The International Growth of Litigation Financing
Third-party litigation financing is a relatively new development, largely because long-standing common law doctrines prohibited financial support to litigants from outsiders to the case. This legal tradition created obstacles to third-party litigation financing in any country whose legal system had its roots in the English common law. But the liberalization of these common law doctrines is making litigation financing more widely accepted around the world, both in court cases and alternative dispute resolution, like arbitration.
The English common law developed several doctrines to prevent parties from “officious intermeddling” in the disputes of others. One of these doctrines was a prohibition on “maintenance,” which was defined as assistance to a litigant by a third-party for the purpose of helping the litigant continue a lawsuit. “Champerty” was a special form of maintenance, where a third-party paid the litigation costs of a litigant in return for a share of the recovery in the case, and it was also prohibited. At the time of their creation, these doctrines were designed to prevent abuses by corrupt nobles who interfered with the legal system for personal gain.
When the common law spread to British colonies, these doctrines became part of colonial law. These doctrines even spread to other countries where British common law had influence. Consequently, many countries with significant influence in international commerce had rules prohibiting third-party litigation financing.
But this tradition is changing. Of course, third-party litigation funding is finding greater acceptance in the United States, as it helps more litigants find creative ways to defend their rights. In addition, third-party litigation funding is now used regularly in the United States, Australia, Canada, England and Wales. This change is spreading to Asia. Earlier this year, the Singapore Ministry of Law proposed legislation permitting third-party funding for international arbitration cases. According to a recent report, trade agreements like the Trans-Pacific Partnership Agreement and the Transatlantic Trade and Investment Partnership should continue the trend.
To a great extent, the growing acceptance of third-party litigation financing is driven by increasing demand for third-party funding from multi-national corporations and sophisticated commercial enterprises, who often resolve their disputes in international arbitration tribunals. As knowledge about litigation financing increases, large companies are finding new ways to provide that financing, including joint ventures and portfolios, where the cost and risk of several litigation matters is spread among several cooperating enterprises. Thus, litigation financing is no longer viewed as “officious intermeddling” but is, instead, a hallmark of sophisticated, international commercial business practice.
Works Cited:
Norton Rose Fulbright, International Arbitration Report (September 2016) available at http://www.nortonrosefulbright.com/knowledge/publications/142434/international-arbitration-report.
