LETTER | Third party litigation funding explained

LETTER | Ever heard of “Champerty” (cham-per-tee)?

The word is from Anglo-Norman French Champerty, from Old French “Champart” (feudal lord’s share of produce), which in turn is from Latin “Campus Pars” (field part).

According to the Oxford English Dictionary (OED), it is an agreement in which a person with no previous interest in a lawsuit finances it with a view to sharing the disputed property if the suit succeeds.

“Black’s Law Dictionary” defines it as an agreement between an officious intermeddler in a lawsuit and a litigant by which the intermeddler helps pursue the litigant’s claim as consideration for receiving part of any judgment proceeds.

It is an agreement to divide litigation proceeds between the owner of the litigated claim and a party unrelated to the lawsuit who supports or helps enforce the claim.

Black’s adds as follows:

“In England and many other countries, the contingent fee is prohibited as a form of champerty because it permits a client to carry on litigation in exchange for a promise to the lawyer of a share in the recovery.”

It is a common misdemeanour abolished by the English Criminal Law Act 1967 (Section 13).

The great English judge Lord Denning explained why the common law misdemeanour in the following words:

“The reason why the common law condemns champerty is because of the abuses to which it may give rise.

“The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses.

“These fears may be exaggerated, but, be that so or not, the law for centuries has declared champerty to be unlawful, and we cannot do otherwise than enforce the law.”

Champerty offends public policy. It is a subspecies of maintenance defined in OED as “the action of wrongfully aiding and abetting litigation; sustentation of a suit or suitor at law by a party who has no interest in the proceeding.”

The difference is simply this: maintenance is helping another prosecute a suit; champerty maintains a claim in return for a financial interest in the outcome. (See the United States case of In re Primus [1978])

However, as the authoritative “Black’s Law Dictionary” duly notes, as far back as more than half a century ago, the rule as to champerty has been generally relaxed under modern decisions.

Most courts now recognise that an agreement by which the attorney is to receive a contingent fee, i.e., a specific part of the avails of a suit or an amount fixed with reference to the amount recovered, is valid.

This is as long as the attorney does not agree to pay the expenses and costs of the action.” (See Walter Wheeler Cook, “Quasi-Contracts” 1952 1 Am. Law and Proc. 129)

The more modern term for champerty now used is third-party litigation funding (TPLF) or simply third-party funding (TPF), highlighted in the Sulu heirs’ claim against Malaysia.

According to “notes” received by the government and views on the official Malaysia-Sulu Case website, the funder of the purported eight heirs is believed to be from the United States.

Minister in the Prime Minister's Department (Legal and Institutional Reforms) Azalina Othman Said said the government has evidence of who is behind the British global litigation fund, called Therium Capital Management Ltd, which is backing the purported heirs.

The TPLF “is very much a mainstay across the legal landscape in the UK, Australia and a number of other jurisdictions, especially in the context of arbitration, class actions and litigation arising from breaches of competition law.” (Simon Latham (ed), The Third Party Litigation Funding Law Review, 6th ed, The Law Reviews 2017)

Spain, France, Luxembourg and the Netherlands – jurisdictions where the Sulu heirs have foraged into – are not common law jurisdictions.

The concepts of maintenance and champerty are not part of their legal cultures; thus, there is no prohibition on litigation funding.

Even so, the common law public policy rationale regarding champerty has been said to have turned full circle.

While the prohibition was initially justifiable to help secure the rule of law, the exact reverse of the prohibition is now justified for the same reason. (See Lord Neuberger, “From Barretry, Maintenance and Champerty to Litigation Funding”, Harbour Litigation Funding First Annual Lecture, May 2013)

Two decades ago, Prof. Michael Zander observed litigation funding as being “in the throes of a revolution”. (See M. Zander, “Will the Revolution in the Funding of Civil Litigation in England eventually lead to Contingency Fees?” (2002) 52 DePaul Law Review 259)

Five years ago, TPLF might still be little-known. It is not now, particularly in Europe and the US. That the Sulu heirs have a funder is of little surprise.

Be that as it may, given that purported heirs have a funder, Malaysia should hit back at them to enforce the order to pay the cost of the proceedings made by the Dutch and French courts.

Details are unavailable of the order to pay, if any, by the Dutch court.

However, the Paris Court of Appeal has ordered the Sulu heirs to pay the costs of the proceedings. It has also ordered the Sulu heirs to pay Malaysia the sum of €100,000 (RM509,419.38) under Article 700 of the French Code of Civil Procedure.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.