Introduction:
The Constitution grants every citizen the right to approach a
court of law to seek redress when he or she feels his or her civil rights is being or likely to be contravened in anywhere
within Nigeria in relation to him or her[i]. However, it is only
when an individual has unhindered access to courts that his or her fundamental
rights can be enforced. There is no gainsaying the fact that litigation or arbitration
does not come cheap. As such, a large number of people who cannot afford to
fund their cases in court or via arbitration seek other means of expressing
their grievances. This includes customary settlement of disputes, mediation,
negotiation and sometimes self-help or in extreme cases, "leave it to
God".
This article will examine the common law principles of maintenance
and champerty viz-a-viz third party litigation funding and their relationship
to access to justice in Nigeria. This relationship stems from the fact that it
is only when individuals have access to the courts that they can espouse and
seek for the protection of their basic rights. In other words, the legal and
institutional structures existing in a system may be such as to preclude the
citizens from having access to the courts, who are therefore unable to seek for
the enforcement or protection of their basic rights as guaranteed by the
Constitution.
Third Party
Funding (TPF):
Some individuals or organisations may enter into agreements to
sponsor or fund litigation or arbitration with the intention of sharing the
proceeds of the case. This is known as third party funding (TPF) or legal
financing. TPF enables a party to litigate or arbitrate without having to pay for it, whether because they are unable to
pay for it or because they do not want to. A third party professional funder
can pay some or all of the costs/expenses associated with a dispute in return
for a share of the proceeds of the dispute if it is successful. If the
litigation is not successful, the funder bears the costs it has agreed to fund[ii].
Put another way, the essence of TPF is
the deployment of legal capital to fund the realisation of assets that are
contingent on the resolution of some form of legal process. Legal capital is
(almost) invariably invested on the basis that the investor is without
recourse, other than to the proceeds of the legal asset whose realisation is
being pursued. The investor’s recovery is therefore limited to what can be
realised in cash or kind from the legal asset itself. Absent breach, the funded
party is not personally liable to the funder and therefore it would almost
always be a major solecism to describe a TPF investment as a loan[iii].
Third party funding of litigation can further be explained as an
arrangement whereby a person who ordinarily is not concerned with the outcome
of a suit bears the costs of the action for one who is concerned, to share the
proceeds of the action or suit, if any. In other words, the third party funder
has no previous interest in the lawsuit but finances it as an investment, with
a view to sharing the proceeds of the suit if the suit succeeds, as a return on
his or her investment.
There is also another specie of third party litigation funding known
as 'Litigation Crowdfunding'. “Crowdfunding”
is a term used to describe the funding of projects from multiple investors,
generally over an online platform. The individual or business
seeking funding (the “initiator”) will set out their goals by creating a new
campaign on the platform, specifying how any funds raised will be used and what
return (if any) can be expected for investors. The individuals or businesses
who decide to fund the campaign (the “investors”) will pledge a certain amount
of money up front adding to the overall pot of funding pledged by all
investors. Litigation crowdfunding is essentially an extension of the
crowdfunding model to the sphere of litigation[iv]
This model allows claimants or defendants to reach out to hundreds
of their peers simultaneously in a semiprivate and confidential manner to
obtain funding, either seeking donations or providing a reward in return for
funding. It also allows investors to purchase a stake in a claim they have
funded, which may allow them to get back more than their investment if the case
succeeds (the reward is based on the compensation received by the litigant at
the end of his or her case, known as a contingent fee in the United
States, a success fee in the United Kingdom, or a pactum de quota litis in
many civil law systems). There are online litigation crowdfunding platforms
that allows accredited investors to invest in lawsuits.
TPF
provides access to justice for those who could otherwise not afford to fight
their claims, and it brings access to rational commercial risk management for
eminently solvent entities who do not wish to expose themselves to the
significant costs of resolving their disputes from the own resources. TPF thus
serves both those who are unable and those who are unwilling to fund the
resolution of their disputes. Such an investment arrangement
may arise for various reasons, all of which, basically, revolve around the fact
that a direct party to a lawsuit, whether a named claimant or a defendant,
cannot fund the prosecution or defence of the suit and a third party is
required to provide the named party with the funds, on the agreement or
understanding that the third party would share from the proceeds of the case,
if any. This sort of arrangement is especially useful in most class actions
that are often used to pursue claims for oil spillages, pollution and communal
land matters due to the impecuniosity of the litigants.
Dispute resolution mechanism in Nigeria is essentially adversarial
and this involves the application of funds by the disputing parties which many
of them lack. The costs for legal representation, filing processes, compiling
exhibits and mobilising witnesses to court have substantially increased over
time, particularly in view of present economic realities which makes it
increasingly difficult for aggrieved parties to afford the costs of litigation.
This is where resort to third party funding becomes necessary in order to
enhance access to justice.
The costs of litigation or arbitration have prevented many a
potential litigant from pursuing justice which they cannot afford. Under
Nigerian law however, third party funding of litigation is generally regarded
as champertous if it involves a third party's election to maintain and bear the
costs of an action for another to share the proceeds of the action or suit as
parties to civil actions are usually responsible for their litigation costs.
Maintenance
and Champerty:
For better understanding, champerty and maintenance are doctrines
in common law jurisdictions that aim to preclude frivolous litigation. While
maintenance is the intermeddling of a disinterested party to encourage a
lawsuit, champerty (from Old French champart, a feudal lord's share of produce)
is the "maintenance" of a person in a lawsuit on condition that the subject
matter of the action is to be shared with the maintainer[v].
Among laymen, this is known as litigation funding or finance.
In Giles v Thompson[vi],
Lord Justice Steyn declared: "In
modern idiom maintenance is the support of litigation by a stranger without
just cause. Champerty is an aggravated form of maintenance. The distinguishing
feature of champerty is the support of litigation by a stranger in return for a
share of the proceeds."
Lord Denning MR
in Re Trepca Mines Ltd[vii],
gave the rationale for prohibiting champerty as follows:
“The reason why the common law condemns champerty is because of the
abuses to which it may give rise. The common law fears that the champertous
maintainer might be tempted, for his own personal gain, to inflame the damages,
to suppress evidence, or even to suborn witnesses. These fears may be
exaggerated, but, be that so or not, the law for centuries has declared
champerty to be unlawful and we cannot do otherwise than to enforce it.”
At common law, maintenance and champerty are both crimes and
torts, as was barratry (the bringing of vexatious litigation). To understand
the scope of a concept, one must readily refer to the mischief the law sought to
remedy. In medieval England, there was a prevalent mischief of influential
persons purchasing weak claims with the expectation that they could use their
power and wealth to influence the administration of justice and to eventually
win those claims.
Historically, the English courts developed concepts like
“champerty” and “maintenance” in response to the interference by these
non-interested third parties with ongoing proceedings. This is generally no
longer so in England as the concepts have mostly been abolished with the coming
of age of judicial independence that has mostly rid itself of unscrupulous
nobles and royal officials who would lend their names to bolster the
credibility of doubtful and fraudulent claims in return for a share of the
property recovered. Unfortunately, the doctrines of maintenance and champerty
still form part of the Nigerian legal system on account of its association with
the common law legal system and the reinforcement of these principles by local
courts.
Generally, under Nigerian law, champerty is an illegal
agreement in which a person with no previous interest in a lawsuit finances it
with a view to sharing the disputed property if the suit succeeds. A long line
of Nigerian authorities is to the effect that champertous relationships
are illegal and contrary to public policy.
Regulatory
development:
Traditionally, third
party funding was illegal in common law jurisdictions by virtue of the torts of
maintenance and champerty as highlighted above. In general,
all common law jurisdictions have various degrees of survival of the ancient
doctrines of maintenance and champerty, which historically prevented third
parties from intervening in litigation in which they were not already directly
involved as parties. The law has however undergone extensive changes in some common law
jurisdictions notably:
In England and Wales, maintenance and champerty have not been
crimes or torts since the passing of the Criminal Law Act 1967[viii].
Save that the abolition of criminal and civil liability under the law of
England and Wales for maintenance and champerty shall not affect any rule of
that law as to the cases in which a contract is to be treated as contrary to
public policy or otherwise illegal[ix].
Modern
American treatises do not mention the tort at all. The decisional law of today dealing with the subject usually
involves the validity of contracts asserted to be violations of the doctrine. It has been specifically held by US courts[x]
that the doctrine of champerty remains viable only as a defense in contract
actions, and that damages resulting from a champertous agreement can be
recovered only by means of an action under one of the recognised theories of
recovery. In other words, the causes of action
for maintenance and champerty have been supplanted by causes of action for
malicious prosecution and abuse of process, frivolous litigation statutes, and
rules of professional conduct for attorneys,
In Canada, the common law crimes of champerty and maintenance were
abolished, alongside all remaining common law offences except contempt of
court, by the 1953 consolidation of the Criminal Code. They remain torts in the common law jurisdictions of Canada, although
they are most often invoked as a "shield" against the enforcement of
an agreement, rather than as a "sword". Before then, the principles of maintenance and champerty did not prohibit third-party
funding, which has been accepted by Canadian courts in both single-party and
class action cases. From the
earliest reported cases in Canada, courts were reluctant to apply the doctrines
of maintenance and champerty strictly. Courts have long relied on the
requirement of an "improper motive" on the part of the funder to
relax the prohibitions in appropriate cases. Goodman
v R[xi],
Goodman was charged with champerty after agreeing to assist a poor man injured
by a streetcar in exchange for a share of any proceeds. Goodman’s assistance
consisted of locating witnesses to the event, and the plaintiff had consulted a
lawyer before Goodman became involved. The Supreme Court of Canada quashed his
conviction and held that his conduct did not amount to "officious
intermeddling" as he had not "stirred up strife."
In Australia, champerty and maintenance as common law causes of
action (as either a crime or a tort) have mostly been abolished by statute. In
New South Wales, champerty and maintenance were abolished by the Maintenance,
Champerty and Barratry Abolition Act 1993. In Victoria, champerty and
maintenance was abolished as a tort by section 32 of the Wrongs Act 1958, and as
a crime by section 332A of the Crimes Act 1958. In Campbells
Cash and Carry Pty Limited v Fostif Pty Ltd[xii]
the High Court held that litigation funding was not an abuse of process or
contrary to public policy. The joint judgment of the assenting judges held that
in those jurisdictions which had abolished maintenance and champerty as crimes
and/or torts (i.e. Australian Capital Territory, New South Wales, South Australia and Victoria), the concept of public policy or abuse of process could not be used to
found a challenge to proceedings being maintained. As a result of this
decision, it was clear that, absent special circumstances, litigation funding
arrangements would no longer be declared void as contrary to public policy
Singapore passed legislation permitting
funding in support of international arbitrations and related proceedings. This follows the passing of the Civil Law
(Amendment) Bill by the Singapore Parliament on 10 January 2017. The
legislation formally abolished the torts of maintenance and champerty and
declared that litigation funding contracts are enforceable in Singapore courts
and tribunals.
Historically, many U.S. states recognized the
common law torts or crimes of maintenance and champerty, which prohibited
unconnected parties from funding litigation. However, the consistent trend
across the country is toward limiting the doctrines of maintenance and
champerty in favor of permitting TPLF[xiii]. It is
herein advocated that the law should move away from its current position and
embrace a more progressive approach tailored towards the enhancement of access
to justice by parties as other common law jurisdictions have since done away
with the strict interpretation and imposition of the law on maintenance and
champerty as highlighted above.
In Nigeria, the situation has only changed in regards to legal
practitioners financing litigation as the prohibition of maintenance and
champerty is still in full force although a little shift was recently made in
the case of Kessington Egbor & Anor v. Peter Ogbebor[xiv]
where the Court of Appeal held that for a contingency fee arrangement to be
champertous there has to be some element of maintenance (this case involved a
non-lawyer).
Before now the position was that the principles are relevant to
modern contingent fee agreements between a lawyer and a
client which were held to be champertous. Thus, in Oloko v. Ube[xv],
the Court of Appeal held that:
"An
agreement by a solicitor to provide funds for litigation or without charge to
conduct litigation in consideration of a share of the proceeds is champertous.
The solicitor cannot recover from his client his own costs or even his out of
pocket expenses."
The position has since shifted as the financing of a claim by a
lawyer or law firm on a pro bono or contingency basis either in arbitration or
litigation, are now legal and permissible under Nigerian Law. Earlier decisions
of Nigerian Courts adjudging contingency fee arrangements as at best
unprofessional and at worst champertuous have since been supplanted by
subsidiary legislations enacted pursuant to the Legal Practitioners Act. Rule
50 of the Rules of Professional Conduct for Legal Practitioners, 2007 now
allows Nigerian Legal Practitioners to enter into contingency arrangement with
clients provided that these arrangements are reasonable and not contrary to
public policy.
The time is now right to further review the law in Nigeria in
order to abolish the common law principles of maintenance and champerty. It is
questionable whether criminal liability for maintenance should still be
retained in Nigeria as liability for both maintenance and champerty have since
been abolished England from where they were inherited.
Abolishing the principles will
enhance the practice of TPF in aid of access to justice for indigent litigants
in Nigeria because rather than
interfering with the due administration of justice, if anything TPF will
promote the due administration of justice.
Applicability
of TPF to Arbitration:
It
is a fact that arbitration is increasingly becoming the preferred mode for the
resolution of commercial disputes. However, the costs of arbitration
have been a major concern to users and proponents of arbitration. One way of
reducing the cost of arbitration, thereby making it even more attractive, is
through TPF.
The
combination of funding and the prospect of a share in the proceeds of a
successful claim raises the spectre of champerty. In Nigeria
however, it is not clear whether this prohibition is in regards to litigation in contradistinction to arbitration. It
is arguable that there are no local legislations or case law positing that the
doctrine extends to the field of arbitration and there are no case laws on the
point. The law remains that whatever is not prohibited is allowed. One is
therefore tempted to posit that TPF is permissible in Nigeria-seated
arbitrations. To gain more clarity on the issue, we may need to have recourse to
other common law jurisdictions.
The
mixed signals which have emerged from the courts of different common law
jurisdictions over the years have only served to muddy the waters further in
what is an already complex area. There is a dearth of authority but one of the
more recent cases dealing with the tension between the strictures of the
doctrines of champerty and maintenance on the one hand, and the modern approach
toward the funding of commercial arbitrations on the other, is the decision of
the Hong Kong High Court in Cannonway Consultants Ltd v
Kenworth Engineering Ltd[xvi], where Kaplan J. found that the doctrine of champerty
was of no application to the field of arbitration.
However,
the Singapore Court of Appeal took a different view in Otech
Pakistan Pvt Ltd v Clough Engineering Ltd[xvii], relying on the reasoning that the public policy
consideration of the need to protect "the purity of justice and the
interests of vulnerable litigants" militated against allowing champertous
agreements to prevail, even in an arbitrational context.
The
role of the doctrines of champerty and maintenance in a modern context received
further treatment by the Hong Kong Court of Final Appeal where, in a masterful
analysis of the case law in the area, Ribeiro P.J., delivering the judgment of
a unanimous bench in Unruh v Seeberger[xviii], emphasised the need for the public policy
considerations upon which the doctrines of champerty and maintenance were
pivoted to be evaluated through modern lenses and to be balanced against other
countervailing public policy considerations such as the promotion of access to
justice and the recognition of legitimate common interests in litigation.
The Singapore court expressed its view that the law of
champerty stems from public policy considerations which apply to all types of
legal disputes and claims, whether the parties have chosen to use the court
process to enforce their claims or whether they have resorted to a private
dispute-resolution system like arbitration, and that it would be artificial to
differentiate between arbitral and court proceedings and say that champerty
applies to the latter because it is conducted in a public forum and not to the
former because it is conducted in private. To this end, the Court
expressly adopted the reasoning of Sir Richard Scott V.C. in Bevan
Ashford v Geoff Yeandle (Contractors) Ltd[xix]:
"Arbitration proceedings are a form of litigation.
The lis prosecuted in an arbitration will be a lis that
could, had the parties preferred, have been prosecuted in court. The law of
champerty has its origins in, and must still be based upon, perceptions of the
requirements of public policy. I find it quite impossible to discern any
difference between court proceedings on the one hand and arbitration
proceedings on the other that would cause contingency fee agreements to offend
public policy in the former case but not in the latter. In principle and on
authority, the law of champerty ought to apply, in my judgment, to arbitration
proceedings as it applies to proceedings in court. If it is contrary to public
policy to traffic in causes of action without a sufficient interest to sustain
the transaction, what does it matter if the cause of action is to be prosecuted
in court or in an arbitration? If it is contrary to public policy for a lawyer
engaged to prosecute a cause of action to agree that if the claim fails he will
be paid nothing but that if the claim succeeds he will receive a higher fee
than normal, what difference can it make whether the claim is prosecuted in
court or in an arbitration?"
In the UK case of Essar
Oilfields Services Limited v. Norscot Rig Management PVT Limited[xx], the English court refused a
challenge under s68(2)(b) of the Arbitration Act 1996 and held that a sole
arbitrator did not exceed his powers in including the costs of third party
funding within a costs award. The arbitrator held that he was entitled to make the order at his
discretion, because such litigation funding costs were “other costs” for the
purpose of section 59(1)(c) Arbitration Act, which refers to “legal or other costs of the
parties”. The Court held that as a matter of language,
context and logic, it seemed that “other costs” could include
the costs of obtaining litigation funding.
In Nigeria’s Arbitration and Conciliation
Act, section 49 defines
“costs of arbitration” but does not include “other costs” as in the
UK. Furthermore, section 49 is restrictive in its definition of what costs
entail and does not give much room for arbitrators’ discretion. In the
circumstances, there is maybe a need for a regulatory framework in Nigeria to
specifically allow TPF for Nigerian seated arbitrations instead of it being
left to speculation.
In some common law jurisdictions,
there is a difference of approach depending on whether the legal process is
arbitration or litigation. In Hong Kong until recently, only insolvency office
holders were permitted to access TPF because claims farming remains such a
severe problem in personal injury litigation. Now a regulatory framework has
been approved in Hong Kong for TPF to operate in commercial arbitration seated
there even though it is forbidden in litigation. Singapore immediately followed
suit.
Judicial reform:
It is apparent that the practice and law of TPF is yet to develop
in Nigeria. Unlike in other jurisdictions where there are recognised funding
institutions or associations of third party funders, there is neither a formal
judicial pronouncement in favour of third party funding nor any organisation of
third party funders recognised by Nigerian law. Rather, what exists in Nigeria
is an ad hoc, underground TPF industry that are neither recognised nor
regulated by Nigerian law.
The pragmatic approach of the courts today in foreign jurisdictions
is that third party funding is capable of promoting access to justice, and the
mere fact that legal services have been provided in return for a promise of the
share of the proceeds is not enough to produce the evils against maintenance
and champerty. The growing trend is that it must be shown that third party
funding of litigation is purely for commercial gain to make such agreements
unenforceable.
There
is an overwhelming need for a reform of the judicial process in the country in
line with the global trend relaxing the common law principles of maintenance
and champerty. This is necessary because the judiciary plays a pivotal role in
ensuring that individuals have access to justice. It is recommended that an alternative and better approach will be to demand for an
enactment of a comprehensive regulatory framework for third party funding, as
is obtainable in other jurisdictions. Mechanisms can be put in place for issues
bordering on disclosure of funding arrangement, conflict of interest
considerations as it pertains to the arbitrators in arbitration, element of
control and influence of the funder in the proceedings as well as other
concerns.
The
English courts have already developed guidelines as to when funders cross the
line between good case management and impermissible champerty. This dividing
line was drawn by the English courts when making indemnity costs orders against
funders in the notorious Excalibur litigation[xxi]
where the English Court of Appeal awarded punitive costs against the funder for
failing
to exercise adequate control over proceedings in the Commercial Court. Clarke LJ expressed the hope that his costs order
would send a message that funders should take ‘rigorous steps short of
champerty … particularly in the form of rigorous analysis of law, facts and
witnesses, consideration of proportionality and review at appropriate
intervals.’ Perhaps Nigerian courts can adopt similar approach in the absence
of a regulatory framework on the subject.
Alternatively, the principles of maintenance and champerty can
still be retained but their enforcement watered down as is the practice in
America where the tort continue to exist as affirmative defenses as to the
enforceability of the champertous contract itself.
Regardless of one’s
view of TPLF, it is a growing, multi-billion-dollar industry that is reshaping
litigation on a global scale. The litigation finance industry is a
five-billion dollar market in the United States alone. In addition, third-party
funding of international arbitrations is on the rise. “In the international
arbitration sphere it is becoming ‘the norm’ for parties to at least consider
seeking funding for part or all of their case.”[xxii]
Conclusion:
It
is only when individuals have access to the courts that they can espouse and
seek for the protection of their basic rights. In other words, the legal and
institutional structures existing in a system may be such as to preclude the
citizens from having access to the courts, who are therefore unable to seek for
the enforcement or protection of their basic rights. It is a well-known fact
that, relative to the economic situation in Nigeria, the cost of litigation in
the country is so high that the ordinary Nigerian can hardly afford adequate
legal representation when he has a legal matter to pursue.
[i]
Section 46 Constitution of the Federal Republic of Nigeria, 1999 (as amended)
[iii]
Third-Party Litigation Funding Law Review First Edition2017 Law Business
Research Ltd
[vi] [1993]
3 All ER 321 (26 May 1993)
[vii]
(No. 2) [1963] Ch 199
[x] 14 Am. Jur. Champerty, Maintenance, and
Barratry § 4 (2000)(citing McCullar v. Credit Bureau Systems, Inc.,
832 S.W.2d 886 (Ky. 1992)); Weigel Broadcasting Co. v. Howard Topel, No.
83-C-7921 (N.D. Ill. 1985); McCullar v. Credit Bureau Systems, Inc., 832 S.W.2d
886, 887; Security Underground Storage, Inc. v. Anderson, 347 F.2d 964, 969
(10th Cir. 1965)
[xi] [1939]
SCR 446
[xii] (2006)
229 CLR 386
[xiii]
American
Bar Association (“ABA”), Commission on Ethics 20/20: Informational
Report to the House of Delegates 11 (Feb. 2012)
[xiv] [2015]
LPELR-24902
[xv] (2001)
13 NWLR (Pt 729) 161 at 181
[xvii]
[2007] 1 SLR 989
[xviii]
(2007) 10 HKCFAR 31
[xix] (In
Liquidation) [1999] Ch. 239; [1998] 3 W.L.R. 172; [1998] 3 All E.R. 238; 59
Con. L.R. 1; [1998] 2
[xxi] Excalibur
Ventures LLP v Texas Keystone Inc and others [2016]
EWCA Civ 1144, [2016] All ER (D) 127 (Nov)
