Legal financing

Commercial litigation funding has been allowed in Australia in the late 1990s, in parallel with developments in the US, Canada and Asia.[15][16]

Litigation funding has been permitted in England and Wales since 1967 (and in insolvency matters since the late nineteenth century). However, recent years have seen its growing acceptance as part of the litigation landscape.[17]

Litigation funding can be broadly split into 4 different forms in the UK, Conditional fee agreements, Damages Based Agreements, Fixed Fees and Third Party Funding.

In 2005, in the case of Arkin v Borchard Lines Ltd & Others, the English Court of Appeal made it clear that litigation funding is a legitimate method of financing litigation. In January 2010, Chapter 11 of the Jackson Review of Civil Litigation Costs was published, effectively providing judicial endorsement to litigation funding.[18]

In November 2011, a Code of Conduct for Litigation Funders was launched, which sets out the standards of best practice and behavior for litigation funders in England and Wales. The Code of Conduct provides transparency to claimants and their solicitors. It requires litigation funders to provide satisfactory answers to certain key questions before entering into relationships with claimants. Under the Code, litigation funders are required to give assurances to claimants that, among other things, the litigation funder will not try to take control of the litigation, the litigation funder has the money to pay for the costs of the funded litigation and the litigation funder will not terminate funding absent a material adverse development. The Code has been approved by Lord Justice Jackson and commended by the Chair of the Civil Justice Council, Lord Neuberger of Abbotsbury, the President of the Supreme Court.[19]

The regulatory body responsible for litigation funding and ensuring compliance with the Code is the Association of Litigation Funders (ALF). The Board of Directors of ALF comprises representatives from Therium Capital Management, Burford Capital, Calunius, Woodsford, and Harbour Litigation Funding.[20] Other ALF members include Augusta Ventures and Balance Legal Capital, among others. The members of ALF have adopted the Code and undertake to comply at all times with it.

There is no specific legislation in Russia governing litigation funding, however, it is not prohibited by Russian law. In 2019, Chairman of the Council of Judges of the Russian Federation Viktor Momotov stated that third-party investment in litigation could increase access to the courts by parties who could not otherwise afford the cost of litigation.[21] In 2020, the Council of the Federation Committee on Constitutional Legislation and State Building discussed the need for legislation or regulation to allow a litigation funding industry to develop. [22]

Litigation funding is generally unregulated in South Africa, but it appears that it has quietly become part of the South African legal landscape, getting little to no resistance in the face of what used to be portrayed as contra bonos mores champertous agreements, which are, by definition, illegal.[23]

A pactum de quota litis is defined as “an agreement to share the proceeds of one or more lawsuits” and it is the duty of the court to ascertain, of its own motion, the lawfulness of such agreement as it cannot lend its assistance to the execution of agreements and transactions which are contrary to law. An initial distinction between an acceptable and an objectionable pactum de quota litis was formulated in Hugo & Möller N.O. v Transvaal Loan, Finance and Mortgage Co, 1894 (1) OR 336. The Court held that a fair agreement to provide the necessary funds to enable an action to proceed, in consideration for which the person lending the money is to receive an interest in the property sought to be recovered, must not be considered per se to be contra bonos mores. The court was concerned about potential abuses of such agreements, such as using them for purposes of gambling with litigation cases.

Several cases have provided further guidelines for such litigation financing agreements. In Hadleigh Private Hospital (Pty) Ltd t/a Rand Clinic v Soller & Manning Attorneys and Others 2001 (4) SA 360 (W), the Court affirmed that an agreement to share the proceeds of one or more lawsuits is not necessarily unlawful and must indeed be considered acceptable when a litigant is not in a financial position to fund his litigation completely. In another case, the South Africa Supreme Court of Appeal held, in PriceWaterHouse Coopers Inc and Others v National Potato Co-operative Ltd, 2004 (6) SA 66 (SCA), that the "although the number of reported cases concerned with champertous agreements diminished, courts have still adhered to the view that generally they are unlawful and that litigation pursuant to such agreements should not be entertained". However, the Supreme Court sought to clarify any disagreements and took a different route.

The Supreme Court ruled that:

• An agreement in terms of which a stranger to a lawsuit advances funds to a litigant on condition that his remuneration, in case the litigant wins the action, is to be part of the proceeds of the suit is not contrary to public policy or void, and
• The existence of such an assistance agreement cannot be the base of a defense in the action. In June 2010, in an interlocutory ruling rendered in the same case, the High Court found that the funder is, after all, a co-owner of the claim and should, therefore, be joined as a party to the trial. Therefore, an order for costs may be made directly against him to the extent that the funded party cannot support them even after the termination of the funding agreement.[23]

Legal financing is a fairly recent phenomenon in the United States, beginning in or around 1997.[24] Litigation funding is available in most U.S. jurisdictions. Litigation funding is most commonly sought in personal injury cases, but may also be sought for commercial disputes, civil rights cases, and workers' compensation cases. The amount of money that plaintiff receive through legal financing varies widely but often is around 10 to 15 percent of the expected value of judgment or settlement of their lawsuit.[2] Some companies allow individuals to request additional funding at a later date. The amount of money available depends on the policies of the financing company and the characteristics of the plaintiff's lawsuit.

One major division in litigation finance is between consumer and commercial financing companies. While consumer financing generally consists of small advances between $500 and $2000 directly for individual plaintiffs, commercial financing for companies to pursue legal claims generally is dedicated towards payment of litigation costs.[2] The largest legal financing companies in the space are commercial, including public companies.

Litigation funders generally evaluate cases based on legal merit, amount of damages, and financial viability of the defendant. Many funders also specialize in specific areas of litigation or have restrictions on funding size and funding structure.[25]

The American Legal Financing Association (ALFA) is a trade association that represents consumer legal financing companies.[26] ALFA's main goals are to establish voluntary standards for the legal funding industry and to serve as the liaison with the public, government officials, and the media.[24] While ALFA is a non-profit organization, most legal funding companies are for-profit organizations.