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.
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