Champerty

Champerty refers to an arrangement in common law where a third party, such as an attorney, underwrites the costs of a lawsuit in exchange for a portion of the expected damages. Once illegal, champerty is now prohibited in modified form in only a few jurisdictions.
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Definition

Champerty is an agreement between a litigant and an external party that allows the external party to financially support the litigant’s lawsuit in exchange for a share of the proceeds if the lawsuit is successful. This practice was historically considered illegal because it could encourage frivolous lawsuits and conflicts of interest. However, in modern times, champerty is only prohibited in a few jurisdictions and in modified forms, largely due to the evolving needs of litigation finance.

Examples

  1. Example 1: An attorney agrees to cover all of the costs associated with a plaintiff’s legal case. In return, the attorney will receive 30% of any financial judgment or settlement awarded to the plaintiff.

  2. Example 2: A third-party investor provides financial backing for a class-action lawsuit against a large corporation. The investor stands to gain a predetermined percentage of the compensation awarded if the class-action suit is successful.

  3. Example 3: A law firm offers to fund an environmental litigation case for a group of villagers against a pollutant company. The firm requests 25% of the compensation as payment for their services should the case result in a settlement.

Frequently Asked Questions

The primary concern is that it could lead to an increase in frivolous lawsuits or ethical violations due to conflicts of interest.

How does champerty differ from other forms of litigation financing?

Champerty specifically involves a third party covering litigation costs in exchange for a portion of the damages, while other forms of litigation financing might include loans or advance payments that are repaid regardless of the lawsuit’s outcome.

Is champerty still illegal?

Champerty is mostly legal today but remains prohibited in a few jurisdictions with certain restrictions to prevent abuse.

Can champerty agreements be part of ethical law practice?

Yes, provided they adhere to jurisdictional regulations and ethical guidelines designed to prevent conflicts of interest and ensure the integrity of the legal process.

Are there alternatives to champerty for litigants who need financial support?

Yes, alternatives include litigation loans, crowdfunding, legal expense insurance, and contingency fee arrangements with lawyers.

  • Maintenance: The support of litigation by a third party without receiving any portion of the proceeds, historically seen as unethical but now more common in the context of ensuring access to justice.

  • Contingency Fee: A payment arrangement whereby an attorney receives a percentage of the settlement or award rather than upfront fees, contingent upon winning the case.

  • Litigation Finance: The provision of funds to plaintiffs and law firms engaged in litigation, repaid from the proceeds of the lawsuit if successful.

  • Legal Funding: Financial support provided to litigants or law firms, typically in exchange for a share of the legal proceeds or based on a loan agreement.

  • Third-Party Litigation Funding (TPLF): Financing provided by third parties for litigation costs, including legal fees and expenses, with repayment contingent upon the lawsuit’s outcome.

Online References

Suggested Books for Further Studies

  • Law’s Madness (The Amherst Series in Law, Jurisprudence, and Social Thought) by Austin Sarat and Thomas R. Kearns
  • The Ethics of Capitalism by Daniel Halliday
  • Third Party Funding: Law and Practice by Camilla Godman and Georgios Fasfalis
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Thank you for exploring the intricate subject of champerty. May this comprehensive guide and challenging quiz deepen your understanding of legal ethics and litigation finance principles!

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