While different countries across the continent have different legal takes on litigation financing, the scenario in South Africa is that although litigation financing is entirely unregulated at the moment, it enables one of the most important rights that our Constitution embodies: the right for anyone to access our court system, irrespective of their financial ability – or rather lack of it – to do so.
Globally, in the countries where it is allowed, litigation financing enables a third party to provide capital to a plaintiff in return for a share of the financial recovery from a successful outcome.
A recent report produced by Pan-African research, analytics and insights company, GRM Intelligence, outlines the landscape for litigation funding (or financing) across the African continent, and highlights where the opportunities lie in terms of this as an investment vehicle.
The important role that it plays will no doubt eventually lead to its regulation. However, it is the way that it is used leading up to that point that will determine how it is ultimately regulated. Therefore, to ensure that it continues to be provided as a viable financial alternative to those who most require it, it is incumbent on legal firms that currently facilitate litigation financing for their clients to ensure that it is used in the most ethical and open manner possible. Otherwise, we could see it ruled against in the same way that numerous other English common law countries in Africa have approached their own regulation – by categorically prohibiting litigation funding.
Perhaps litigation financing's most important consideration is about the attorney, and the ethical obligations that fall on that legal practitioner when they act in a matter. Attorneys are first and foremost expected to exercise independent professional judgment, and to act in the best interests of their clients. The relationship between the funder and an attorney's client will be determined by the sort of funding agreement the parties enter into – whether it's a pure funding agreement (without any controlling mechanisms, in terms of the process and what happens in the matter), or a controlling funding agreement (in which the funder has a vested interest in the matter, and also plays a controlling interest in terms of the process and the strategy of the matter).
The role of the attorney in both scenarios remains the same. However, there are four key factors concerning ethics which must be taken into account to avoid conflict, and about which a client should also be fully aware before entering into any litigation financing agreement.
Is there a conflict of interest?
The first arises at a very early stage, when an attorney initially considers whether or not to advise a client about a funding agreement. The minute a funder enters the picture, the attorney may be conflicted because that attorney is guaranteed not only that they will receive payment of their invoices, but that they will be paid on time. So, in advising the client to accept the funding agreement and its terms, is the attorney is acting in the best interests of the client or themselves?
What are the merits of the case?
The second has to do with transparency: an attorney must be completely open with both client and funder about the merits and prospect of success in the matter. There is a risk that certain attorneys may be tempted not to disclose everything to the funder, because of concern that the funder might lose appetite to finance the matter. The biggest risk here is that funders may still walk away from cases that are already in progress, when matters are not disclosed upfront.
Who makes the strategic decisions?
The third issue involves the control that a funder may demand and that may impact the overall running of the matter, especially if the power balance between funder and client is not equal. A client's case may end up in a situation where, when it comes to strategy, process and how the matter is run, that funder could play an overly dominant role, in terms of advising and instructing the attorney on record.
Who owns the work product?
Leading on from this, and lastly, is to ensure that there is a clear understanding as to who owns the work product under litigation: the funder is paying, but the client is the participant in the litigation process, so who exactly owns the work product that comes about as a matter of working on that case?
All of these concerns can, of course, be regulated by the agreement that the parties enter into. The risks are real, and involve both ethics and outcomes that may arise when entering into litigation financing agreements. The legal fraternity must ensure that these conflicts of interest and ethical risks are not used against either the legal profession or clients when the time for regulation comes.