Litigation funding agreements – in from the cold?

Third-party funding agreements, an established part of civil litigation overseas, have so far been little used in New Zealand but are becoming more common.

Last week the Supreme Court issued a definitive ruling on such agreements, holding that the courts have no general role of regulating third-party funding. Accordingly, in the ordinary course, only the existence of such an agreement and location of the funder, but not the agreement itself, must be disclosed when proceedings are issued.

The case

The issue arose in a dispute between New Zealand parties (the Waterhouses) suing a United States company (Contractors Bonding Ltd) in relation to a failed insurance business. When Contractors Bonding was informed by the Waterhouses of the existence of litigation funding, it applied for a stay of the proceeding on the grounds of abuse of process.1

Contractors Bonding based its application on the rules against maintenance and champerty, which have for centuries prohibited third-party intermeddling in litigation. The influence of these rules has been on the decline in Commonwealth countries for several decades and their modern effect is often unclear. For instance, when third-party funding is used:

should the trial court be required to pre-approve litigation funding (as held in the High Court), or should principal terms of any funding agreement be required to be provided to the defendant, with the court determining any objection (as held in the Court of Appeal). The decision

The Supreme Court decided differently to both lower courts.

The Court was invited to abolish the torts of maintenance and champerty but declined to do so. This reluctance to administer a death blow to these doctrines, despite acknowledging their declining relevance,2 can be seen in other Commonwealth jurisdictions. In July, for instance, the Singapore High Court confirmed that, until abolished by the legislature, the torts continue to exist in Singapore.

Instead, the Supreme Court found that New Zealand courts have no general role in regulating litigation funding agreements and there is no automatic requirement on a plaintiff receiving third party funding to provide a costs indemnity or security.

Rather, the nature and effect of the funding agreement falls to be assessed only where it is relevant to an ordinary application made by a party. This may be the case where the defendant applies for:

security for costs against the plaintiff a third party costs order against the funder, or...

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