No Secrets Allowed for Financially Assisted Plaintiff

No Secrets Allowed for Financially Assisted Plaintiff
Wednesday September 19, 2012

Litigation funding has started to appear more regularly as a feature of modern civil litigation, especially in relation to class action (multiple plaintiff) cases. One of Australia’s litigation funders, IMF (Australia) Limited, is publicly listed on the ASX. Litigation funding companies are not new to New Zealand but the growth rate of such companies here has been slower than it has overseas. The New Zealand Court of Appeal in Contractors Bonding Ltd v Godfrey Waterhouse [2012] NZCA 399 has recently observed that New Zealand is less eager than some overseas jurisdictions to depart from the position that, in principle, funding someone else’s law suit is unlawful. That said, there have been significant reforms to this principle over the years so that in some situations NZ courts will allow plaintiffs to be financially assisted. The rationale for allowing litigation funding is that prospective plaintiffs should not be denied access to justice simply because they cannot afford to litigate. In the Contractors Bonding case, Mr Waterhouse, a former director of an American company (now struck off), is being financially assisted in his law suit against a New Zealand based company, Contractors Bonding Ltd, which he holds responsible for the failure of his American company. Mr Waterhouse disclosed the existence of a litigation funding agreement to Contractors Bonding but refused to disclose a copy of the agreement itself. The High Court ordered production of the agreement to the Court, but not to Contractors Bonding. The High Court Judge decided that the funding agreement contained nothing which the Court ought to be concerned about or that ought to be disclosed to Contractors Bonding. The Court of Appeal took a different approach. It decided that disclosure of the key features of litigation funding arrangements is the best way to ensure there is no abuse of process. Examples of such abuses are where a financially assisted plaintiff is able to conduct its case in an oppressive way because it can readily access funds, or where the litigation funder is effectively a puppet master, pulling too many strings from behind the scenes. Another legitimate concern is that some funding arrangements do not provide for a defendant’s costs to be paid by the litigation funder if the plaintiff’s claim fails, potentially leaving a defendant high and dry for its costs even though the claim against it was misconceived. The Court decided that the key features of the funding arrangement to be disclosed were the funder’s identity, location and willingness to be bound by decisions of New Zealand Courts, the terms on which funding can be withdrawn and the consequences of withdrawal. So it seems that plaintiffs relying on financial assistance must be prepared to satisfy the Court and the other parties that their funding arrangements are acceptable. It might be difficult to balance the competing interests of mandatory disclosure of litigation funding arrangements with the rules of legal privilege. It will be interesting to see whether these concepts clash in the future, and if so, which one will prevail and why. As for the future of litigation funding, my own view is that a measured approach is required to strike the balance between providing access to justice and at the same time avoiding abuses of the legal process.

 

By Chris Patterson