Litigation Funding and the Law

Prior to the series of reported judgements in PriceWaterhouseCoopers Inc and Others v National Potato Co-operative Ltd and Another (collectively referred to as the Potato Board cases), the funding of claims by a third party, unrelated to the disputants so as to share in a final award, or champerty as it is known in law, was unlawful.

The Potato Board cases changed this legal principal. A listed Australian litigation funder, IMF Bentham provided significant resources to the plaintiff, the National Potato Board, in exchange for a share of the final award.

There are three relevant Potato Board cases:

• the issue of litigation funding (2004);
• additional comments regarding claim funding in a costs / appeal judgement (2013); and
• the final judgement on the merits of the case itself (2015).

The 2004 judgement is devoted solely to the issue of champerty / litigation funding. In a remarkably thorough judgement, the court reviewed the basis of the ban on litigation funding. In doing so it examined the prohibition in Roman, Roman Dutch and English law. Recent changes to the law in foreign jurisdictions were also noted. In a five bench SCA judgement, claim funding was deemed lawful, in line with the provisions of the Constitution, and in short, endorsed.

It is commonly known that the plaintiff in Makate v Vodacom (Pty) Ltd (CCT52/15), better known as the claimant in the ‘Please Call Me’ case, was assisted by a litigation funder. Case law has developed to such an extent that the Constitutional Court made no comment on this arrangement in its judgement.

Between the “Please Call Me” case and the Potato Board cases, the SCA issued judgement in Naidoo and Another v EP Property Projects (Pty) Ltd and Others.

The court awarded costs against the funder (Naidoo) but in doing so made a critical distinction between those whose business is claim funding, and those who simply ‘take a punt’ on funding a case. The costs were awarded against the funder as she was determined to be dominus litis, who not only funded the case, but had taken cession of the claim,. Finally, she was found to have colluded in an attempted fraud on the counter-party. The judgement appears to have gone to great lengths to endorse the business of claim funding, while penalizing the fraudulent party.