What is Champerty and Maintenance?

Introduction

Champerty and maintenance is an unusual term; it doesn’t receive much attention, for the most part. Of course, its name is derived from archaic terms. Those terms were used to describe the maintenance of legal proceedings by a disinterested third party, when such issues first arose in torts law. Much has changed since then, though. As a result of those changes, little remains of this economic tort. However, it has proven a challenge to many commercial operations, even recently. And despite some conclusive input provided by the High Court, debate surrounding some of its finer points remains. So let’s take a look at the recent evolution of economic torts law, with regard to champerty and maintenance.

Champerty and Maintenance is an Archaic Term Referring to an Economic Tort

Despite its obvious historical basis, champerty and maintenance is a tort much like any other. It is characterised by a series of criteria, which evolve with the decisions of the court. Those decision, similarly, evolve with the expectations and standards of the community. In fact, there are few clearer examples of such evolution than champerty and maintenance. That will become apparent below.

Champerty and maintenance involves the promotion or support of legal proceedings by third parties

Before approaching the evolution of champerty and maintenance, it’s important to know where it began. Essentially, champerty and maintenance began in an effort to restrict the funding of litigation by third parties. The reasoning behind that seems clear, too: the court did not want to deal with trivial or unnecessary litigation. It was considered inexpedient for the court to facilitate litigation in matters where a litigant was being encouraged by a disinterested party, for that party’s gain. It was the courts’ view that litigation was to be between aggrieved parties, and no others, with risks, gains, and expenditure apportioned accordingly.

As a tort, champerty and maintenance long prevented litigation funders from operating

The prohibition on champerty and maintenance at common law affected a number of groups. Among them, and perhaps most affected, were litigation funders. Litigation funding is an arrangement whereby a disinterested party funds another in litigation, or indemnifies that party against adverse outcomes. In exchange, the litigation funder is then entitled to a portion of the settlement sum, whether that is set by a judge, or by the two litigants in a pre-trial settlement. Quite clearly, such arrangements fall foul of laws surrounding champerty and maintenance. Litigation funders were, as a result, left open to actions in tort. More broadly, as well, litigation funded in such a way risked being deemed an abuse of process. So strict was the tort of champerty and maintenance, that litigation funding arrangements could undermine entire proceedings.

Champerty and Maintenance Saw One of the Most Significant Developments in Economic Torts Law

Today, it is hard to imagine the effects of champerty and maintenance on the administration of justice. Such legal services as class action lawsuits and no win, no fee arrangements would all be affected, were it not for developments in the tort of champerty and maintenance. Those developments, of course, came as a result of changing views towards justice, and its administration by the courts.

Litigation funding was considered an abuse of process until the High Court intervened in Fostif and Trendlen

It wasn’t until 2006 that the courts took exception to the restrictions on champerty and maintenance. It did so through the judgements of the High Court, in the cases of Fostif and Trendlen. Both cases came before the Court within a relatively short period of time. And in both instances, the Court adopted a similar stance. That stance was that the restriction on champerty and maintenance was adversely affecting access to justice. Financially, few could afford to litigate and that placed the input of the courts beyond the reach of many. To promote access to justice, then, the Court turned to the notion of litigation funding. The decision in Fostif, particularly, was a landmark one; it effectively sought to bring financial aid, albeit in a commercial capacity, to those who could not finance their own litigation.

Of course, that doesn’t mean litigation funding is beyond the Court’s oversight

The decision in Fostif led many to believe that litigation funding was now a commercial activity of much the same substance as any other financial service. But that is not strictly true. There is one very salient aspect of the Court’s decision in Fostif that has gone largely unpublicised. That aspect is the joint reasons of Justices Gummow, Hayne, and Crennan, in which the notion of abuse of process is raised.[1] Specifically, Their Honours sought to allay concerns that litigation funding, if permitted, might encourage the gradual corruption of judicial processes. To do so, Their Honours reiterated that the courts reserve a wide range of rights to intervene where it is apparent that an abuse of process is occurring. Where necessary, the Court can address the conduct of litigation funders if that conduct is inimical to the due administration of justice. Essentially, the Court can preserve its integrity, and safeguard litigants against abuses of process, without the protections offered by the tort of champerty and maintenance.

Today, Champerty and Maintenance is all but Abolished

Successive decisions and statutes weakened the law of tort with respect to champerty and maintenance. But it wasn’t until the High Court decision of Fostif that it was effectively abolished altogether. However, that is not to say the same techniques are applicable to litigation funding as they are to other financial services. That is something the Court has attempted to make clear in Fostif. The foremost consideration in any litigatory process is the administration of justice. If that is interrupted in any way, the Court may intervene, having reserved its broad powers to do so. As a result, a high standard of care is owed by litigation funders, to ensure that their arrangements do not encumber judicial process.

[1] Campbell’s Cash and Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41, 35 [93].

By Finian McGrath

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