Are You David Trying to Sue Goliath? Consider Litigation Funding

article_litigation-funding-wideJustice should be accessible to us all, but regrettably litigation, particularly in the higher courts, can be an expensive process and thus out of reach unless you have both deep pockets and nerves of steel.

To the rescue comes a concept which, although relatively new in South Africa, has been successfully implemented overseas – litigation funding.  The “Please Call Me” case is a recent high-profile example of how the practice is starting to gain traction locally. Note that whilst some funders concentrate on commercial litigation, others have a much wider mandate.

How it works

In essence, a litigation funder steps in and takes responsibility for all legal costs associated with launching and running a legal claim. In return, the funder gets a fair share in the final award, usually between 40 – 55%.  If that sounds like a lot to give away, remember the wise old proverb “Half a loaf is better than nothing” – it’s either the deep pockets and nerves of steel we mentioned above, or be very happy with your share of the prize.

If the claim fails, the funder gets paid nothing, does not reclaim the amount it has spent from you as the claim-holder and can be held liable for an adverse costs order.  You don’t risk a cent – provided, of course, that your particular funding agreement provides accordingly, that you have complied fully with your obligations under the agreement, and that you have chosen a reputable funder in the first place.

Previously, claim-holders had two choices.  Either they had to rely on attorneys to fund a claim under the Contingency Fees Act, which some attorneys are happy to do but others not, or they could sell the claim upfront – usually for a fraction of the claim amount.  Litigation funding fills this funding gap but ask your lawyer for advice before deciding which course of action is best for you.

When should a claim-holder consider using a litigation funder?

  • The claim has excellent merits. In other words, the case is strong in law and backed by good, preferably written, evidence.
  • The person or entity being sued is solvent and very likely to remain so.
  • The person or entity being sued is well-resourced and intimidating, able to outspend the claim-holder, often stalling the claim, forcing the claim-holder to either abandon the claim or settle at a negligible value to the claim.
  • The claim-holder is committed to the claim, and will remain so for the duration of the litigation process.

Litigation funders will manage the claim with your attorney, as they have real interest in a successful outcome.

The process

On application, a litigation funder will typically ask a claim-holder to sign a confidentiality agreement allowing them to review the claim. This has two effects – the funder cannot disclose the claim-holder’s confidential information, and it ensures that the claim-holder’s privileged documents (documents that cannot be used in evidence in a trial) retain their privilege.

At this stage all documents relating to the claim (both those in favour of the claim and those not so helpful) must be disclosed.

The funder must be in a position to make a call on the case’s merits. It’s useful to think of this as making disclosure to an insurer or medical aid. Hidden documents and facts can cause real problems later in the case, and in extreme cases, the funder may have a claim for damages against a non-disclosing party.

If the funder believes the claim has merits, and falls within its funding mandate, the funder and the claim-holder then enter into a funding agreement. This sets out the funder’s obligation to fund the case, its rights to share in an award, and the claim-holder’s obligations to assist in the conduct of the case.

Levelling the playing field

In the US, the UK and Australia, litigation funds have enabled claim-holders to obtain fair compensation, and have dramatically leveled the legal playing field for individuals and medium sized businesses. There is no reason litigation funding will not have the same effect in South Africa.

Ashersons Attorneys

Ashersons Attorneys

Industry news and noteworthy articles from a boutique corporate law firm in Cape Town, South Africa

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