Champerty

Champerty is a variant of the common law cause of action for maintenance. It has been abolished in New South Wales by the Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) (Act). Maintenance refers to assistance provided by a third party to litigation and what Lord Finlay LC in Neville v London “Express” Newspaper Ltd [1919] AC 368 called the unlawful “intermeddling with litigation in which the intermeddler has no concern”. Champerty is a subset, an aggravated form of maintenance whereby the “intermeddler” would have a share in the outcome of the litigation.

The legal concept of champerty has become a topical issue in recent times because of the rise of litigation funding. Litigation funding refers to a third party, who isn’t a party to the dispute, financing the costs of litigation. If the litigation is successful the third party then shares in the proceeds of the litigation. On its face, this falls within the ambit of the common law cause of action of champerty. However, because champerty has been abolished by statute, litigation funding is not illegal.

The legislators have left open the right to render illegal litigation funding agents that contrary to public policy. The key qualification of the Act is stated in section 6 whereby [the Act] “does not affect any rule of law as to the cases in which a contract is to be treated as contrary to public policy or as otherwise illegal”. This qualification opened the door for the common law cause of action of champerty to continue to have relevance if a party can prove that the “intermeddling” is contrary to considerations of public policy.

In the context of litigation funding, in Campbell’s Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 229 ALR 5 an appeal was commenced in the High Court of Australia as to whether litigation funding was contrary to public policy and thus fell afoul of section 6 of the Act. The majority of the High Court held that litigation funding could only be contrary to public policy if there was a rule against maintaining actions. As the case concerned New South Wales law, the Act has abolished the common law cause of action of maintenance and champerty. The result of this case has led to certainty regarding the legal status of litigation funding and confirmation of the limited role that the cause of action of champerty plays in circumstances where it has been abolished by statute.