Legal Finance CPD Presentation Ethics and Professional Responsibility

What we will cover Legal Finance 1. Introduction 1. Loan Features 2. Family Law Rules & Precedent 2. Lending Rules 3. Compare Interim Application for part distribution to a Legal Loan 3. Application Process 4. Why we might be in your and your client’s best interests 4. Contacts & Links Q&A encouraged throughout

About Us - General 1. Nationwide service 2. A Peer to Peer financial ‘marketplace’ - borrow & invest 3. Borrowing side: • • Last month passed $500 m Risk based pricing 4. Investing side: • • • $10 minimum; self managed super; Mums and Dads; students Set the rate: 3%-8% Protected by provision fund – type of self insurance 5. 5 lending arms • • • Renewables: $100 m with SA Government, Clean Energy FC Automotive General consumer Broker Legal Finance – family law Legal Finance

About Us – Legal Finance 1. Over 100 law firm relationships nationally 2. Head of Legal Finance: Leigh Mc. Bean • • Family lawyer, formerly of Jones Mitchell Lawyers. BCom, LLB, MBA. Previously a law lecturer – Assistant Professor B in legal ethics, among other subjects. Been leading Legal Finance since Feb 2018 (operating for 3 yrs) 3. Presently: • • • Receiving 25 -30 applications a month Approving about 60% = $1 m-$1. 5 m in credit per month Paying approx. $1 m per month to lawyers nationally Approved 148 matters (bulk in last 18 months) 98 open loans on the book Zero defaults 4. NOT a litigation funder Legal Finance

Professional Development 1. 2. 3. 4. 5. 6. Introduce new concepts to your practice Help improve the quality of advice you give Increase your and your clients’ options Promote the best interests of the client Question status quo Ask if we are meeting the current thresholds and duties to the Court Legal Finance

Family Law Rules & Precedent Legal Finance Family Law Rules 2004 (Cth) • 1. 04: The main purpose …ensure each case is resolved in a just and timely matter to the parties and the court … • 1. 06: [The court is to manage each case by] • (g) considering whether the likely benefits of taking a step justify the cost of that step • (i) minimising the need of the parties to attend court • 1. 07: [The Court is to apply the FL Rules in a way that] • (d) promotes the savings of costs • (e) gives an appropriate share of the court’s resources to a case, taking into account the needs of other cases • 1. 08: Responsibility on lawyers • (a) ensuring that any orders sought are reasonable • (g) cost-effective disposal of cases

Family Law Rules & Precedent Schedule 1: Pre Action Procedures • 1(6)(h) – the parties must have regard to the principle of proportionality and the need to control cost • 6(1) – Lawyer’s obligations • (a) to advise clients of ways of resolving the dispute without starting legal action Legal Finance

Family Law Rules & Precedent Legal Finance • As officers of the Court – we are duty bound to consider ways to minimise cost to the public system. • Court backlog and delays are not in the client’s best interests, and do not provide an efficient administration of justice. • As lawyers – we are obligated to look after the best interests of the client. • We are obligated therefore to explore other ways to reduce cost, improve access to justice, and advance the interests of our clients. • Legally – under Family Law Rules • Ethically – as practitioners charged under Solicitor’s duties • Morally – as taxpayers. Legal ethics and social ethics are connected.

Family Law Rules & Precedent Legal Finance Case Law – Interim Orders • Strahan & Strahan (2011) FLC 93 -466 • (114) it is preferable to only have only 1 hearing on s 79 matters • (132) 1 st procedural step: is it in the ‘interests of justice’ and in the ‘circumstances it is appropriate’ to exercise the discretionary power • (133) an inability to defray legal costs –’without which funds an injustice may be caused’ • To satisfy the tests, we need to say to the Court that it is the last option, and if not for an exercise of discretion to make an interim order for partial property – then an injustice may be caused.

Family Law Rules & Precedent Legal Finance Case Law – Interim Orders • Strahan & Strahan (2011) FLC 93 -466 • (114) it is preferable to only have only 1 hearing on s 79 matters • (132) 1 st procedural step: is it in the ‘interests of justice’ and in the ‘circumstances it is appropriate’ to exercise the discretionary power • (133) an inability to defray legal costs –’without which funds an injustice may be caused’ • To satisfy the tests, we need to say to the Court that it is the last option, and if not for an exercise of discretion to make an interim order for partial property – then an injustice may be caused. Questions 1. Q: Does a client have an inability to defray costs if we are an option?

Family Law Rules & Precedent Legal Finance Case Law – Interim Orders • Strahan & Strahan (2011) FLC 93 -466 • (114) it is preferable to only have only 1 hearing on s 79 matters • (132) 1 st procedural step: is it in the ‘interests of justice’ and in the ‘circumstances it is appropriate’ to exercise the discretionary power • (133) an inability to defray legal costs –’without which funds an injustice may be caused’ • To satisfy the tests, we need to say to the Court that it is the last option, and if not for an exercise of discretion to make an interim order for partial property – then an injustice may be caused. Questions 1. Q: Does a client have an inability to defray costs if we are an option? 2. Q: Is it appropriate in all the circumstances to ask the Court to make an Order?

Family Law Rules & Precedent Legal Finance Case Law – Interim Orders • Strahan & Strahan (2011) FLC 93 -466 • (114) it is preferable to only have only 1 hearing on s 79 matters • (132) 1 st procedural step: is it in the ‘interests of justice’ and in the ‘circumstances it is appropriate’ to exercise the discretionary power • (133) an inability to defray legal costs –’without which funds an injustice may be caused’ • To satisfy the tests, we need to say to the Court that it is the last option, and if not for an exercise of discretion to make an interim order for partial property – then an injustice may be caused. Questions 1. Q: Does a client have an inability to defray costs if we are an option? 2. Q: Is it appropriate in all the circumstances to ask the Court to make an Order? 3. Q: Can you say there will be an injustice if all options have not been explored?

Family Law Rules & Precedent Good questions to ask before commencing an Interim Application. Good questions to ask in defence of an Interim Application. Legal Finance

Interim Property Orders Legal Finance Interim Applications Direct Costs 1. Prepare the Interim Application 2. Client affidavit 3. Lawyer affidavit 4. First Return 5. Second return (possibly) 6. Your time to attend 7. Counsel fees to prepare and attend 8. $20, 000 on average – and born by your client 9. Already needs an application on foot. Indirect Costs 1. Outcome not guaranteed 2. Time to prepare, file, hearing and waiting for a decision – months 3. Strain on the firm, if already carrying 4. Disbursement pressure 5. Adds to the Court backlog & cost to taxpayer 6. Liquidity issues 7. Additional dispute & stress Legal Loan vs 1. To access $100, 000, the total cost to the client will not be more than $23, 000 over 2 years 2. Turn-around from application received to $ paid is 2 -4 weeks 3. Private 4. Removes a dispute – increases focus on important issues 5. Reduces cost to the taxpayer 6. If meets lending principles - greater certainty 7. Reserve the right to argue the characterisation of the costs of the loan – therefore greater leverage and flexibility in later negotiations 8. Saves the other side the cost of defending 9. Disbursements, fees & personal use 10. Full access to the funds (not eroded by fees)

Your client’s best interests Legal Finance Save for circumstances where: a) Loan size is insufficient; or b) Preservation of property pool is the desired outcome; or c) The cost to run the interim application will be cheaper than the loan; or d) You are seeking other interim orders as well (eg parenting), then why would you run an Interim Application, when a Legal Loan is generally: Cheaper Quicker Reduces Crt backlog Increases leverage Easier Socially considerate Prudent financial management Complies with FL Rules Greater certainty Reduces conflict

Your client’s best interests Legal Finance Lawyers are starting to run the argument, on equitable grounds, that: 1. 2. where one party has ‘free’ access to money, either through income or matrimonial resources; and the other is left with little option but to incur cost (through interest) to access the same amount of money to be in the same position as their spouse in obtaining legal representation, then the cost component of the loan (not the amount used for legal fees, but the interest and costs) be a joint debt of the parties. Particularly so if it saved both sides the expense of running an interim application. And ethically, the principles of the FLA are that all resources are joint until determined under s 79. If you act for the disadvantaged party - why is it ok for the other side to have free access to joint resources (even if it is income), while your client does not? And why should your client incur an interest cost to access the same rights?

Maybe in your interests as well https: //www. theaustralian. com. au/news/nation/tardy-overcharging-family-lawyers-couldbe-forced-to-pay-costs/news-story/7 efc 16 c 9 e 29914 f 5361222 c 054 dc 51 e 2 Legal Finance

Lawyers – other considerations 1. “We don’t need you: our clients come up with the money somehow” • We are just one of those ‘somehows’ 2. Taking a loan from parents • Rowntree v FCT [2018] FCA 182 • Needs a genuine repayment obligation • In written from prior to, our contemporaneous with, the provision of money • Needs to be on commercial terms: interest and repayment/s • Complications if deemed not a loan: • Forms part of the pool? • A gift? • A resource? Legal Finance

Lawyers – other considerations Legal Finance 1. Reduces lawyer conflict of interest (if you have been carrying). 2. No waiver of privilege. 3. Dominant purpose of the loan is for legal advice, or legal proceedings: (ss 118, 119 Evidence Act 1995 (Cth). • • It will be your client’s privilege to assert if our file is subpoenaed. (Although, nothing to learn from a subpoena – more on this later) 4. If client transfers high cost debts to low cost debt, then it is prudent financial management for the client and maintenance of the pool.

Lawyers – other considerations Legal Finance https: //www. linkedin. com/pulse/10 -reasons-why-legal-loan-may-clientsbest-interests-5 -leigh-mcbean/

Appendices Legal Finance

We are different to our predecessors 1. 2. 3. 4. 5. 6. 7. 8. 9. Legal Finance Helpful and considerate party to proceedings Regulated by ASIC, and the National Consumer Credit Protection Act Half their cost - around 12% p. a Take security Proceed on a worst case basis - lend to failure; not hoping for success Conservative Seek no guarantee or commitment from the firm We don't tell you how to run your file or dictate settlement terms Each loan is funded from separate sources of money - so a default on one loan will not jeopardise the other loans – unlike a commercial line of credit 10. We source money from individuals and SMSF's, as opposed to borrowing from the bank, and match that money directly to borrowers 11. We self-insure through the provision fund to cover defaults 12. Loan size is capped at $400, 000 13. Our service proposition is as much to the firm as it is the borrower

How it Works 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Family law matters only – with property settlement Client gives consent for us to speak with the lawyer We understand both sides’ position re pool and split We do not seek your advice or prospects for success We lend to the worst case outcome Loan contract directly with the client (line of credit) Money is paid direct to lawyer account as invoice is approved / or direction given to place funds in trust No repayments during the matter Loan is repaid full at settlement Used for all aspects of the legal matter: lawyer fees, counsel, valuers, etc + personal payments acceptable Legal Finance

We are not Litigation Funders Legal Finance

Loan Features

Features & Costs 1. 2. 3. 4. 5. 6. Loan term: 2 years, with extension available No repayments until matter concludes Loan size = 30% of worst case settlement Min $25, 000; max $400, 000 Invoices paid, and distributions to trust Total Cost approx. 12% p. a, comprising: − Establishment Fee (4% loan size) − Monthly fee ($80) − Interest (approx. 4% p. a. ) − Risk charge (5% of drawdowns) 7. We publish maximum dollar cost of the loan on each contract, eg $100, 000 facility = max cost of $123, 000 Legal Finance

Lending Rules

Lending Rules Legal Finance

Application Process Client Steps 1. Client applies online 2. Identity & credit questions only 3. Loan amount sought 4. We then contact you Legal Finance Lawyer Steps Contract & Payment 1. Complete the Lawyer Case Summary (online or via Word) 1. Loan Contract & Irrevocable Instructions esigned by client 2. You provide supporting docs (online or via email) 3. Any other Q&A 2. We pay your invoices, or into trust, upon approval from the client each time 3. Loan discharged at property settlement

Contacts & Links • Website: https: //www. ratesetter. com. au/legalfinance • Client Application: https: //www. ratesetter. com. au/legalfinance/apply • Lawyer Case Summary: https: //www. ratesetter. com. au/legalfinance/lawyer-case-summary/ Legal Finance • legalfinance@ratesetter. com. au • 1300 861 410 • leigh. mcbean@ratesetter. com. au • 0421 671 249 • www. linkedin. com/in/leighmcbean

Legal Finance Thank you