Energy generator Stanwell filed a Federal Court lawsuit in June seeking to shut down the funding for the class action on behalf of 50,000 customers in the state, alleging LCM Funding lacked the required licence to back the case and did not register the class action as a managed investment scheme.

The Piper Alderman-led class action was filed in the Federal Court against government-owned generators Stanwell Corporation and CS Energy in January, more than four months after amendments to the Corporations Act took effect requiring litigation funders to hold an Australian Financial Service Licence and register their class actions as managed investment schemes.

LCM has now filed an interlocutory application seeking to have the questions raised in the case determined by the Full Court. Alternately, the funder seeks to have the Full Court determine whether the funding scheme for the class action is a managed investment scheme under the amendments to the Corporations Act.

Stanwell’s lawsuit against LCM and class action applicant Stillwater Pastoral Company seeks injunctions and declarations that the class action is being run as an unregistered managed investment scheme in violation of the Corporations Act.

LCM, for its part, says it is not required to register the class action as a managed investment scheme because the funding scheme predates the new regulations.

“It is LCM’s position that this class action falls within the grandfathering provisions of the changes to the Corporations regulations.  Over 11,000 class members signed up for this class action prior to 22 August 2020 and as such, it is clear that this litigation funding scheme was entered into prior to that date.  It is disappointing that Stanwell is expending resources on this satellite litigation rather than focussing on defending on its merits the class action which has been brought against it by Queensland consumers of electricity,” LCM head of investments for APAC, Susanna Taylor, told Lawyerly in June.

The Australian Securities and Investments Commission, which administers the regulations, did not respond to Lawyerly emails concerning whether the new regulations apply to funding schemes entered into before August 22.

LCM Funding is an authorised representative of LCM Advisory, which holds an AFSL to fund class actions.

Stanwell is not the only company looking to weaponise the new litigation funding regulations.

Engineering giant UGL plans to sue two unions to block them from funding an underpayments class action on behalf of casual workers. UGL argues the unions are required to hold an AFSL and register the class action as an MIS, which the unions deny. Federal Court Justice Craig Colvin said in June that the issues raised by that case may need to be referred to the Full Federal Court.

Courts have not had many opportunities thus far to weigh in on the scope of the new funding regulations. In November, Federal Court Justice Steven Rares ruled in the live exports class action that registered charity Australian Farmers’ Fighting Fund, which backed the lawsuit, was not required to obtain an AFSL and register the class action as an MIS. The funding scheme predated the new regulations and signing up new group members did not amount to entering into a new scheme, Justice Rares found.

Piper Alderman’s class action, brought on behalf of anyone who paid for electricity in Queensland from January 2015 to January 2021, accuses Stanwell and CS Energy of adopting “gaming” strategies which caused “anomalous spikes” in the spot price of electricity and inflated consumer rates.

The companies operate most of the black coal generating units in Queensland and are responsible for roughly 70 per cent of the electricity dispatched into the wholesale electricity market, the  National Electricity Market (NEM).

“The unlawful conduct occurred at the generation stage, and your retailer simply passed that cost through to consumers. This is why this action is available to all Queensland businesses and residents,” said Greg Whyte, head of Piper Alderman’s dispute resolution and litigation team in Brisbane, when the lawsuit was filed.

“The facts indicate, and we will seek to prove, that the defendants manipulated the wholesale cost of electricity for their own profit. It amounts to a hidden tax paid by Queenslanders.”

Stanwell and CS Energy are accused of breaching the misuse of market power provisions in section 46 of the Competition and Consumer Act by deterring persons from engaging in competitive conduct in the NEM.

CS Energy says it will defend the class action, which it claims will adversely affect the state of Queensland while bringing profit to LCM.

“Queenslanders should question who will benefit from a claim like this – is it Queenslanders or an overseas litigation funder whose main interest is making a return on their investment in class actions?” the company said when the lawsuit was filed.

Stanwell has also vowed to “vigorously defend” the class action.

The class is represented by Piper Alderman. Stanwell is represented by MinterEllison. CS Energy is represented by Herbert Smith Freehills.

The case is Stillwater Pastoral Company Pty Ltd v Stanwell Corporation Ltd & Anor.

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