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Litigation in Nigeria is very expensive, and a party with a substantial and valid claim may be discouraged from enforcing the claim due to the expensive nature of litigation and the time spent in court. It is for this reason that a party may consider Third Party Funding (TPF). TPF of litigation is a means for financially incapacitated parties to have the financial support of a third party to finance a court proceeding for enforcement of their rights or claims. Essentially, TPF is an arrangement between a funding entity (it could be a company or an individual) and the Claimant whereby the funder agrees to finance some or all of the Claimant’s legal fees in exchange for a share of the proceeds in the event of success in Court. Under this arrangement, an investor seeks out commercial litigants who have a substantial claim, but who may lack the financial capacity to make the financial commitment required to litigate those claims in Court.
The Commercial Value of Third-Party Funding of Litigation in Nigeria
The commercial value of TPF in Nigeria can be seen from several factors which combine to create a fertile ground for such an arrangement to flourish. The factors include:
a. Complexities in Commercial Disputes: Funders are encountering increasingly complex investment and commercial disputes. TPF assistance will also come with legal expertise and support that empower investors to pursue their claims more effectively. This expertise not only helps investors to seek redress in these disputes but also boosts their confidence in investing in Nigeria.
b. Costs of Litigation vis-à-vis Access to Justice: As earlier mentioned, litigation can be expensive. This financial burden can deter a person from pursuing or defending claims in court. TPF alleviates these costs by allowing disputing parties to secure funding from third-party funders, enabling them to pursue their claims without the pressure of upfront or ongoing personal expenses. Ultimately, TPF levels the playing field and encourages meritorious claims that might otherwise remain unaddressed, thus increasing the chances for a party to be able to enforce their right(s).
c. International Investment and technical support: A TPF market in Nigeria will attract international funders, bringing both capital and expertise that can significantly enhance the quality of litigation in the country. The funders often undertake extensive due diligence and detailed case analysis to establish or identify viable claims that are worthy of their investment. Such rigorous analysis or diligence can generally improve the quality of the strategy to be adopted in the case which the funders shortlist for financial backing.
LEGALITY AND ETHICAL ISSUES IN NIGERIA
TPF of litigation in Nigeria has its issues relating to legality and ethics. These issues shall be discussed in the following sub-headings:
a) Champerty and Maintenance
In Nigeria, TPF of litigation matters is not permitted by the courts based on the old common law principles of champerty and maintenance, which prohibit a third party from funding litigation between parties where the funder lacks locus standi; and as such renders an agreement to provide such funds illegal and void, on the ground of public policy1. It is said that allowing litigation funders could result in an increase in unnecessary cases in the Court, which further leads to our already overwhelmed Courts.
The principles of champerty and maintenance are still very much applicable in Nigeria pending any enactment erasing them from our legal system. In Oloko v. Ube2, Edozie JCA held thus:
“At common law, champerty is a form of maintenance that occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit or other contentious proceedings where property is in dispute. An agreement by a solicitor to provide funds for litigation in consideration of a share of the proceeds is champertous.”
b) Rules of Professional Conduct (RPC) 3
It is interesting to know that the RPC, which regulates the conduct of legal practitioners, only provides for contingency fees and not TPF. The term “contingency fee” is defined by the RPC as:
“the fee paid or agreed to be paid for the lawyer’s legal services under an arrangement whereby compensation, contingent in whole or in part upon the successful accomplishment or deposition of the subject matter of the agreement, is to be of an amount which is either fixed or is to be determined under a formula”
Rule 50(1) & (2) RPC, however, provides that a lawyer may enter into a contract with his client for a contingent fee in respect of a civil matter but shall not enter into an arrangement to charge or collect a contingent fee for representing a defendant in a criminal case.
Also, Rule 50(4) RPC provides that a lawyer shall not enter into a contingent fee arrangement without first informing the client of the potential effects. From the foregoing provisions, a contingency fee arrangement is only permissible where: (i) it is a civil matter, whether contentious or non-contentious; (ii) the contract is reasonable in the circumstances of the case including risk and uncertainty of compensation; (iii) the contract is not vitiated by either fraud, mistake, or undue influence; (iv) the contract is not contrary to public policy; and (v) the employment involves litigation, there is a reasonable and bona fide cause of action.
The provisions of the RPC are only applicable to legal practitioners and not to Funders or Investors.
c) Legal Aid Council4
The Legal Aid Council (LAC) was established by the Legal Aid Act (LAA) to ensure the grant of legal aid, advice and access to justice to otherwise disadvantaged citizenry. By Section 8 of the LAA, the foregoing shall be provided by the Council in three broad areas: (a) Criminal Defence Service, (b) Advice and Assistance in Civil Matters, including legal representation in court, and (c) Community Legal Services, subject to merits and indigence tests for the parties. The LAA seeks to make provision for the establishment and operation of a scheme for the granting, in proper cases, of legal aid and legal advice to people with low income, who could not otherwise afford to procure them for the enforcement or vindication of a legitimate right or for obtaining a just relief. As laudable as the actions of the LAC are, we must understand that not every category of litigant can be covered by the legal aid scheme (LAS). Section 10 LAA provides: “(1) Legal aid shall only be granted to a person whose income does not exceed the national minimum wage; (2) Notwithstanding the provision of subsection (1), the Board may, in exceptional circumstance, grant legal aid service to a person whose earning exceeds the national minimum wage; (3) Notwithstanding the provisions of subsection (1) of this section, the Governing Board may approve the giving of legal aid on a contributory basis to a person whose income exceeds ten times of the national minimum wage.”
It can be seen from the above that some prospective litigants with substantial commercial claims or disputes are still outside the coverage of the legal aid scheme. Section 8(3) LAA provides that “the Council shall establish and maintain a service to be known as the Civil Litigation Service for the purpose of assisting indigent persons to access such advice, assistance, and representation in court where the interest of justice demands, to secure, defend, enforce, protect or otherwise exercise any right, obligation, duty, privilege interest or service to which that person is ordinarily entitled under the Nigerian legal system.” The purpose of the LAS is to address fundamental rights cases for persons at the lower end of the economic scale in society whose fundamental human rights have been allegedly violated. Section 11(1) LAA provides that in ascertaining the means of any person for the purposes of LAA, that person’s income and his personal and real property shall be taken into account. This further confirms that LAA does not cover commercial claims or disputes and cannot be seen as an alternative to TPF.
CONCLUSION
TPF of litigation has its commercial and economic value in Nigeria’s legal system and should be welcomed into Nigeria. TPF can help to reshape the landscape of litigation in Nigeria, introducing new challenges, opportunities and expanding the scope of Nigeria’s legal jurisprudence. There should be legislation that would accommodate TPF of litigation just as seen in TPF of Arbitration as provided by the Arbitration and Mediation Act, 20235. However, the legislation should not fail to address issues relating to fairness, impartiality, procedural efficiency, and TPF modalities to allow for the effectiveness of the TPF of litigation matters.
Footnotes
1. See Mackson Ikeni v. Chief William Akuma Efamo & Ors [1997. 4 NWLR (Pt. 499), 318
2. 17 NWLR (Pt. 903) 647
3. Created by the General Council of the Bar pursuant to the Legal Practitioners Act (Cap. 20 LFN 1990 / Cap. L11 LFN 2004), the RPC 2007 came into effect on January 2, 2007.
4. See Legal Aid Act No. 17 of 2011 (LAA)
5. See (Act No. 18 of 2023)
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.
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