The essential principle of a Litigation Funding Agreement (LFA) between a litigant or his or her legal representative and a third party who finances the litigation for reward, is consistent with the constitutional values underlying freedom of contract in South Africa.
Certain principles (De Bruyn v Steinhoff International Holdings NV 2020 JDR 1405 (GJ) at [82]) have been laid down by the South African courts in considering third party funding arrangement.
- Firstly, the funding arrangement should be necessary to provide access to justice;
- Secondly, they should be fair and reasonable in doing so (which includes protecting the interest of defendants);
- Thirdly, the access provided must be meaningful;
- Fourthly, the legal funding arrangement must not over-compensate the funder for assuming the risks of litigation;
- Fifthly, the funding arrangement must not interfere with the duty of the lawyers to act in the best interest of their clients;
- Sixthly, the litigant must be able to give the instruction and exercise control over the litigation.
Freedom of Contract
The law of contract in South Africa affords parties the freedom to choose to enter into contracts, on whichever legal terms they choose and with whomever they choose.
Third party funding arrangements have been upheld in jurisdictions around the world, with courts emphasising the importance of parties’ freedom to contract. In South Africa, the Supreme Court of Appeal (Price Waterhouse Coopers Inc. & Others v National Potato Co-operative Limited and Another [2015] 2 All SA 403 [SCA]) has noted that upholding, and not restricting, third party funding agreements is consistent with the constitutional values underpinning the freedom of contract.
Our courts have emphasised that contractual autonomy is part of freedom, and informs the constitutional value of dignity. They have also said that the constitutional values of dignity, equality and freedom require the courts to approach the task of declaring contracts to be void (or declining to enforce them) with much insight and restraint.
Third party funding agreements are legal and enforceable
The practice of third party funding is also not uncommon in South Africa and the Supreme Court of appeal has held that third party funding agreements are legal and enforceable. However, these agreements have mainly been seen in South Africa on a domestic scale. An increase in these agreements, on an international scale, is now to be expected, particularly since the introduction of the International Arbitration Act 15 of 2017 and the consequent efforts of interest groups to improve the image of South Africa as an attractive seat for international arbitrations.
In South Africa the cost of litigation is a major barrier to accessing justice. It is extremely common for litigants to abandon claims, which have good prospects of success, due to a simple inability to fund their litigation.
This issue is so pervasive in South Africa that the Department of Justice is taking large scale proactive measures in an attempt to remedy the problem. This is evidenced by the huge restructuring of the legal industry which has been brought about by the recent enactment of the Legal Practice Act 28 of 2014.
The facilitation of access to justice is the most important characteristic of third party funding, in fact, the mechanism was created in order to fill the gap referred to above. Third party funding, in essence, gives effect to the right of access to justice, which is enshrined in section 34 of our Constitution.
It has been recognised by the South African High Courts and the South African Supreme Court of Appeal that third party funding agreements are a valid and legitimate mechanism of funding litigation in the country:
- In the infamous Silicosis case (Gold Fields Limited and Others v Motley Rice LLC 2015 [4] SA 299 [GJ]), the various mineworkers who wished to bring damages claims against numerous mining companies were not able to afford the vast amounts required to finance the litigation. As such, they relied on third party funding. The court accepted that without the support of a large funder, the mineworkers’ claims would not get off the ground.
- The South African Supreme Court of Appeal (Price Waterhouse Coopers Inc. & Others v National Potato Co-operative Limited and Another [2015] 2 All SA 403 [SCA]) has also noted that it is preferable for claimants to be able to enter into third party funding agreements, rather than to be prevented from being able to take their disputes to court.
Third party litigation funding looks set to significantly alter how litigation is conducted in South Africa and to facilitate access to the courts, and also to arbitration proceedings, to those who would not be in a position to litigate due to a lack of economic resources.
If you want to stay up-to-date with what is going on with non-recourse litigation funding, Wild Dog serves as a trusted advisor to attorneys and their clients, who are exploring litigation financing. So follow our Linkedin Page for the latest updates on https://www.linkedin.com/company/wild-dog-mu or visit our website https://wilddog.mu for more.