour of the appellants, it rejected an attempt by the class to recover a 40 per cent funding commission as a head of loss.

The class argued that the commission was a loss consequential upon the alleged nuisance. Further, funding was said to be necessary to pursue the litigation and, on that footing, the commission was said to fall within the scope of compensable loss.

The Court rejected that analysis, finding that the commission was not an injury to land, nor a loss flowing from any such injury. Rather, it was a liability incurred as a result of a voluntary commercial decision to receive funding for the litigation on particular terms. In that respect, it stood in the same position as legal costs, being an incident of litigation but not a component of damages.

The Court was also concerned to preserve coherence in the law of nuisance. If funding commissions were recoverable, damages for the same interference could vary depending on the funding arrangements adopted by a claimant. That outcome was inconsistent with settled principles governing the assessment of damages. It made no difference that the commission would not have been incurred but for the defendant’s conduct, or that funding may have been essential in practical terms. Those considerations did not alter the character of the loss or expand the scope of the defendant’s duty.

Although decided in the context of private nuisance, the High Court’s reasoning is not claim specific and is likely to apply across tort and statutory causes of action more generally. Going forward, funding commissions will be treated as a product of a claimant’s chosen litigation arrangements, not as compensable loss, making them difficult to characterise as recoverable damages in any civil claim.

Competing funders and entitlement to settlement proceeds: Excel Texel Pty Ltd v Wilson (No 2) [2026] FCA 154

Overlap is not enough

In Excel Texel Pty Ltd v Wilson (No 2) [2026] FCA 154, the Federal Court (Wigney J) approved the settlement of certain aspects of two long running securities class actions arising out of the collapse of sandalwood producer Quintis Ltd. While the settlement approval itself was relatively uncontroversial, the judgment addressed two funding issues of broader interest:

• the circumstances in which a funder in a proceeding with overlapping claims may seek to access a settlement fund achieved in a related proceeding; and
• the proper approach to fixing funding commission under s 33V(2) of the Federal Court of Australia Act 1976 (Cth), including the role of proportionality and market benchmarks.

The Excel Texel proceeding was funded by Ironbark Funding Navy Pty Ltd (Ironbark). A separate but related proceeding (the Davis proceeding) was funded by LCM Operations Pty Ltd (LCM).

The classes and claims in the two proceedings partially overlapped, and the matters were to be heard together. In 2022, the Excel Texel applicants were permitted to adopt the claims advanced in the Davis proceeding against Quintis and its former managing director (Mr Wilson), subject to two important qualifications:

• the Davis applicants and their solicitors would retain carriage of those claims; and
• the costs of prosecuting those claims would be borne by the Davis applicants, funded by LCM.

When the Excel Texel applicants subsequently settled with Mr Wilson, the settlement deed expressly attributed the $13.5 million settlement sum (the Excel Texel Settlement Fund) to the Excel Texel claims other than the Davis claims, which were resolved on the basis of mutual releases only.

That framing set the stage for LCM’s intervention. It contended that it was entitled to be paid out of the Excel Texel Settlement Fund on the basis that its funding of the Davis claims, which had been adopted by the Excel Texel applicants, had contributed to the creation of that fund.

The Court rejected that attempt.

Wigney J accepted that s 33V(2) of the Act confers a broad discretion to make orders adjusting the distribution of settlement proceeds. However, his Honour held that the discretion must be exercised by reference to whether it would be just and equitable to allocate part of the fund to a competing funder. On the facts, it was not.

The Court found that the costs incurred by LCM were incurred solely for the benefit of the Davis applicants and would have been incurred whether or not the Excel Texel applicants had been permitted to adopt aspects of the Davis pleading. There was no evidence that LCM’s expenditure displaced work that would otherwise have been undertaken in the Excel Texel proceeding, or otherwise assisted in producing the settlement.

The Court also accepted evidence that, by the end of the trial, the Davis claims had been assessed by the Excel Texel parties as having no commercial value. Settlement negotiations proceeded on the basis that those claims were not contributing materially to the outcome.

Against that background, LCM could not establish that the Excel Texel group members had received any non‑negligible benefit from its funding of the Davis applicants. Without such a benefit, there was no basis, statutory or equitable, for permitting LCM to reach into the settlement fund.

The decision sends a clear signal that mere overlap between proceedings, or the theoretical compromise of related claims, will not entitle a competing funder to participate in another proceeding’s settlement. A demonstrable causal contribution to the creation of the fund is essential.

Courts will still police commission

The judgment is also significant for its treatment of funding commission.

Ironbark sought 30 per cent of the gross settlement, relying heavily on evidence that this fell within the range of market outcomes. The Court accepted that commissions in the order of 20 to 35 per cent may be observed in the market, but stressed that reliance on market evidence alone is “a tenuous and somewhat unprincipled basis” for fixing commission in a particular case.

Most importantly, his Honour focused on proportionality to group member recovery. The 30 per cent commission sought by Ironbark, when combined with substantial legal costs, would have resulted in less than one third of the settlement fund being available to group members and, on some calculations, less than the amount paid to the funder itself. Wigney J regarded that outcome as excessive and unjust.

The Court ultimately fixed commission at 25 per cent, emphasising that the supervisory jurisdiction under s 33V(2) requires the Court to protect the overall balance of outcomes, not simply to approve market-based pricing.

A flexible approach to security: iProsperity Pty Ltd (in liquidation) v Crown Melbourne Ltd [2025] NSWSC 1525

In iProsperity Pty Ltd (in liquidation) v Crown Melbourne Ltd [2025] NSWSC 1525, the Supreme Court of New South Wales (Peden J) considered whether after the event (ATE) insurance could constitute an acceptable form of security for costs.

The plaintiff accepted that security of $2 million was required. The issue was whether security could be provided by the defendant, backed by LCM, by way of an ATE policy rather than cash or a bank guarantee. The Court held that it could, on the facts before it.

The critical question was whether the policy provided the defendant with a readily enforceable source of recovery, equivalent in substance to more conventional forms of security.

The Court’s conclusion turned on the terms of the policy, in particular, the anti-avoidance endorsement. That endorsement gave the defendant direct rights against the insurers, removed privity obstacles and key statutory defences under s 48 of the Insurance Contracts Act 1984 (Cth), restricted cancellation or variation without consent, and required prompt payment of adverse costs. As structured, Peden J found the endorsement substantially eliminated the risk that the insurers could lawfully avoid payment.

The fact that the insurers were offshore did not deter her Honour. She was satisfied as to the financial standing of the Lloyd’s syndicates involved, including their domestic asset pool, and the practical operation of the policy, subject to some minor amendments.

The decision reflects a pragmatic approach and brings New South Wales closer to the position adopted in the United Kingdom. It does not, however, establish ATE insurance as a default form of security. The Court was clear that acceptability turns on drafting and on the circumstances of the case.

Where this leaves funders

None of these decisions changes the fundamentals of funded litigation. Taken together, however, they draw some clear lines:

• funding commissions remain a cost of doing business, not recoverable loss, and defendants are not required to underwrite funding economics;
• competing funders do not share in settlement funds without a genuine causal contribution to the creation of that fund;
• courts will continue to scrutinise commission closely, with proportionality front and centre; and
• at the same time, courts are open to funding and security structures that genuinely and substantively address risk.