Andrew Hooker on why litigation funding is needed to level the playing field between the haves and the have nots

By Andrew Hooker*

In many overseas countries the availability of funding for big court cases has become mainstream. Basically, a funding company agrees to meet all expenses such as lawyers’ and experts’ costs in return for a percentage of the “winnings”. This allows people who otherwise could not afford to take on a large corporate to bring the proceedings. While it is mainstream in other countries, it is a service that is in its infancy in New Zealand, and the Courts are still developing the rules around what is and what is not permissible.

Without a doubt, the biggest challenge faced by private individuals when enforcing their rights against powerful defendants such as insurance companies is the imbalance of power. By power, I mean financial resources. As director in a firm of solicitors that specialises in representing small plaintiffs against often large corporates, I can say that this is undoubtedly the biggest barrier to these people holding the insurance companies to account. 

In one case we were involved in, a small company was suing a major insurance company for a declining a major claim in the vicinity of a million dollars. The case was set down for a four week High Court trial. The entire budget of that company to run the case from beginning to end was about $200,000. Before a single lawyer had got to his or her feet at the commencement of the four week high court trial, the insurance company had already spent over $800,000 on lawyers and other experts. 

So I can totally understand why the insurance industry would be opposed to litigation funding. It has a substantial financial interest in ensuring that plaintiffs in Court proceedings are starved of the necessary funds to bring proceedings. What I don’t understand is why anyone else would oppose litigation funding. It is kind of like privatised legal aid. We all know that the availability of civil legal aid is grossly insufficient to properly fund a major civil case, and judges have recently expressed concerns about the lack of access to justice. In fact, Court of Appeal President, The Honourable Justice Kós identified in a recent paper that litigation funding might be an “effective solution” to this social dilemma that we face.

So, it is hardly surprising to see that a major law firm that represents insurance companies would recently write an article suggesting that a recent judgment introduces uncertainty into the area of litigation funding. In fact, as acknowledged by the Chief Justice, the case was so fact specific that issuing a judgment would not be of public interest anyway. Hardly evidence of uncertainty about litigation funding. Rather a case that considered a very specific issue in a specific funding arrangement.

As a firm of solicitors that acts almost exclusively for the little person against primarily large insurance companies and other major corporates, the financial constraint that our clients face is by a country mile the biggest barrier our clients face. 

It does not matter how good your case is. Under our Court system, you need the money to be able to fund litigation against these major corporates, and they will often spend hundreds of thousands, if not millions of dollars defending cases. 

As a civilised and advanced democracy, New Zealand has a justice system that allows its citizens to use the Court process to obtain justice. That end is not served if the majority of people simply cannot afford to utilise that system. The situation is not helped when the actual Courts themselves charge enormous amounts of money for the use of the system so that before they even start to pay their lawyers, they have to pay the Courts tens of thousands of dollars. Unless the Government is planning sometime soon to properly fund our Court system then the only way for individuals to afford these cases is litigation funding. 

In another case, the Court of Appeal was considering a funded representative action against the government run successor of the failed AMI insurance in Christchurch. The case related to the availability of the representative action procedures in the High Court rules. But in the course of opposing the application by the plaintiffs against Southern Response, Southern Response alleged that the funder had misled people into signing up.

This was completly rejected by the Court of Appeal. Moreover, to support its opposition to the case, Southern Response had produced affidavit evidence from a handful of people who had “jumped ship” from the representative action, and either had or were in the process of settling direct with Southern Response. With the intention of financially gaining from the litigation funder putting up the money and taking the risk of the litigation, these people had signed up to the group of people taking the representative action against Southern Response. Then, after the case was underway, they jumped ship and refused to pay their share to the litigation funder. They claimed that they had not got any benefit from the funding. The Court utterly rejected this, confirming that “the settlement … ultimately reached was several hundred thousand more than Southern Response had offered as at the date the person signed up to the funding agreement.”

These people had got the benefit of the litigation funding, and did not want to pay their share. It is kind of like going out to dinner with your friends, enjoying the meal, and then gapping it before the bill comes, so you get the meal for free, and all your friends have to subsidise your dinner. 

Litigation funding is mainstream in many common-law countries, such as Australia, the United Kingdom and the United States of America. It serves a useful purpose and is closely governed by the Courts. Unfair or unreasonable litigation funding agreements, or those that take away too much control from the real plaintiffs will not be allowed by the Courts. 

There is no reason why we cannot have litigation funding in New Zealand, and it is the only way of levelling the playing field. But it appears that the New Zealand attitude is somewhat immature, and there is some antipathy to companies that are prepared to put up all the money and take all the risk in return for a share of the result. If this leads to the litigation funders packing up and going away, the only people that will gain will be the big corporates and insurance companies. With our unaffordable Court system, litigation funders are actually doing a public service and providing what the government has failed to do – a means of access to the courts for individuals.

Like many things, all that is needed is some good regulation, and supervision by the Courts. The Courts are quite capable of supervising the process, and the government is quite capable of regulating the litigation funding process. It is in the interest of the government and of the tax payers that litigation funders are given the opportunity to operate in New Zealand and the currently extremely unlevel playing field can at least be returned to something resembling a level playing field.  

*Andrew Hooker is the Managing Director of Shine Lawyers NZ Limited practices as a specialist insurance lawyer in Albany on Auckland's North Shore. He also runs an insurance information website - www.claimshelp.co.nz