THE CONTEXT: Third-party litigation Funding (TPLF) has emerged as a significant development, offering a potential solution to the prohibitive expenses that often deter individuals and groups from pursuing legitimate legal claims.
DEFINITION:
- Third-party litigation Funding (TPLF) is a financial arrangement in which an independent third party provides monetary support to a litigant involved in a legal dispute. In exchange for this funding, which typically covers legal fees, court costs, and other related expenses, the funder receives an agreed-upon share of any monetary judgment or settlement awarded.
- If the case is unsuccessful, the funder absorbs the financial loss, not the litigant. This model allows individuals or groups with valid legal claims but insufficient funds to pursue litigation without bearing the financial risks.
BACKGROUND AND LEGAL STATUS:
- 1876 Privy Council Judgment (Ram Coomar Coondoo v. Chunder Canto Mookerjee): The Privy Council held that the doctrines of champerty and maintenance were not applicable in India. The judgment recognized that such funding arrangements were not inherently unethical or illegal within the Indian context, provided they did not amount to exploitation or fraud.
- Supreme Court Judgment (Bar Council of India v. K. Balaji): The Court held that while advocates in India are prohibited from funding litigation for their clients, third parties (who are not lawyers) are not restricted from providing financial assistance to litigants. The judgment stated that TPLF is permissible and does not contravene any statutory provisions, thus giving a cautious green signal to such arrangements.
CURRENT LEGAL LANDSCAPE:
- Lack of Comprehensive National Framework: India lacks a national regulatory framework governing TPLF. This absence creates a legal vacuum regarding the rights and obligations of funders and litigants, ethical considerations, and mechanisms to address potential system abuses.
- State-Level Amendments Recognizing TPLF: States like Maharashtra, Madhya Pradesh, Odisha, and Gujarat have introduced provisions that acknowledge the role of third-party financiers in litigation. These amendments typically require the disclosure of third-party funding arrangements to the court and, in some cases, allow the court to make orders concerning the security for costs.
POTENTIAL BENEFITS OF THIRD-PARTY LITIGATION FUNDING (TPLF):
- Improved Access to Justice: The high cost of litigation often deters underprivileged communities and small businesses from seeking legal recourse. According to the National Judicial Data Grid, as of October 2023, over 40 million cases are pending across various courts in India, partly due to financial constraints faced by litigants.
- Strengthening Public Interest Litigation: Public Interest Litigation (PIL) has been a cornerstone of social justice in India, addressing issues ranging from environmental protection to human rights. However, PILs often require substantial financial resources to cover legal fees, expert testimonies, and research. TPLF can inject much-needed funding into PILs, enabling activists and NGOs to take on cases with a broad societal impact.
- Impact on Specialized Fields (e.g., Medical Malpractice, IPR): Specialized legal fields like medical malpractice and Intellectual Property Rights (IPR) often involve complex litigation and significant expenses. Cases in these areas require expert witnesses, extensive research, and prolonged court proceedings, which can be financially draining.
THE CONCERNS:
- Cherry-Picking Profitable Cases: Funders may prioritize cases that promise high financial returns, neglecting those that are socially important but less lucrative. This selective approach could leave many deserving litigants without support, especially in cases involving fundamental rights or social justice, where monetary compensation is minimal.
- Funder Influence on Case Strategy: A study published in the Journal of Legal Ethics (2022) highlighted instances where funders interfered with legal decisions, leading to conflicts between the client’s desires and the funder’s objectives. Such interference can undermine the fairness of the legal process and erode trust in the justice system.
- Need for Regulation and Oversight: TPLF could lead to unethical practices, such as exploitation of clients through unfair funding agreements or lack of transparency in financial dealings. Funders withdrawing support mid-case or imposing exorbitant fees have been reported in jurisdictions without proper oversight.
THE WAY FORWARD:
- Licensing of Funders: Introducing a licensing system for litigation funders would ensure that only qualified and reputable entities engage in TPLF activities. Licensing criteria could include financial stability, ethical conduct, and compliance with legal standards.
- Establishment of Oversight Bodies: The Ministry of Law in Singapore oversees third-party funding in arbitration, ensuring adherence to ethical and financial standards. India could establish a similar oversight mechanism to safeguard the interests of all parties involved.
- Capital Adequacy Requirements: Hong Kong’s Code of Practice for Third-Party Funding of Arbitration, effective since 2019, requires funders to maintain access to a minimum of HKD 20 million in capital. India could set appropriate capital thresholds to ensure funders are financially capable.
- Disclosure and Transparency: In the United States, the Federal Rules of Civil Procedure have been amended in some jurisdictions to require such disclosures in class-action lawsuits. India could implement similar rules to enhance transparency in TPLF arrangements.
- Court Involvement and Approval: In Germany, courts can scrutinize litigation funding contracts, providing additional protection for litigants. Indian courts could be empowered similarly, particularly in cases involving vulnerable parties or significant public interest.
THE CONCLUSION:
India can foster a TPLF ecosystem that enhances access to justice while mitigating potential risks. Establishing clear guidelines and oversight mechanisms will ensure that TPLF serves its intended purpose without compromising the fairness and integrity of the legal system.
UPSC PAST YEAR QUESTION:
Q. Explain the reasons for the growth of public interest litigation in India. Has the Indian Supreme Court emerged as the world’s most potent judiciary? 2024
MAINS PRACTICE QUESTION:
Q. Critically examine the Third-party litigation Funding TPLF in the Indian context and suggest measures to effectively regulate this practice while ensuring its benefits reach the intended beneficiaries.
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