What the U.S. Can Learn About Litigation Funding from the U.K. and Australia (Part I)
Opponents of third-party litigation financing often argue that such financing is contrary to long-held principles that have their roots in English common law. But a traditional principle is not valuable just because it is old. Changing circumstances can provide good reasons for modifying even the most long-standing principles or rules. This kind of changing approach to litigation financing is evident is the United Kingdom and Australia, two countries with a legal system also founded in the English common law tradition. This is the first of two posts discussing how these two countries provide an example of how to reform American law so that the benefits of litigation financing can be unlocked for both litigants and the justice system.
In the United Kingdom, third-party funding of litigation was unlawful until 1967, when reform legislation repealed criminal statutes that had prohibited champerty and maintenance, which were common law concepts describing “officious intermeddling” by third-parties in pending cases. As a result of these reforms, third-party litigation financing will evaluated on a case-by-case basis and will be disallowed only when it is shown that a particular litigation financing agreement was contrary to public policies. These public policies related to: whether the funder was entitled to an excessive share of the recovery; whether the funder had too much power in controlling decisions about litigation strategy, which should be made primarily by the litigant; and whether the agreement was consistent with the objective of increasing access to justice.
In a recent English case, Queen ex rel. Factortame v. Secretary of State for Transport, the court considered the legality of a funding agreement, which gave a third-party funder the opportunity to counsel the claimholder and lawyers on settlement, advise and consult with damages experts, and provide forensic accounting services. The court upheld this agreement because the funder did not control fundamental decisions about litigation.
Australia has embraced litigation financing even more enthusiastically than the United Kingdom. In most Australian jurisdictions, third-party funders are allowed to control any and all aspects of the litigation. In general, Australian courts have concluded that courts need not control how a litigant pays for his legal costs because other doctrines exist to prevent the misuse of the judicial process by non-parties to a case.
A recent decision by the High Court of Australia confirmed the third-party financers condition their funding on having significant control of the litigation process. In Campbells Cash & Carry Pty Ltd. v Fostif Pty Ltd., the court permitted arrangements allowing funders to provide all instructions to the solicitors, settle the claim for no less than 75 percent of the amount claimed, and receive up to 33.3 percent of any amount that the claimants recovered. It concluded that such condtitions were neither against public policy nor an abuse of the court’s process. In fact, a concurring opinion pointed out that permitting some control by litigation funders can actually improve access to justice: “[a] litigation funder . . . does not invent the rights. It merely organises those asserting such rights so that they can secure access to a court of justice that will rule on their entitlements one way or the other, according to law.” In addition, the opinion noted that it made sense for funders to have some control over the litigation process, given their stake in the outcome of the case.
In the next post, we will explain how an active role by litigation funders can improve the ability of litigants to defend their rights.
Topics: litigation finance, capital markets, third-party funding, litigation costs, legal costs, law reform
Works Cited:
Michele DeStefano, Nonlawyers Influencing Lawyers: Too Many Cooks in the Kitchen or Stone Soup?, 80 Fordham L. Rev. 2791 (2012) available at: http://ir.lawnet.fordham.edu/flr/vol80/iss6/16
Queen ex rel. Factortame v. Secretary of State for Transport, [2002] EWCA (Civ) 932, [2003] Q.B. 381.
Campbells Cash & Carry Pty Ltd. v Fostif Pty Ltd., (2006) 229 CLR 386 (Austl.).
