Folau case highlights regulatory gaps in crowdfunding litigation, says ANU law expert

ANU Law lecturer Brett Walker (left) and sacked Wallaby Israel Folau.
ANU College of Law lecturer Brett Walker (left) said the legal case involving sacked rugby player Israel Folau shows the law is struggling to keep up with advances to technology. Photo: David Molloy via Flickr (CC BY 2.0).

Moneys raised by an individual to ‘support their legal fight’ could, for example, fund lost income or living expenses while the dispute continues. You are largely relying on the honesty and integrity of the person who is raising the funds to use them as promised.

Sacked Wallaby Israel Folau’s campaign to crowdfund his legal action against Rugby Australia (RA) provides a useful reminder of the lack of regulation of international, Internet-based crowdfunding platforms and the importance of being cautious when contributing to crowdfunding campaigns, according to The Australian National University (ANU) College of Law lecturer Brett Walker

Folau launched a GoFundMe campaign last week that aimed to raise $3 million for his upcoming legal proceedings against RA, which sacked him for his anti-gay Instagram post in April.

After raising more than $750,000 over four days, Folau’s campaign was shut down by GoFundMe on 24 June for violating its terms of use through the “promotion of discrimination and exclusion”, according to the website’s Australian manager Nicola Britton.

The Australian Christian Lobby (ACL) has since launched its own crowdfunding campaign for the athlete, raising more than $1.6 million as of 26 June.

Mr Walker noted Folau’s case highlights gaps in the legal oversight of crowdfunding in Australia and is another example of the law’s struggle to keep up with technology and the borderless nature of the Internet.

“What the funds are intended to be used for depends on what is stated on a crowdfunding platform’s website, so you need to be careful to read the fine print. Even then, there is no oversight on how the funds are actually used,” said Mr Walker, who teaches digital media and communications law practice.

“A person seeking assistance with litigation funding may be given significant freedom to decide how to use the funds raised. It is not a trustee type arrangement where there is an independent third party making sure the funds are used for the purposes for which they were donated and ensuring they are only paid for legitimate legal fees.”

CrowdJustice, a popular crowdfunding platform in the US and UK, insists a lawyer or regulated NGO is instructed before the fundraising appeal goes live. Funds raised then go directly to the lawyer’s client account.

Unlike registered charities, which are subject to regulation under Commonwealth Corporations legislation and overseen by regulators such as the Australian Charities and Not-for-Profits Commission, international crowdfunding platforms that operate in Australia, and individuals using them to seek donations, are subject to limited legal oversight.

“Moneys raised by an individual to ‘support their legal fight’ could, for example, fund lost income or living expenses while the dispute continues. You are largely relying on the honesty and integrity of the person who is raising the funds to use them as promised. GoFundMe does have some integrity measures, but it cannot oversee how funds raised are actually spent,” said Mr Walker.

Although Folau’s supporters were refunded their donations by GoFundMe, there would have been no obligation on the fallen rugby star to reimburse his GoFundMe donors if his litigation against RA – in which he is reportedly claiming $10 million in damages – is successful, according to Mr Walker. This is to be contrasted with the more common loan-based litigation funding that includes oversight of how funds are spent and obligations to repay funds if litigation is successful, he added.

Although the precise basis on which the ACL is assisting Folau is unclear, the organisation’s managing director, Martyn Iles, has indicated that the money will be deposited into a trust account to fund Folau’s litigation. This suggests that the expenditure of the donated funds will be subject to some level of independent oversight by the ACL.

Mr Walker noted another complexity in the funding of legal costs is that they are treated very differently in the US, where GoFundMe is headquartered and each party in litigation must pay their own legal costs.

“When you run most forms of litigation in Australia and win, you typically receive an award of damages and a contribution to your legal costs, between 70 and 75 per cent is the usual reimbursement level.

“This could mean that if a legal costs fundraising campaign was very successful and the person raising the funds also received an award of costs, they could actually profit from the case,” he said.

Folau is not the first high-profile Australian to use crowdfunding for a legal dispute.

In July 2018, Greens Senator Sarah Hanson-Young and libertarian rival David Leyonhjelm each launched GoFundMe campaigns to cover their legal costs for an anticipated defamation case. This case is proceeding through the Federal Court.

Updated:  10 August 2015/Responsible Officer:  College General Manager, ANU College of Law/Page Contact:  Law Marketing Team