Anyone who funds litigation for gain may have to pay the costs if they lose. A judgment which has important ramifications for those who fund litigation, for a share of the spoils, has been handed down in the Pretoria High Court.

An Australian professional litigation funder, IMF Australia, is funding a long-running trial in the High Court in Pretoria, in which a farming co-operative seeks damages from its auditors. The case has been on trial for more than two years in the decade since summons was served. IMF, which first became involved in funding the case at the beginning of 2009, stands to collect at least half of any award made against the auditors.

The auditors complained, early in the case, that our law does not allow third parties to fund litigation for a share in the proceeds. The Supreme Court of Appeal ruled, in June 2004, that so-called champertous (litigation-funding-for-gain) agreements ought no longer to be outlawed. The court said that it must be recognised that our civil justice system is now strong enough to withstand the perceived abuses which could arise if civil litigation is made possible by persons who provide such support in return for a share of the proceeds. Some commentators questioned whether, in practice, abuses would be checked.

The auditors asked the High Court to make IMF a party to the case so that if the security for costs which they presently hold in the form of guarantees proves to be insufficient, they will seek an order against IMF to pay the shortfall.

IMF resisted this attempt to make it a party to the case potentially liable for costs. It conceded that in Australia it may be made such a party, in similar circumstances, because Australian court procedure allows it. The basis of its resistance was largely that South African legal procedure does not entitle the opposite party to make litigation funders a party to the case.

The auditors conceded that South African legislation and rules of court do not contain any machinery to join a litigation-funder as a party in a case. They asked the court to find that the High Court does indeed have the power to regulate its own process, a power which is enshrined in our Constitution.

Judge Botha presiding in the case obliged. He said that enabling the auditors to join the funder as a party in the action would be a logical progression from the situation that was created when it was held that champertous agreements are not unlawful. Holding funders directly liable for costs is a measure that our courts may adopt to counter possible abuses arising from the recognition of the validity of litigation-funding contracts.

The court ordered that IMF will be joined in this long-running case as a party. In doing so, it acknowledged that it was developing the common law. At the end of the case, a cost order may be made against IMF if their client is unsuccessful on any aspect. It is implicit in the judgment that it is in the interest of justice and equitable that IMF, which stands to gain the most from the litigation, may have to pay the costs to the extent that the co-operative is unable to do so.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.