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Litigation, or going to court, can be an extremely expensive way to resolve an issue or seek compensation for the harm you have suffered. However, sometimes it is the only way to seek relief. Litigation funding allows individuals to access justice where they would otherwise be unable to afford making a claim in court. However, it will not available in all circumstances. This article will outline:

  • what litigation funding is;
  • how it works in New Zealand; and
  • when it is not available.

What is Litigation Funding?

Litigation funding refers to an arrangement in which an individual, who is not involved in and has no interest in the court proceedings, agrees to fund some or all of a person’s court costs. 

They will generally make this payment in exchange for a sum of the damages or costs recovered, should the case be successful. This sum is called the funder’s commission. The funder will receive this commission to reimburse the costs of the litigation and compensate them for taking on the financial risk of the case.

Litigation funding used to be illegal in New Zealand, as many thought it interfered with the fairness and justice of the court system. However, due to the increasingly high costs of settling disputes in court, litigation funding actually enables individuals who otherwise could not afford to go to court to get access to justice. 

Litigation funding is now becoming more popular in New Zealand. It is most commonly seen in class actions, also known as representative actions, although it is not limited to those types of cases. In such circumstances, the funder will support the case of all of the class members. This sort of arrangement has financed a vast array of representative actions in New Zealand, including proceedings relating to:

  • building products;
  • a disease affecting kiwifruits;
  • share investments; 
  • bank fees;
  • insurance claims that have arisen from the Christchurch earthquake; and
  • breaches of company directors’ duties.

How Does Litigation Funding Work in New Zealand?

If you are considering getting your case funded by a third party, you should enter in a litigation funding agreement. This agreement would be a binding contract between you and the funder of your case. The contract should set out all the obligations and entitlements that both you and your funder agree to take on. It should also clearly outline the terms of reimbursement, should your case be successful. 

Once the funded proceedings have begun, you are under an obligation to disclose to the other party:

  • the fact that there is a litigation funder;
  • the identity and location of your litigation funder;
  • an affirmation that the funder is subject to the New Zealand court’s jurisdiction; and
  • the terms set out to withdraw from funding, where necessary.

It is also best practice to disclose the key terms of your funding agreement to the other party.

There are certain responsibilities that your lawyer should fulfil when advising you as a funded client. Although these are not legal obligations, your lawyer should:

  • not allow the litigation funder to provide expert evidence during the court proceedings;
  • have a direct client-solicitor relationship with you, not your litigation funder; and
  • provide you with advice and information on the case, which should be provided without interference from your litigation funder.

Court proceedings with a funded party will closely resemble normal court proceedings. The key difference is in the delegation of damages or court costs. If you are successful in your case, your funder will take a portion of these costs. Your litigation funding agreement will detail the amount that the funder will take.

When is Litigation Funding Illegal?

Litigation funding is mostly legal in New Zealand. However, there is one instance in which a party will not be allowed to have their court proceedings funded externally.

A court will not allow a funder to finance your case if the agreement effectively constitutes an assignment of a bare cause of action. 

A bare cause action is the right to sue someone. 

This limitation prevents your litigation funder from financing a case for the purpose of:

  • suing; and
  • causing damage to the other party.

It is a restriction that ensures individuals are not able to use the court system to get back at people that they otherwise could not sue themselves.

Key Takeaways

Litigation funding is when a third party who has no interest in a court case agrees to fund some other party’s action, in exchange for a share of any costs recovered. It is legal in New Zealand, except where it seems as if the arrangement effectively assigns the funder your right to sue. If you are going to have a case funded by a third party, you should ensure that you have a well-drafted funding agreement. You should also disclose all of the relevant information to the other party involved. If you need assistance in drafting a litigation funding agreement, contact LegalVision’s New Zealand disputes lawyers on 0800 005 570 or complete the form on this page.

FAQs

What is litigation funding?

Litigation funding is an arrangement in which an individual, who is not involved in and has no interest in the court proceedings, agrees to fund some or all of a person’s court costs in exchange for a portion of the compensation awarded if the case is successful. 

How does litigation funding work?

Litigation funding requires you to enter into an agreement with your funder, to set out the obligations and entitlements of both parties. This will usually involve the funder paying for your court costs in return for a right to some of the money awarded by the court if you win.

Is litigation funding illegal?

Litigation funding is mostly legal in New Zealand. However, litigation funding is illegal where the funder agrees to the arrangement only for the purpose of obtaining your right to sue.

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