Third party funders eye Please Call Me cash cow

Vodacom’s long losing streak in the Please Call Me case continues. As previously reported in Legalbrief Today, the Supreme Court of Appeal last week gave it 30 days to come up with a reasonable compensation package for Please Call Me inventor Kenneth Nkosana Makate. Given the 15 years of litigation and the monstrous legal bills that come with it, Makate would not have made it so far without funding of the kind provided by Sterling Rand Litigation Fund, which has reportedly backed his hefty legal campaign. A Moneyweb analysis notes that the fund is in line for a handsome payout once the case is finally settled, and should Makate clear the next hurdle at the Constitutional Court – where Vodacom has vowed to appeal the SCA decision. In 2020, it was estimated by the Swiss Re Institute that litigation finance was worth $17bn a year in funding, and is a global phenomenon that is gaining traction in the insurance and other sectors. A report by GRM Intelligence says litigation funding has exploded in recent years and ‘will become a mainstream asset class in Africa’ with investors looking for a handsome return.

It's a way for shallow-pocketed litigants to take on the giants and beat them. It’s also a popular way to get class action suits off the ground, as was done by Richard Spoor Inc in the silicosis case against the mines. Third party funders typically take a percentage of the winnings, anywhere between 25% and 50%. Sometimes these percentages are not disclosed, and that can potentially prejudice legal outcomes. Third party litigation funder Augusta Ventures has a £585m war chest to assist claimants globally. ‘Litigation funding is generally not considered a loan, but rather as a form of an asset purchase as the funding does not have to be repaid if the plaintiff’s lawsuit is unsuccessful. If the litigant loses, he does not have to repay the money,’ says corporate finance analyst Maano Thovhakale. Moneyweb notes that the courts have ruled that agreements to share the proceeds of lawsuits is not necessarily unlawful and need to be considered when litigants cannot finance their own cases.

In the Steinhoff case, third party or litigation funders were to be brought in to fund a class action suit against those deemed responsible for the collapse of the company and the loss of share value. Judge David Unterhalter noted that two companies, DRRT Limited and Therium, both with a track record in funding large class action suits, were identified as the funders of a class action suit seeking to recover funds lost in the company collapse. The court needed to know how the class action was to be funded and what arrangements had been made, none of which was placed before the court. Moneyweb notes that the funders in this case were vague in their declarations of compensation in the event of victory. ‘The funding arrangements must not compromise the requirement that the litigation is conducted in the interests of the class members,’ writes Norton Rose Fulbright director Donald Dinnie.