Two’s Company, Three’s a Crowd? Regulating Third-Party Litigation Funding, Claimant Protection in the Tripartite Contract, and the Lens of Theory

The advent of third-party litigation funding (‘TPLF’) is arguably one of the most significant developments in civil litigation in common law countries for many decades. While third party-funded and indemnified defendants have appeared in common law courts for some centuries, the recent corresponding appearance of third party-funded and indemnified plaintiffs is in many ways a seismic shift in our civil litigation culture. Whether this has been a welcome and overdue move towards improved access to justice and protection of rights of ordinary citizens or a dangerous step towards the creation, multiplication and inflammation of otherwise sleeping controversies is a topic of considerable and sometimes fierce debate. Nevertheless, TPLF is here and spreading rapidly so that the burning question appears to be: what is to be done?

The author’s focus in this article therefore will be on the governance of the relationship between litigant, funder and lawyer, with some bias towards the protection of the litigant as the more vulnerable party of the three. Given the importance of contract in governing TPLF arrangements, the author will explore some key theoretical insights into the phenomenon of complex multi-party contracting and the extent to which these have application to TPLF arrangements. Insights from both game theory and transaction cost economics will be applied for the first time to analyse the tripartite contractual relationships between lawyer, litigant and funder. The author will also further develop at some length the application of agency theory. In doing so, the author will seek to answer difficult questions of how government and regulators should deal with TPLF, including analysis of the regulatory options. [Abstract]

Michael Duffy, Monash University

Full paper available from SSRN.

Brought to you by ICLR.