Justice Corporation, Champerty and Maintenance

The most important feature of the Magic Menu decision is in a passage where it questions the public policy prohibition against champerty.

concerns expressed earlier this century, as to the potential for the maintenance of actions to give rise to an increase in litigation, might now be considered of lesser importance than the problems that face an ordinary litigant in funding litigation and gaining access to the courts…. [S]upport of legal proceedings based upon a bona fide common interest, financial or philosophical, must be permitted if the law itself is not to operate as oppressive. The courts today, in our view, are likely to take an even wider view of what is acceptable, particularly if procedural safeguards are present or able to be applied.

Common practices today lend weight to this point of view. A liquidator or trustee in bankruptcy has the power to assign proceeds from a cause of action vested in the external controller as a result of the insolvency, while more recently liquidators have acquired the power to assign the fruits of a cause of action to non-creditors.

Companies can raise capital for the purpose of fighting legal proceedings and that is not likely to be considered champertous. Moreover, it is possible for a company to only obtain enough funding to fight the claim leaving it unable to pay costs if these are awarded against it.

The Privy Council has, on one occasion, expressed a clear view that champerty under certain circumstances is to be tolerated saying "[C]ases may easily be supposed in which it would be in furtherance of right and justice, and necessary to resist oppression, that a suitor who had just title to a property, and no means except the property itself, should be assisted in this manner." Ram Coomar Coondoo & Anor. v. Chuder Canto Mookerjee (1876) 2 AC 186 at 210

In the United States the courts have recognised that access to justice issues are more important than concerns relating to champerty. In the U.S. the attorneys often have an interest in a percentage of their clients’ verdicts. This seems less desirable, from a public policy perspective, than having a financier take such an interest without any control over the litigation (or access to witnesses or discovered or subpoenaed documents).

Finally, recent developments in the common law make it possible for courts to make costs orders against those who stand to gain by proceedings, not being parties to the litigation. This greatly reduces the power of a corporation to fund only to the extent required to bring an action and file for administration in respect of the balance.

In Re Daniel Efrat Consulting Services Pty Ltd [1999] FCA 412, Branson J said, in allowing receivers to assign proceeds of their causes of action to non-creditor third parties, that in relation to maintenance and champerty generally, powers given to the courts to make third parties pay costs might be "seen as sufficient protection of the public interest".

In its Litigation Agreement I believe that Justice Corporation accommodates the concerns expressed by the courts regarding champerty. However, it is possible that the concerns may nonetheless be insufficiently addressed or that the courts may be unwilling to alter public policy. That is a matter that only time will tell.