Third-party litigation funding is permitted. Although the common law torts of maintenance (assisting a party in litigation without justification) and champerty (assisting in consideration of a share of proceeds of the litigation) have not been abolished in New Zealand, the recent attitude of the New Zealand courts to third party-funding can be described as ‘cautiously permissive’. To describe this approach, a distinction needs to be drawn between representative proceedings under Rule 4.24 of the High Court Rules (which allows one or more persons to sue on behalf of or for the benefit of all persons with the same interest in the subject matter), and ordinary non-representative proceedings.
A representative proceeding requires that either the representatives sue with the consent of the other persons who have the same interest, or the court directs this on an application. The Court of Appeal has confirmed that the existing procedure does not require the Court to give prior approval for a funding arrangement (Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group  NZCA 489 at ). Instead, the Court will ensure that in granting leave it is not facilitating an abuse of process. If a representative proceeding is based on clearly misleading funding arrangements or amounts to a bare assignment of claims, then the Court will not grant leave knowing that its processes are being used to facilitate unlawful conduct. In this regard, the courts will exercise a greater supervisory role over the setting up of representative proceedings (ie, the funding arrangements and communications with prospective class members) than where a party bring an ordinary proceeding that is funded.
The Supreme Court of New Zealand has made it clear that it is not the role of the courts to act as general regulators of litigation funding arrangements or to give prior approval to such arrangements, outside its supervisory role in ‘representative’ proceedings (see above). Instead, the role of the courts is to adjudicate on any applications brought before them to which the existence and terms of a litigation funding arrangement may be relevant (Waterhouse v Contractors Bonding Ltd  NZSC 89,  1 NZLR 91 at paragraphs 28 to 29). The Supreme Court has accepted that some measure of control by a third-party funder is ‘inevitable’ to enable a litigation funder to protect its investment (Waterhouse v Contractors Bonding Ltd  NZSC 89,  1 NZLR 91 at paragraph 46).
Scope for intervention
Under the High Court Rules or its inherent powers, the High Court may intervene in both representative or non-representative funded proceedings where:
- there is a manifestation of an abuse of process on traditional grounds, such as where proceedings deceive the court, are fictitious, or a mere sham, use the process of the court in an unfair or dishonest way or for some ulterior or improper purpose or in an improper way, those that are manifestly groundless, without foundation or serve no useful purpose, and those that are vexatious or oppressive (PricewaterhouseCoopers v Walker  NZCA 338 at paragraph 14(e)); or
- where a funding arrangement (including an assignment of a security agreement) amounts to an assignment of a bare cause of action to a third-party funder in circumstances where this is not permissible (ie, the exceptions to maintenance and champerty do not apply). In assessing whether litigation funding arrangements amount to an assignment that is not permitted, the court will have regard to the level of legal (rather than de facto) control able to be exercised by the funder, the profit share of the funder and the role of the lawyers acting (Waterhouse and PricewaterhouseCoopers). Even where such concerns arise, the provision of appropriate undertakings by a funder may be effective to allay them. In PricewaterhouseCoopers, a funding agreement was in place between the plaintiff company (in liquidation) and the litigation funder (SPF No. 10 Ltd), in conjunction with an assignment under a security agreement to the funder of the plaintiff’s right of action against the defendant (being its only valuable asset). The defendant argued that this arrangement was an impermissible assignment of a bare cause of action to the funder, which amounted to an abuse of process. The majority of the Supreme Court held (paragraphs 77 to 91) that the belated provision of undertakings given by the funder to the Court:
- not to rely on clauses in the security agreement giving it greater control than it had under the funding agreement; and
- to pay a proportion of proceeds of a successful claim for the benefit of unsecured creditors (where the funder was otherwise entitled to all of these under the security agreement) satisfied concerns as to the permissibility of the assignment.
Given the private nature of arbitration, the treatment of third-party litigation funding in domestic arbitration in New Zealand is largely unknown. The relevant legislation (the Arbitration Act 1996) does not contain any provisions relating either directly or indirectly to litigation funding (or even class arbitrations). Instead, an arbitrator has the power to conduct the arbitration, or to control the conduct of the arbitration, subject to the agreement between the parties and the rules of natural justice (article 19, Schedule 1). An arbitrator may also order ‘any party to do all such other things during the arbitral proceedings as may reasonably be needed to enable an award to be made properly and efficiently’ (Clause 3(1)(j) of Schedule 2). These broad powers would encompass the ability to regulate funded domestic arbitrations with respect to those referred to in the following questions.
In addition, the arbitral tribunal, or a party with the approval of the arbitral tribunal, may request from the High Court or district court assistance in the exercise of the powers conferred on the arbitral tribunal relating to the conduct of arbitral proceedings (Clause 3(2) of Schedule 2). This ability would allow either the arbitral tribunal of its own motion, or one of the parties with its approval, to request assistance from the High Court or district court in the event of an issue arising in the context of a funded domestic arbitration.
Litigation funding is becoming more commonly used in New Zealand, although is not as commonly used as in other common law jurisdictions (such as the United Kingdom and Australia). In recent years, a variety of proceedings funded by third parties have been brought, with allegations in relation to:
- losses on share investments resulting from misleading statements in a share prospectus (Saunders v Houghton  NZHC 2229);
- building products (White v James Hardie New Zealand  NZHC 2112]);
- losses resulting from kiwi fruit being affected by the entry of disease into the country (Strathboss Kiwifruit Ltd v Attorney-General  NZHC 1559);
- illegitimate fees charged to consumers by banks (Cooper v ANZ  NZHC 2827);
- insurance claims arising out of earthquakes (Southern Response Unresolved Claims Group v Southern Response Earthquake Services Ltd  NZCA 489,  2 NZLR 312); and
- breaches of directors’ duties owed to companies (Walker v Forbes  NZHC 1212).
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