The Supreme Court has today, very softly in paragraph 35 out of 46 in its judgment that allowed foreign lawyers limited rights to fly-into India, opened the door to third-party litigation funding.

The Supreme Court bench of justices AK Goel and UU Lalit held:

35. In India, funding of litigation by advocates is not explicitly prohibited, but a conjoint reading of Rule 18 (fomenting litigation), Rule 20 (contingency fees), Rule 21 (share or interest in an actionable claim) and Rule 22 (participating in bids in execution, etc.) would strongly suggest that advocates in India cannot fund litigation on behalf of their clients.

There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation. In U.S.A., lawyers are permitted to fund the entire litigation and take their fee as a percentage of the proceeds if they win the case. Third Party Litigation Funding/Legal Financing agreements are not prohibited.

In U.K., Section 58B of the Courts and Legal Services Act, 1990 permits litigation funding agreements between legal service providers and litigants or clients, and also permits third party Litigation Funding or Legal Financing agreements, whereby the third party can get a share of the damages or “winnings”.

Read full judgment here.

Third party litigation funding has become part-and-parcel of big corporate disputes in other countries, such as the UK and US, and more recently also Hong Kong and Singapore.

It allows a third-party insurance companies or others to assess the likelihood of a claim, and then agree to cover the legal costs of pursuing (or defending) a claim.

It can therefore be valuable in reducing litigation risk and exposure, if one has a strong case.

Of course, in India, the more realistic risk both for litigants and insurers is that most litigation is completely unpredictable, and could take years, decades or lifetimes; insurance companies are unlikely to have an appetite for such long exposure.

However, more recently and infamously, third-party funding was also used by controversial billionaire Peter Thiel to run the colourful website Gawker out of business, by enabling a defamation suit against the publication by the wrestler Hulk Hogan.

Update 16 March 2018: A commenter below has pointed out that indeed, third party litigation funding is NOT banned in India. Relevant is this case from 1954:

On 20th December, 1952, he entered into an agreement with a client whereby the client undertook to pay him 50 per cent. of any recoveries he might make in the legal proceedings in respect of which he was engaged. On this being reported to the High Court the matter was referred to the Bombay Bar Council and was investigated by three of its members under section 11(1) of the Bar Councils Act. They recorded their opinion that this amounted to professional misconduct.

While this senior advocate was suspended, the court noted:

11. Now it can be accepted at once that a contract of this kind would be legally unobjectionable if no lawyer was involved. The rigid English rules of champerty and maintenance do not apply in India, so if this agreement had been between what we might term third parties, it would have been legally enforceable and good. It may even be that it is good in law and enforceable as it stands though we so not so decide because the question does not arise; but that was argued and for the sake of argument even that can be conceded. It follows that there is nothing morally wrong, nothing to shock the conscience, nothing against public policy and public morals in such a transaction per se, that is to say, when a legal practitioner is not concerned. But that is not the question we have to consider, However much these agreements may be open to other men what we have to decide is whether they are permissible under the rigid rules of conduct enjoyed by the members of a very close professional preserve so that their integrity, dignity and honour may be placed above the breath of scandal. That is part of the price one prays for the privilege of belonging to a kind of close and exclusive “club” and enjoying in it privileges and immunities denied to less fortunate persons who are outside its fold. There is no need to either its portals and there is no need to stay, but having entered and having elected to stay and enjoy its amenities and privileges, its rules must be obeyed or the disciplinary measures which it is entitled to take must be suffered. The real question therefore is whether this kind of conduct is forbidden to the elect or whether, if it was once forbidden, the ban has since been removed, either directly or by implication, be legislative action.

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