A Champerty agreement is a type of litigation funding agreement where a party not involved in a particular legal dispute (the Funder) agrees to finance one of the litigants. In return, the Funder receives a share of the proceeds if the funded party is successful.
Until recently, South African courts were reluctant to accept the validity of champertous agreements, considering them contrary to public policy and unenforceable. This hesitation stemmed from concerns about preserving the integrity of the judicial system. However, an exception existed for situations where financial assistance was provided in good faith to an indigent litigant, enabling them to pursue legal action. In such cases, the agreement could be allowed. Otherwise, if a non-party sought to fund litigation solely for profit, the agreement was deemed contrary to public policy and, therefore, unenforceable.
The Landmark Case: 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. The Court was tasked with determining the validity of champertous agreements. In this case, a non-litigant funded the Respondents in the proceedings, and the Appellant argued that the Respondents were prosecuting the action improperly.
The Court emphasised the importance of the constitutional right to access justice in shaping public policy on this issue. The Court held that “the need for the rules [against] maintenance and champerty have diminished if not entirely disappeared.” This ruling signalled a significant shift in how South African courts view litigation funding agreements.
Conclusion
Given that these developments are relatively new within South African law, it will be interesting to see how courts handle cost orders arising from champertous agreements in the future. Will South African courts be willing to grant cost orders directly against litigation funders, even in the absence of mala fides or fraudulent conduct?
Recent trends show an increase in litigation funding agreements and third-party litigation funders. While this trend can be seen as a victory for access to justice, there is a need for regulation to prevent frivolous or vexatious litigation. The principles of champerty should be developed cautiously to ensure they are applied equitably and justly. Guidelines should be established for funder identity disclosure and fairness in levying funders’ fees. These regulations should incentivise funders to support claims from individuals who cannot access justice due to financial constraints while preventing abuse of the principle to the detriment of those individuals.
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This article was contributed by Jaco Willemse of Tuckers Attorneys.