As a leading litigation funder in South Africa, we believe it is crucial to provide a balanced perspective on how ethical and transparent litigation funding levels the playing field—especially for parties who might otherwise be denied their day in court.
This response aims to clarify misconceptions, address the concerns raised, and highlight the positive impact litigation funding continues to have on the legal landscape.
Addressing concerns: The “Please Call Me” case
The article suggests that litigation funders can interfere with case resolutions, implying that they may compel litigants to reject reasonable settlement offers in pursuit of higher payouts. The “Please Call Me” case is cited as an example:
“Had he been self-funded, the R47m settlement offered by Vodacom might have been accepted as a generous resolution. Instead, buoyed by external funding, the legal saga continued for another five years.”
This perspective overlooks critical facts. Makate litigated for over 10 years before the settlement offer was made, navigating multiple legal stages — from the High Court to the Constitutional Court — followed by a failed engagement process with Vodacom and ultimately a determination by Vodacom’s CEO.
Makate’s legal team, comprising senior and junior counsel, attorneys, and experts, was crucial throughout. Without litigation funding, he could not have pursued the case and it is unlikely that Vodacom would have offered any settlement without the sustained legal pressure enabled by funding.
The realities of South African litigation
The “Please Call Me” case highlights systemic issues within South Africa’s legal system. Protracted litigation is the norm, especially in high-value commercial disputes. Early settlements are rare; most cases resolve only after penultimate or final judgments, when defendants can no longer delay the inevitable.
Stalingrad tactics — delaying cases through endless legal manoeuvres — remain effective. Defendants often rely on plaintiffs running out of resources, making litigation funding crucial to counterbalance these strategies. Without funding, many meritorious claims would be abandoned, allowing defendants to “win” through attrition rather than merit.
South Africa’s “blood sport” litigation culture exacerbates these dynamics, with even international observers noting the aggressive, entrenched positions local litigants adopt.
Debunking the speculative litigation myth
A common misconception is that litigation funding encourages speculative, prolonged litigation aimed at maximising returns. In reality, the opposite is true.
Litigation funders operate at significant risk. Investments are contingent on binary outcomes — win or lose. If a case fails, the funder loses its entire investment. As a result, funders adopt conservative approaches, rigorously vetting cases to minimise risk. Protracted, speculative litigation with uncertain costs poses the greatest threat to funders and debunks the contention that litigation funding encourages speculative litigation.
No responsible funder invests in reckless litigation hoping for a late-stage settlement. Success depends on backing strong, meritorious cases, not gambling on uncertain outcomes.
Litigation funding has become a growing asset class, attracting investors due to its uncorrelated returns. However, it remains an illiquid asset class with significant risks, including the potential of escalating costs and extended durations making the investment no longer viable.
Kaamilah Paulse 24 Apr 2024
Impact on the courts and regulation
Concerns that litigation funding will overwhelm courts are unfounded. Most high-value commercial claims are resolved through arbitration, reducing court congestion. Class actions, though complex, are infrequent and undergo rigorous certification processes to eliminate frivolous claims.
Regardless, our position is that we would welcome regulation that codifies the common law safeguards that have been in place since litigation funding – “champerty” - was declared lawful in South Africa in 2004 following the Supreme Court of Appeal ruling in the case of Price Waterhouse Coopers Inc v National Potato Co-Operative Ltd.
At Taurus, we follow international best practices. A critical element of any transaction is control — funders should never dictate litigation strategy or settlement decisions, nor should they influence legal counsel in the discharge of their professional duties to their clients.
We also have a policy to cap our returns at a maximum of 50% of the claim’s value, ensuring fairness. We have only deviated from this policy on one occasion —with full client consent— and due to unforeseen circumstances, when we recouped our capital plus a 15% IRR return, while our client, a company in business rescue, obtained an amount which paid its creditors 50c in the rand as a return from the settlement.
Additionally, we agree on a “trigger amount” with litigants at the outset. If the defendant offers this amount in settlement, the litigant is required to accept it unless both parties agree otherwise. This ensures equitable returns for both litigant and funder, agreed upon in advance.
Current South African contingency fee laws cap attorneys’ fees at 25% of the claim value, suitable for personal injury cases but inadequate for complex commercial litigation. In the UK, contingency fees for commercial claims are capped at 50%, offering more flexibility.
Litigation funding in South Africa fills this gap. Commercial matters often cost tens of millions of rands and require immense dedication and endurance. The existing 25% cap often does not provide a commensurate return relative to the risk involved, especially where the quantum of the claim is relatively small in relation to the legal costs. We advocate for revising South Africa’s contingency fee framework to better incentivise legal practitioners to take on commercial cases on a contingency basis.
Bianca Masterton 13 Dec 2024
The role of mediation
The article promotes mediation as a faster, less adversarial alternative. While admirable in theory, mediation rarely resolves high-value commercial disputes in South Africa. Defendants have little incentive to settle early, especially before legal proceedings commence. Corporate boards are unlikely to approve substantial pre-litigation settlements, fearing shareholder backlash.
Most high-value commercial litigation is adjudicated in private arbitration. Even in public court battles, where reputational harm is at stake, early settlements remain rare. The “Please Call Me” case illustrates this.
Courts under strain
The author correctly notes the strain on South African courts, particularly from an influx of personal injury matters. However, mediation is not a viable solution for Road Accident Fund or medical negligence cases. The state often adopts brinkmanship tactics to delay payments because of their underfunded budgets.
These matters are not legally complex and could, in theory, be resolved early for reasonable amounts. Unfortunately, there is little incentive to do so. A culture of distrust within state-owned enterprises and other arms of government also prevent settlements from being reached where these entities are sued — there is often suspicion that pre-emptive settlements involve corruption.
Class actions
Class actions, often criticised for burdening courts, are essential for achieving justice in large-scale harm cases. The silicosis class actions in South Africa — funded by litigation funders — provided redress to thousands of miners exploited during apartheid. Without funding, these families would have had no legal recourse.
Our courts are robust and judges are aware of the role of the funder. Litigation funders risk being held personally liable for adverse costs if a speculative class action fails. This risk discourages frivolous claims, helping prevent court backlogs.
Conclusion
Since 2019, Taurus has recovered over R360m in litigation proceeds and is currently funding claims worth more than R4bn. Without our funding, many of these cases — some involving significant public interest — would never have seen the light of day.
Litigation funding plays an essential role in promoting access to justice, levelling the playing field, and holding powerful entities with deep pockets accountable. Far from undermining the legal system, responsible litigation funding strengthens it by enabling meritorious claims to proceed, even against well-resourced defendants.
We remain committed to ethical, transparent funding practices that empower litigants and uphold the integrity of South Africa’s legal system.
*The views expressed in this article are solely those of the authors.
