Most Read Contributor in New Zealand, September 2016
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 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 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
security for costs against the plaintiff
a third party costs order against the funder, or
a stay on the grounds that the funding amounts to an abuse of
An abuse of process will arise where the Court's process is
being used improperly, deceptively or vexatiously and where the
nature of the litigation funding agreement amounts to a bare
assignment of a legal claim. The Court did not detail when a bare
assignment will occur, making only general references to the
"level of control able to be exercised by the funder and
the profit share of the funder".
Despite not requiring disclosure as a general rule, the Court
held that (unless the stay application was withdrawn) a redacted
version of the litigation funding agreement must be disclosed by
Although the Court will not regulate or assess the fairness of
any bargain between the funder and a plaintiff, such agreements do
not fly completely under the radar.
There are four key points to take away.
The Court now requires disclosure, as soon as proceedings are
issued, of the identity and location of any litigation funder.
Funding agreements themselves may also be required to be
disclosed where this is relevant to an application for security for
costs or third-party costs, or where a stay is sought on the
grounds of abuse of process.
Provided a defendant is prepared to risk paying costs on an
unsuccessful but credible stay application, they will still in many
cases be able to compel disclosure of a funding agreement.
In order to defeat an abuse of process argument, it will remain
important to draft litigation funding agreements carefully to avoid
effecting a bare assignment. The distinction, not always easy to
draw, is between a true funding agreement for an engaged plaintiff,
and a wholesale transfer of rights with the plaintiff remaining
only a figurehead.
1Waterhouse v Contractors Bonding Ltd
 NZSC 89.
2The case against the continued relevance of
the torts is articulately expressed in Lord Neuberger's speech
"From Barratry, Maintenance and Champerty to Litigation
Funding", Grey's Inn, 8 May 2013 available here.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Parties have agreed on the resolution themselves, so it is often more practical for their own particular circumstances.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).