Legal funders hone in on boom in property disputes as big projects go awry

Litigation funders are keen to get a slice of Australia’s growing property disputes market as tougher times tip more developers, contractors and builders into the courts.

Litigation funders are keen to get a slice of Australia’s growing property disputes market as tougher times tip more developers, contractors, and builders into the court. Picture: Ian Currie.

The boom in property construction during the pandemic has led to a booming market for disputes, as developers, builders and funders battle over big-ticket projects gone wrong.

Litigation funders are moving to target this growing area, with ASX-listed Omni Bridgeway muscling in on the scene as all sides clamour for funding to bankroll the costly disputes.

Omni Bridgeway also has its eye on a ballooning number of renewable energy projects under construction, with many triggering disputes as the complex jobs face cost overruns or disputes between contractors.

Law firms are also gearing up for more disputes, following several high-profile property collapses and a long list of troubled projects gone wrong, as cost overruns or build-quality disputes land in the courts.

Omni Bridgeway investment manager Mitchell Dearness said construction companies often faced the question of which of their many disputes were worth fighting. “In-house legal and contract management teams are often not adequately resourced to assess claims and, as a consequence, claims are not pursued or they are settled at well below their fair value,” he said.

“Our clients benefit from much more than our capital; they benefit from our due diligence and fair value assessment, which can be used to inform commercial decision making.”

At its recent results Omni Bridgeway revealed it committed more than $260m in the first half of the 2024 financial year to new disputes, with a “strong pipeline of new investment opportunities”. Omni Bridgeway has been funding construction disputes in Britain, Singapore and Dubai for some time, with Australia’s high-rise and major project boom a catalyst for the funder’s attention.

Mr Dearness said a key area for funding was contracts where cash was being withheld over disputes. This could exacerbate cash flow problems and lead to a contractor’s financial position going from “bad to worse”.

“With dispute finance the contractor does not have to fund the dispute itself, freeing up cash which it can spend on business operations,” he said.

Mr Dearness said Omni Bridgeway was targeting the renewable energy sector as many projects proved “more complicated than traditional power plants involving old technology”, resulting in more disputes.

“We’re not putting together a Lego set. If you’re talking about building a hydrogen-enabled renewable project or an offshore wind farm, it’s difficult. This is a fruitful area for disputes,” he said.

Not all property disputes land in the courts, with many companies choosing to take the matter through mediation or arbitration, but these forums can prove costly and time-consuming.

Baker McKenzie national head of construction Emanuel Confos said the construction sector was facing a “confluence of … pressure point factors, resulting in an increase in construction disputes”. “In particular, we are seeing a shortage of both materials and labour combined with the record investment in the infrastructure space, leading to price increases at levels that are historically high,” he said.

“In this context, contractors are pushing for the risk of cost escalation to be directly dealt with in construction contracts, through cost escalation clauses.”

Baker McKenzie national construction practice senior partner Harriet Oldmeadow said while owners, developers and contractors “want a harmonious working relationship”, disputes often descended into protracted fights.

“A tougher economy, higher cost of borrowing, and with volatile geopolitics challenging supply chains, have all led to timeline and cost blowouts where disputes are rife,” she said.

In some cases these disputes flow into the clean-up of insolvent companies, with the failure of major developers and contractors Clough, Probuild and Grocon chewing up court time years after their collapse.

Ashurst restructuring and insolvency partner Michael Sloan said inner city apartment developments and government infrastructure projects were growing areas for disputes.

“When things become a little bit tougher that’s when that poor management comes into play,” he said.

“It’s probably busier this year than it’s been since the Global Financial Crisis.”