Conference Issue 2017

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Litigation funding 'fills unmet need'


By Kate Tilley, editor Resolve

Litigation funding was now an accepted industry in New Zealand, developed to fill an unmet need, NZ Supreme Court Justice Mark O'Regan told the NZILA conference.

While it was "tiny", compared to the United Kingdom, it was "a significant and blossoming industry".

The NZ Law Commission (NZLC) was conducting a review of class actions and litigation funding, which was "a welcome development". The Victorian Law Reform Commission was conducting a similar review.

Justice O'Regan said many funded actions were against insured directors and officers, so the insurance industry was very interested in the reviews' outcomes.

While the torts of maintenance and champerty, aimed at preventing frivolous litigation or third parties encouraging litigation, still existed in NZ, they were not crimes. A third concept, barratry, "the stirring up of suits, quarrels or parties" was a medieval version of being vexatious and, with maintenance and champerty, a crime in the UK until 1967.

Justice O'Regan said maintenance and champerty had been part of the law since medieval times but were aimed at preventing corruption of the courts rather than outlawing litigation funding.

A 2001 NZLC report recommended against abolishing champerty and maintenance. "It expressed concern about unruly corporations employing ruthlessly aggressive litigious practices, hiding behind nominal litigants if need be, about cases where the opponent of a maintained party suffered loss other than costs, and about situations where the opponent faced procedural difficulties in proving the role of a maintainer unaided by the processes of discovery," Justice O'Regan said.

NZLC said there would be no great simplification of the law if the torts were abolished in the same way as in the UK and some Australian states, because underlying public policy issues about the legality of contracts providing for litigation funding would remain.

The NZ Supreme Court reviewed litigation funding in 2013 in Waterhouse v Contractors Bonding. Contractors had sought a stay of proceedings because of a litigation funding agreement. Initially the High Court found no need to disclose the agreement, but the Appeal Court overturned that. The Supreme Court then limited some of the disclosure.

Justice O'Regan said the Supreme Court found no sensitive information could be disclosed, but decided "the courts are not the regulator of funding arrangements nor are they required to approve them or assess their fairness".

The judges said: "Control of litigation by a third party has long been a concern of the courts. One of the reasons traditionally given is that such control might tempt the allegedly champertous maintainer, for his or her personal gain, to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice. While such issues could arise, it seems to us that they are no more or less likely to do so than in the case of individual litigants."

Justice O'Regan said the NZ Supreme Court, while rejecting a regulatory role, did agree the court could stay proceedings, if necessary, to prevent proceedings that had "an ulterior or improper purpose", served no useful purpose, or were vexatious.

"The Waterhouses' counsel in the Supreme Court rather ambitiously submitted that the court should abolish the torts of maintenance and champerty, an invitation the court did not engage with," he said.

In PricewaterhouseCoopers v Walker, the case settled before the NZ Supreme Court had delivered its judgement and, at the time of the NZILA conference, the court had yet to decide whether to issue a decision. The High Court had refused to stay the proceeding and that was supported by the Appeal Court. PwC had argued that assigning a debt to a third-party litigation funder was not possible because the funder then had the ability to control any action against PwC. 

Justice O'Regan said it was generally accepted that an assignment of debt, even in circumstances where it was foreseen that litigation would be needed to recover the debt, was not problematic. 

But PwC argued that, when the litigation funder took the assignment of the debt all the assets of a company called Property Ventures had been realised and only the cause of action against Property Ventures' directors and PwC as auditor remained as an item of value. "So, it was argued, while in form this was an assignment of debt, in substance it was an assignment of a bare cause of action."

The Appeal Court found there was no assignment of a bare cause of action and nothing in the litigation funding agreement itself called for court intervention.

Justice O'Regan said NZLC would consider the issues in its inquiry.

After the conference, the Supreme Court issued judgement in PWC v Walker & Ors [2017] NZSC 151 [6 October 2017].One of the two judgements was delivered by Justice O'Regan.

He earlier told the NZILA conference NZ now had seven or eight companies offering litigation funding, the largest of which was no win-no fee company LPF Group Ltd. It had funded cases for $NZ2 million or more and currently had cases worth a total of $NZ1 billion in claims.

He said claims must be substantial to be commercially viable to a litigation funder, which aimed to get 30% of the settlement, but the amount varied from 20% to 40%.The concept assisted the pursuit of claims that might not otherwise go to court, so funding was in the interests of justice. Funders would not continue cases where good settlement opportunities arose or a case became hopeless.

Justice O'Regan said NZLC's review would determine if regulation were desirable for litigation funding in NZ and, if so, who should regulate.

"As litigation funding matures, new challenges will emerge."

He asked: "What if litigation funders seek to grant security over their "assets"? Or syndicate their rights under a funding agreement for a particular claim? Or package up a portfolio of funded claims and securitise them, as car finance companies do with hire purchase agreements and home financiers do with mortgages? Should that sort of commercialisation of court proceedings be allowed?"

Justice O'Regan urged conference delegates to actively participate in the NZLC review.

 
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Resolve is the official publication of the Australian Insurance Law Association and
the New Zealand Insurance Law Association.