WHAT IS A CHAMPERTY AGREEMENT?

A Champerty agreement is a litigation funding agreement. This agreement is concluded by a party who is not a party (the Funder) to a particular litigious matter and a party to the litigious matter. In terms of this agreement, the Funder provides finance to a party within the litigation proceedings in return for a share of the action’s proceeds if the funded party is successful.

 Until recently, South African Courts were reluctant to accept the validity of champertous agreements and considered litigation funding agreements to be contrary to public policy and of no force or effect, out of concern for the judicial system’s integrity. The exception to the rule was that a good faith provision of financial assistance to an unwealthy litigant, in which financial assistance helped them prosecute an action, could be allowed. This had the effect that, if a non-party to litigation proceedings wished to fund a party to litigation proceedings purely to profit therefrom, it would be considered contrary to public policy, therefore deeming it an unenforceable agreement.

PricewaterhouseCoopers Inc v National Potato Cooperative Ltd

The landscape changed in 2004 with the Supreme Court of Appeal’s judgment in PricewaterhouseCoopers Inc v National Potato Cooperative Ltd[1] when the Court was faced with the question of the validity of champertous agreements. In this case, a non-litigious party funded the Respondents in the litigation proceedings. The Appellant argued that the Respondents was prosecuting the action The Court emphasized the importance of one’s constitutional right of access to justice in determining public policy on the issue; the Court held that “the need for the rules [against] maintenance and champerty have diminished, if not entirely disappeared”. 

Conclusion

Because these developments are relatively new within the South African law context, it will be interesting to see how the courts exercise their discretion to award cost orders based on a champertous agreement, contrary to public policy. The Court ultimately held that champerty agreements are not on the face of it contrary to public policy or void.

against litigation funders in the future. Will South African courts be prepared to grant cost orders directly against litigation funders in cases where no element of mala fides or fraudulent conduct is present. With the recent developments regarding litigation funding agreements, many corporate litigation funding agreements provide that if a cost order is to be granted against the funded litigant, the Funder will be held liable therefor. However, it is not the same as being joined in the proceedings as a party and being subjected to a directly enforceable cost order that may scare potential litigation funders.

The popularity of litigation funding agreements and third-party litigation funders has increased over recent years. While this should be celebrated as a “victory” for access to justice, litigation funding agreements need to be regulated to avoid frivolous or vexatious litigation. Champertous’s principles should be developed with caution to ensure that the concept is utilised in an equitable and just manner. There should exist some guidelines for funders’ identity disclosure and ensure fairness in the levying of funders’ fees. The regulations should ensure that there is an incentive for funders to fund claims of individuals who cannot access justice due to monetary constraints and avoid the principle being abused to the detriment of those individuals.

Should you have any questions or concerns about this topic please contact our offices on 011 897 1900, 076 777 1920 or info@tuckers.co.za.

Article contributed by Jaco Willemse of Tuckers Attorneys.