Formal Regulation of Third Party Litigation Funding Agreements? A South African Perspective

Mpho Justice Khoza

doi:10.17159/1727-3781/2018/v21i0a3426

Abstract

In South Africa third party litigation funding agreement as a tool that provides access to justice is not legislated with regard to non-lawyers. This article is based on research conducted to determine whether regulating this type of agreement would facilitate in fostering the policy that favours access to justice. A brief comparative study showed that English law permits third party litigation funding agreements in the Courts and Legal Services Act 1990. However, unlike in South African law, English law also has a body that regulates the conclusion of third party litigation funding agreements. The Association of Litigation Funders introduced a voluntary Code of Conduct for Litigation Funders in 2011 and an updated one in 2016, which regulates the conclusion of third party litigation funding agreements. The Code of Conduct protects the litigant against abuse by the funder and the funder against non-compliance by the litigant. Despite being a "self-regulatory" legislative initiative that governs most of the funding agreements in England, this Code does not bind non-members of the Association. In South Africa there is no such voluntary regulation of third party litigation funding agreements. Consequently, litigants may be prejudiced by the litigation funder in instances where a funder receives a disproportionate percentage of the capital award. The study on which this article draws investigated whether there is a need for an effective legislative response that regulates third party litigation funding agreements in South Africa. It was found that there is a need for formal regulation with regard to third party litigation funding agreements because there are no clear guidelines on the conclusion of the agreements in South Africa. 

Highlights

Third party litigation funding agreements are defined as those agreements in terms of which a person provides a litigant with funds to prosecute an action in return for a share of the proceeds of the legal action if the litigation is successful.1 In South Africa the other known third party litigation funding agreements that are regulated are the contingency fee agreements
It was found that there is a need for formal regulation with regard to third party litigation funding agreements because there are no clear guidelines on the conclusion of the agreements in South Africa
Contingency fee agreements can be defined as agreements whereby a legal practitioner and the litigant agree on the payment of the legal fees only upon the achievement of success in the legal proceedings.3 (It is a "no success, no fee" agreement.)4 This article will discuss the regulation of third party litigation funding agreements as they apply to non-lawyer funders which are unregulated by the Contingency Fees Act 66 of 1997

Summary

Introduction

Third party litigation funding agreements are defined as those agreements in terms of which a person (a non-lawyer funder or a layman) provides a litigant with funds to prosecute an action in return for a share of the proceeds of the legal action if the litigation is successful. In South Africa the other known third party litigation funding agreements that are regulated are the contingency fee agreements. Contingency fee agreements can be defined as agreements whereby a legal practitioner and the litigant agree on the payment of the legal fees only upon the achievement of success in the legal proceedings. (It is a "no success, no fee" agreement.) This article will discuss the regulation of third party litigation funding agreements as they apply to non-lawyer funders which are unregulated by the Contingency Fees Act 66 of 1997. This article poses two main questions: firstly, whether the non-regulation of third party litigation in South Africa is appropriate, as the industry is still growing; and secondly, what the implications of regulating third party litigation funding might be for both the litigant and the defendant These questions are answered by considering the purpose and implications of selfregulation by litigation funders and the government regulation of third party. Recommendations are made and conclusions are drawn made in parts five and six of the article

A historical overview of third party litigation funding agreements

Third party litigation funding agreements in South Africa

Lessons from England

Recommendations

Conclusion

Literature