On 19 September 2012, following the decision of the New Zealand Court of Appeal in Contractors Bonding Ltd v Godfrey Waterhouse  NZCA 399, I posted a blog about disclosure required by plaintiffs in cases funded by a litigation funder in New Zealand. Now, on appeal in Godfrey Waterhouse and Anor v Contractors Bonding Limited SC 66/2012, the Supreme Court of New Zealand has re-examined the extent of disclosure required of a plaintiff who is receiving funding for its proceedings from a litigation funder. The scope of disclosure which will automatically be required by a plaintiff has been reduced by the Supreme Court, with the Supreme Court nonetheless going on to hold that, in certain contexts, disclosure of non-privileged terms of any funding agreement will have to be made. The Supreme Court held that, in every instance where there is litigation funder involved who: (a) has no previous interest in the proceedings; and (b) whose remuneration is tied to the success of the proceedings; and/or (c) who has some material control over the conduct of the proceedings; the plaintiff has to disclose: (i) the identity and location of the litigation funder; and (ii) whether the funder is subject to the jurisdiction of the New Zealand Courts. Nothing further will need to be disclosed unless the defendant, subsequently during the proceedings, brings an application relating to matters that cannot properly be determined without disclosure of the terms of the funding agreement. Three examples of such applications were identified, and discussed at length, by the Supreme Court. First, an application for security for costs. The purpose of such applications are to allow a defendant to seek some protection against the risk that on the conclusion of the proceedings the plaintiff will, if unsuccessful in its claims, not be in a position to pay any contribution towards the defendant’s legal costs. Whether or not the funding agreement extended to providing funding to the plaintiff to meet any costs award made against the plaintiff would be of some relevance in the determination of such an application for security for costs. It is highly probable that any disclosure ordered of the terms of the funding agreement, in the context of an application for security for costs, would be limited to requiring disclosure of any terms relevant to the issue of whether or not the litigation funder was contractually obliged to pay the plaintiff in respect of any costs award made against it. Second, an application for an award of costs against the third party. Such applications are generally only brought when the plaintiff has already failed to pay costs which have been awarded against it, and the defendant considers that in reality, the proceedings were brought materially for the benefit of (and have been controlled by) a third party who, in all fairness, should bear the costs as though they were truly a party to the proceedings. In New Zealand, such costs have long been able to be awarded against third parties, - see Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2)  UKPC 39. It is likely in such an application, that most of the non-privileged terms in the litigation funding agreement will be required to be disclosed because the determination of such an application will require consideration of (a) the extent of control the litigation funder was able to (and did) exercise; and (b) the extent to which the litigation funder had a financial interest in the proceedings. However, such applications are unlikely to have a great prospect of success until costs orders have already been made, and defaulted on, by the plaintiff. Accordingly, such an application (and near-full disclosure of the litigation funding agreement) will generally occur post trial. Furthermore, it remains possible that the Courts might, if/when faced with such an application, first require disclosure of the litigation funding agreement solely to it (rather than to the defendant) so that it can assess materiality and whether ordering disclosure to the defendant would result in a prejudice to the plaintiff. Thirdly, an application which asserts that the litigation funding comprises some form of abuse of process. While the Supreme Court held that the categories of conduct comprising an abuse of process are not closed, it also clearly struggled to identify any grounds upon which litigation funding might comprise an abuse of process. The Supreme Court did not consider it needed to determine whether the torts of maintenance and champerty remained valid, but it clearly indicated that it believed that the involvement of a litigation funder would generally give rise to no greater risk of abuse of process than with any plaintiff. Furthermore, the Supreme Court also clearly expressed its view that, because the Courts had sufficient powers to sanction third parties such as litigation funders (for example with awards of costs), there was no need for any form of judicial presumption that the mere involvement of a litigation funder, regardless of the extent of its control of the proceedings or prospective share of any damages recoupled in the proceedings, gave rise to an abuse of process. The Supreme Court did identify that, as a rather technical issue, some litigation funding agreements might be so comprehensive as to effectively comprise assignments of the plaintiff’s causes of action, and that some causes of action (in particular tortious causes of action) cannot be assigned under New Zealand law. The Supreme Court considered that that might, in some cases, provide a basis for an application alleging an abuse of process. If such an application was brought, it would conceivably require the disclosure of most if not all of the contents of the litigation funding agreement. In summary, the Supreme Court has clearly signaled that, so long as it is disclosed that there is litigation funding in place and so long as the litigation funder is subject to the New Zealand Courts, the involvement of a litigation funder should not usually (due to the Court’s ability to sanction/bind third parties) involve any more risks than those that the Courts and defendants face with any given plaintiff. The onus is on the defendant, who wishes to have disclosure of the terms of a litigation funding agreement, to demonstrate a need for such disclosure in the context of one of the types of interlocutory applications discussed above.
By Chris Patterson