Litigation Funders: The processes and cost orders

It sounds cliché when a legal discussion starts with reference to the constitution, mainly when, to a ‘layman’, the issues are not constitutional. This is such a discourse, the issues are not necessarily about the constitution however, the premise on which the issues can be engaged fruitfully is when the focal point is the constitution, the supreme law.

Now for the cliché. The founding values of our Constitution includes human dignity, the achievement of equality, the advancements of human rights and freedoms, the supremacy of the constitution and the rule of law. The question with regard to the litigation funder’s role in litigation processes and cost orders in the instance, necessitates that we evoke the first two chapters of the constitution.

Litigation funding is a process whereby an independent third party, who does not have any interest in the matter, concludes an agreement with a party, who has an interest, to fund their litigation in return of a share in the fruits of the litigation. Litigation funders can be companies or individuals, who are bold enough to assume the risk of investing in a case and hope to receive rewards at the end. Litigation funders assess the merits of the case and the quantum involved prior to contracting to fund the litigation. The nature of the agreement between the parties is that the funder will provide financial assistance to cover the costs of the party’s litigation and the necessary disbursements. In other instances, the funder is active in the litigation process by dictating which attorneys will represent the party and also taking charge in what is to be done and how it should be done, which is generally done to protect their investment.

Litigation funding is a developed and successful industry in the United Kingdom. The industry in South African is barely in its infant stage. However, the idea of litigation funding is not new. We have in our law the principle of pactum de quota litis which was confirmed in the matter of Hugo & Möller N.O v Transvaal Loan, Finance and Mortgage co wherein the court decided that a fair agreement to provide litigation funding in exchange for a share in the proceeds is not per se contra bonos mores. During this period the validity of these agreements rested on whether they were concluded in good faith and whether they were not against public policy. The prima facie issue with this position is that the factors to consider do not create certainty as they are themselves enigmatic and are open to subjective interpretation to address issues that may have objective consequences.

In the matter of Headleigh Private Hospital (Pty) Ltd v Soller & Manning Attorneys N.O the court held that an agreement to share in the emoluments of litigation is not necessarily unlawful or contra bonos mores and is acceptable when the litigant is not in a financial position to fund the litigation process. In the PriceWaterHouseCoopers Inc v National Potato Cooperative Ltd matter the position changed when our Supreme Court of Appeal decided that litigation funding was not only not contra bonos mores, but did not have to meet the public policy test. However, the courts often frown upon and deal with litigation funding agreements which amounts to abuse of the system.

Litigation funding also poses inherent challenges to the party who is using the funding and also to the party against whom the action is brought. The most pertinent challenge is one of costs; who covers the costs in the instance that the party against whom the action was brought is successful and gets a cost order in his favour? The North Gauteng High Court had to deal with this issues and permitted a funder to be joined as a co-plaintiff in order to give a cost order against the funder and the Western Cape High Court also married the position of English law in that a cost order may be granted against the funder (the funder was already joined as a Plaintiff in this matter). But more questions arise: How will the parties against whom action is brought be aware that there is a funder to join? Will the possibility of cost orders then not scare litigation funders away?

The view exists that the law benefits the rich and the financially able. This view contradicts the values of the law as contained in our constitution: “Everyone is equal before the law and has the right to equal protection and benefit of the law”. Litigation is expensive and in a country like ours where the majority of people are living from hand to mouth, there is a need for litigation funders. Litigation funding has the potential to assist in the achievement and protection of constitutional rights, more specifically the right to access to courts. With the existence of litigation funders, those who are in a financial position to bully the meek and destitute out of what they deserve, simply because recourse would be beyond them due to financial constraints, are not at liberty to do so now.

The decisions of the High Courts in Cape Town and Pretoria pertaining to cost orders against litigation funders are progressive and revolutionary, as that is what is needed to cap the possibility of abuse of the system. With the option of litigation funders, those who are aggrieved can get legal recourse and access to the courts, litigating amongst the best legal representatives (such as myself!). Frivolous funding of non-cases is also addressed by cost orders. With litigation funders comes challenges, but equally comes sang-froid to those people who will benefit from their services due to their financial position. JUSTICE FOR ALL? Only time will tell.

by
Gastavus Chabalala