Litigation funding is an arrangement in terms of which an individual (with no previous interest in the litigation) pays the costs of litigation in return for a share of the proceeds of the award (in addition to recovery of the costs paid).

Although not all arrangements in terms of which a party assisted another in litigation were necessarily objectionable in our law, it is fair to say that until 2004 our courts took a hard line against such arrangements. However, when the matter came before the Supreme Court of Appeal in 2004 in the case of National Potato Co-operative Limited v Pricewaterhouse Coopers and Others, the slope of the playing fields was reversed.

The court found that an agreement in terms of which a person provides a litigant with funds to prosecute an action in return for a share of the proceeds of the action is not contrary to public policy or void. It also found that such an agreement may constitute an abuse of the process, which in appropriate circumstances a court may prevent, notwithstanding a litigant's right of access to the courts enshrined in Section 34 of the Constitution.

This judgment is in line with developments in other Commonwealth jurisdictions, which previously also recognised the common law prohibitions against maintenance and champerty. Jurists in those jurisdictions have, in recent years, also grappled with the problem of allowing access to justice, whilst preventing the abuse of court process in which courts become the venue for speculative business ventures.

In general terms, it seems that in Australia and England, at least, the imperative to allow access to justice holds sway, so that litigation funding arrangements are generally upheld. In my view it can be accepted that litigation funding arrangements will be upheld by our courts. The battleground has now moved to the issue of costs. Defendants are obviously anxious to ensure that if they succeed, they will, at least, be able to recover their costs.

My somewhat limited research reveals that there have been few, if any, amendments to court rules or legislation in Australia and England, to ensure that defendants are protected in these situations. As in South Africa, successful defendants in funded cases do not recover all of their actual costs, because of the conservative ways in which costs are calculated. However, this unfairness to defendants is at least ameliorated to some extent in Australia and England. Judges there have a greater discretion (and are prepared to exercise their discretion) in regard to costs than is the case in South Africa. In addition, it also seems that procedures for calculation of costs owing to successful litigants are more liberal. Anecdotal evidence suggests that in England and Australia litigants expect to recover about two thirds of their costs, whilst in South Africa 30% to 40% is the norm.

Litigation funding is now part of everyday life in legal practice in England and Australia. It seems to me that Australia takes the lead. Their litigation funders are in fact doing a great deal of business in the United Kingdom and, latterly, in South Africa. The largest of the Australian litigation funders, a listed company, has had a good run of late - it made AUS$30m profit in its last financial year. This funder is presently funding the National Potato Co-operative case, the trial of which continues, as a result of the SCA judgment referred to, which paved the way for litigation funders to do business in South Africa.

Written by: Tony Chappel, Director, Deneys Reitz