NZSC Provides Guidance on Litigation Funding Agreements
The New Zealand Supreme Court rendered an interesting decision on litigation funding agreements, more specifically on the extent to which they may be invalid based on abuse of process. Litigation funding agreements are a big issue in Canada right now, particularly in the context of class actions.
In Waterhouse v. Contractors Bonding Limited ( NZSC 89) the Supreme Court of New Zealand considered whether the plaintiffs should be ordered to disclose a litigation funding agreement under the abuse of process principles.
The New Zeland Supreme Court stated that it is not the role of the courts to act as general regulators of litigation funding arrangements. It refused to abolish the torts of champerty and maintenance. The Court concentrated instead on abuse of process and disclosure of funding agreements.
The Supreme Court held that the fact that there is a litigation funder and the funder’s identity should be disclosed to the parties when the litigation is commenced. In those circumstances, no litigation-sensitive material need to be disclosed.
In addition, the Court considers that litigation funding agreements should be disclosed where an application is made to which the terms of the agreement could be relevant, especially (a) applications for abuse of process, either through the tort of abuse of process or rules prohibiting assignments of bare causes of action, and (b) applications for costs, which can be awarded against third parties if the litigation would not have occurred without their involvement and where they substantially control or benefit from the proceedings. The Court noted that applications for security for costs may also necessitate disclosure.
The Court seems to be skeptical of the benefits of funding agreements on access to justice as funding is only available to plaintiffs whose claims promise favorable rates of return.
The New Zealand Supreme Court has taken a permissive view of funding agreements in ordering mandatory disclosure of some information, and by suggesting disclosure of the terms of the agreement in some circumstances. It will be interesting to see if other common law jurisdictions follow, especially Canada.
Waterhouse v. Contractors Bonding,  NZSC 89
Court File No. SC 66/2012
Date of Decision: September 20, 2013
champerty class actions litigation funding agreements mandatory disclosure New Zealand Supreme Court