Litigation funding, also known as Litigation Financing describes a situation where a third party “Financier”, with no prior connection to the litigation, provides capital to a Plaintiff in litigation and in return receives a portion of what the Plaintiff recovers from the litigation. The agreement to fund litigation is usually non-recourse, i.e., where there is no recovery there is no reward for the funder for the money advanced for the litigation, and no returns on the investment made in the litigation.
In a typical litigation financing transaction, the financier pays all or a part of the litigation cost. The cost includes lawyer’s fees, experts report and fees, court filing fees, transportation and accommodation expenses (if the need arises) and any other expenses that may be incurred in the course of the trial of the case.
The financiers do not take an active part in the litigation. Their interest is mainly concerned with whether or not the Plaintiff has a viable case in which they can invest and be rewarded from the recovery made from the suit. The Plaintiff retains complete control of all decision-making involved in the litigation and the Financier is not involved in the relationship between the Plaintiff and his Legal Advisor. As legal financing companies only recover their investment if the Plaintiff recovers money from the funded lawsuit, the merits of the Plaintiff’s case must be strong, meaning that the Plaintiff must have a strong case against the Defendant with evidence that will make the Defendant liable to the Plaintiff. The defendant must also have the ability to pay a judgment, whether by virtue of its own financial strength or through insurance coverage.
THE PROS AND CONS?
The beneficial aspects of litigation funding are that individuals and companies that lack the financial resources to fund their litigation to enforce their rights, especially against deep-pocketed defendants, are assisted through this medium to do so. It also allows businesses to invest the monies which they would have used to fund litigation into their businesses. Some of these litigation funding companies have a team of experts who conduct due diligence into the claims of Plaintiffs to ascertain the likelihood of success of the litigation before a decision is made to fund or not. By so doing, the Plaintiff benefit from this assessment to decide whether to pursue the action or not so that they do not waste their own resources on a fruitless venture.
One concern about litigation funding is that it is costly to the Plaintiff, and may take a large chunk of the Plaintiff’s eventual settlement. This system is also criticized for creating avenues for actual and potential legal ethical violations. As financiers have an interest in the outcome of the case, there is a tendency for the financiers to influence the legal team in ways that can be ethically wrong. Litigation funding was previously not allowed in the justice system on public policy grounds for the reason that the third party could discredit the purity of the justice system by manipulating the system or manufacturing evidence for their gains. Now third-party funding is allowed so far as the funder is not given unreasonable returns on the investment made and does not have the right to control the case.
It is a common misconception that litigation funding is for those who cannot fund litigation themselves. While it does enable those without funds to bring a claim, it is equally applicable to businesses who have funds to meet the cost of litigation, but who do not want to divert those resources away from the development of the business. Some litigants apply for litigation funding to pay their legal costs because, without it, they would not be able to afford to pursue an action at all. But this is not the only situation in which litigants seek to use litigation funding. Some litigants prefer to transfer the risk of pursuing the claim, to finance other ventures than their limited budget would otherwise allow, and to take the cost of funding litigation off the company’s balance sheet completely.
LITIGATION FUNDING IN OTHER JURISDICTIONS
This paper will evaluate the system of litigation funding in the United Kingdom, the United States of America, South Africa, and Ghana.
LITIGATION FUNDING IN THE UNITED KINGDOM
Historically, in the United Kingdom, it was illegal for a third party who had no active involvement in a dispute to fund it. The law has since changed, and the business of investing in litigation claims is growing, with funding arrangements being an accepted and valued means of financing litigation. The change was fueled by the decision of the English Court of Appeal case of Arkin v Borchard Lines Ltd & Others (2005) EWCA Civ 655, where the Court made it clear that litigation funding is a legitimate method of financing litigation. In 2010, the Jackson Committee was formed and tasked to make recommendations to promote access to justice at proportionate cost. The Committee endorsed litigation funding and it has since become part of their legal system.
There is no legislation that regulates the funding of litigation by third parties in the United Kingdom. There is however an association of litigation funders who are self-regulating their activities. Members of this group have a voluntary code of conduct that guide them in their dealings with clients who approach them for funding. The aim of the association is to ensure best practices and ethical behaviour among funders. The code of conduct contains code that, inter alia, ensures that funders maintain adequate capital to fund litigation, ensure that funders do not take steps that will interfere with the lawyer’s duties to the client, and ensure that clients take steps to seek independent legal advice on the Litigation Agreement. The code also requires the financiers to provide satisfactory answers to certain key questions before entering into relationships with claimants.
LITIGATION FUNDING IN THE UNITED STATES OF AMERICA
Litigation funding is available in most jurisdictions in the United States of America. People mostly seek funding for personal injury cases, though funding for commercial disputes, civil rights, and workers’ compensation are also available. The amount of value the Plaintiff can access for financing usually ranges between 10-15 percent of the expected value of the settlement from the lawsuit. Financiers evaluate cases based on their legal merits, the possible amount of damages the Plaintiff could be compensated with, and the financial viability of the Defendant before taking up the funding of the case.
Like the United Kingdom, there is an association of legal financiers in the United States of America. The American Legal Financiers Association has as its main goals to establish voluntary standards for the litigation funding industry, and to serve as a liaison with the public, government officials, and the media.
LITIGATION FUNDING IN SOUTH AFRICA
In South Africa, litigation funding has quietly become a part of the South African legal landscape with little to no resistance. The South African courts have held that a fair agreement to provide the necessary funds to enable an action to be proceeded with, in consideration for which the person lending the money is to receive an interest in the property sought to be recovered, must not be considered, per se, to be a contract in bad faith (see the case of Hugo & Moller N.O. v. Transvaal Loan, Finance and Mortgage Co. 1894 (10 OR 336). This position of the law was affirmed in the recent case of Hadleigh Private (Pty) Ltd t/a Rand Clinic v. Soller & Manning Attorneys and Others 2001 (4) SA 360 (W). where the Court held that an agreement to share the proceeds of one or more lawsuits is not necessarily unlawful and must indeed be considered acceptable when a litigant is not in a financial position to fund his litigation completely. Thus, litigation funding seemed to have gained acceptance in the South African legal system through judicial activism.
LITIGATION FUNDING IN GHANA
Legal practice in Ghana is regulated by the Legal Profession Act, 1960 (Act 32 as amended). Act 32 established the General Legal Council which is mandated with the authority to enact legislations to uphold the standards of professional conduct. In pursuance of that authority, the General Legal Council enacted the Legal Profession (Conduct and Etiquette) Rules, 2020 (L.I. 2423).
Rule 20 (7) of L.I. 2423 states that “a lawyer shall not accept compensation for representing a client from a person other than the client unless;
- The client consents to the lawyer receiving the compensation;
- There is no interference with the lawyer’s independent professional judgment or with the client-lawyer relationship.
Rule 30 of L.I. 2423 also provides as follows;
A lawyer shall not;
- Join or act in association with an organization or a person who is not a practicing lawyer and whose business or a part of whose business is to make, support or prosecute a claim arising as a result of death or personal injury, including claims under the Workmen’s Compensation Act, 1987 (PNDCL 187) where that person or organization solicits or receives a payment, gift or benefit in respect of the claim; or
- Act in respect of the claim for a client introduced to that lawyer by that person or organization.
- Knowingly act for client introduced or referred to the lawyer by a person or organization whose connection with the client arises from solicitation in respect of a cause or claim referred to in subrule (1).
- A lawyer shall, for the purpose of ascertaining whether the acceptance of an instruction shall involve a contravention of subrule (1) or (2), make reasonable enquiries before accepting instructions in respect of a claim.
Furthermore, under Rule 47 (2) it is provided that; “a lawyer shall not permit a person who recommends, employs, or pays the lawyer for rendering a legal service to direct or regulate the professional judgment of the lawyer in rendering the required legal service”.
The above provisions in the L.I. 2423 sums up to the point that lawyers are not restricted from taking up cases that involve funding by a third party save the restrictions under Rule 30. The lawyer in such an instance is expected to exercise an independent professional judgment in the discharge of his duties, i.e., the lawyer is not permitted to allow himself to be directed or regulated by a person who recommends, employs, or pays him. And also, where the consent from the client is a requirement, the consent must be given by the client to ensure that the provisions of the L.I. is complied with.
CONCLUSION
How far is litigation funding from Ghana?
The system is not far from Ghana, though little is seen about it in the Ghanaian judicial system. This can be attributed to the fact that the business of litigation funding is not well-known in the country, to both the financiers and to litigants. The discussion so far shows that litigation funding is gradually gaining roots in many judicial systems worldwide. Though the system is largely unregulated, financiers involved in the activity have taken it upon themselves to form associations and enact rules to regulate their activities.
The body that is charged with the regulation of legal practice has put in place some restrictions for legal practitioners regarding accepting fees from third-party financiers. However, such restrictions do not operate as a total bar to litigation funding in Ghana. Moreover, litigation funding goes beyond legal fees so the restrictions in L.I. 2423 cannot be said to be a total bar on litigation funding in Ghana.
REFERENCES
- Legal Profession Act, 1960 (Act 32).
- Legal Profession (Etiquette and Conduct) Rules, 2020 (L.I. 2423)
- legal500.com; Litigation Funding; the UK Rankings (retrieved on 21st February, 2023).
- uk.practicelaw.thomsonreuters.com; Third Party Litigation Funding in the UK; an Overview (retrieved on 21st February, 2023).
- Associationoflitigationfunders.com; Delivering Self-Regulation of Litigation Funding (retrieved on 23rd February, 2023).
- Woodsford.com
- Arkhurst.com
- Wikipepedia.com; Legal Financing (retrieved on 23rd February, 2023)
