Research On The System Of Third-Party Litigation Funding

Litigation is one of the fundamental institutions and expensive proceedings on which a nation is constructed and public services are rendered, the running of which is backed by the powers of a certain nation under the control of the hands of the elite figures of judiciary bodies and carried out in a closed space exclusive of irrational noises. For this reason, modern nations levy taxes to ensure the public-interest nature of their j’udicial services. However, the only fact that a nation levies taxes shall not justify the arguments for zero litigation fees, and therefore the expenses of courts shall not be compensated for from the taxes collected by a nation, because such ideas are in confliction with the pure nature of litigations and fail to account for the counter-argument that tax payers collectively presented by a nation shall not bear the expenses incurred by the misconducts of individuals, considering that suits are the results of the misconducts of only parties engaged in a litigation. Therefore, litigation costs shall surely fall into two categories, that is, the public costs bearable by a nation and the private parts attributable to parties concerned. Private costs consist of the expenses of courts and private expenses. Courts’expenses refer to the sum paid by the party or parties bringing his or their cases before a court. Private costs are comparatively more variable, consisting principally of lawyer fees and those others as paid outside a court, namely, to expertise witness, for evidence preservation, for legal consultation, and etc,. Litigation fees serve dual functions of compensating for national costs on one hand and adjusting the willing of individuals to initiate a suit on the other hand. Taking into accounts of the balance between the protections of public interests and private interests, the ideal statues of determining private costs, for this reason, shall be:on one hand, not discourage individuals’motives of protecting their lawful rights by means of litigation owing to the high expenses incurred possibly; on the other hand, prevent individuals from abusing the proceedings. While proceedings in developed countries in the west tend to become more and more refined and even sophisticated since the late part of the20th century, these countries are trapped by prickly judicial crisis. With the soar of litigations in the background of rapid economic development, problems such as trivial proceedings, low efficiency, tardy litigation, high costs, and uncertainty of litigation results and so on hinder the efficient remedy for individuals’ rights and interests become even acute. As a response, the ideal of "from law state to welfare state " characterized by "Access to Justice" emerged to ensure that the concerned parties shall not be kept out of the door of courts by the constraints of economic status and trivial proceedings. All the factors above, to a certain degree, can be converted to the imbalance relationship between costs and profits, therefore, emphasis of judicial reform in the western countries shall be put on how to lower down litigation costs and lessen the burden of litigation fees on the concerned parties The traditional transfer mechanism employed as an effort to alleviate the burden of litigation fees on the parties concerned has failed to cope with the pressure brought by the explosion of litigations and come to reveal the problems such as high running-costs, low social efficiency and arbitrariness, especially the heavy financial burden on national assistance system. Just as the Kyushu Spring goes, it’s a pity to abandon and fruitless to pursue. The British government has even cancelled its financial inputs into the legal assistance system, hoping that the limited litigation resources shall be employed to improve the quality of litigations. A market-oriented approach aimed at helping parties involved to transfer litigation fees has come into shape as echoed by the markets. Abiding by the principle of compensation of equal value, the market-centered approaches are intended to adjust the imbalance inherent in civil litigation mechanism, by employing the Leverage Effect of resource aggregation, one of which is to have financial bodies bear the litigation costs in return for a part of the profits from litigation. This effort turns out to be the subject matter of study in this dissertation, that is, Third-Party Litigation Funding (TPLF). This practice emerged in the90s of the last century. Although it has only a short history of about20years, it has demonstrated quite good social effects, and has become an important means of "Access to Justice " as advocated by British and so forth. Based on the discussions above, the present efforts in this paper will be focused on the practice, by conducting researches on the fundamental rationale, historical developments and contemporaneous statues, operational mechanisms and etc., so as to probe into the necessity and possibilities, and route of introducing the practice into China with the view of promoting the litigation fee transfer system in our country so that the interested parties shall enjoy barrier-free Access to Justice in their pursuit of justice.In addition to preface, this paper will be divided into4chapters with the detailed contents and arguments as listed below:Chapter One:Connotation and Orientation of TPLF. This chapter will be devoted to the definition of the concept, identification of the characteristics, boundaries, natures and orientation of TPLF. To begin with, this paper conducted an etymological study of the concept of TPLF. Based on the clarification of the common behavioral patterns connoted in the current typical concepts, the author of this paper summed up the keywords by which the etymology and definition could be identified from the three dimensions of the content of behavior, the subject and scope. As a result of the initial research, this paper holds that TPLF is a sort of financing behavior provided by a third party irrelevant to litigation and applicable to both litigious and ADR way of settling disputes. Further studies on the connotation and denotation of the concept of TPLF as fixed in this paper are conducted with the purpose of determining the scope of research. Secondly, in the section in relation to the characteristics and classification of TPLF, the author argues that TPLF involves the dual natures of financing service and legal service, that it runs self-disciplinarily on the rules of a market, that fees transferrable cover a wide range including courts’fees and those bearable on parties involved, that this sort of rescue is applicable only after the occurrence of a dispute, that it should be applied case-to-case, and that the investment clauses shall be decided pursuant to the specific condition of a case. In the section related to the classification of TPLF, the author of this paper, according to the differences in the characteristics of TPLF, classified the system into different categories. After that, this paper identified the legal nature of TPLF and located it in the framework of law. The author, by putting TPLF within the framework of civil litigation procedure and examining the relevant up-level theory and parallel mechanism, argues that it is a second-times or alternative way transferring litigation costs operated on the underlying principle of compensation for equal value and applied principally to cases of commercial nature and of huge targets, which are beyond the coverage of judicial assistance system. Therefore, it plays a supplementary and alternative role in the litigation fee transferring and diverse social security systems. The author, upon the analysis of the characteristics of TPLF’s behavioral patterns, identifies it as a form of risk investment applied in the field of civil litigation, the purpose of which is to lay a solid foundation for interpreting and discussing it from the angle of civil litigation theory and risk investment theory, and to reveal the fact that the development of TPLF complies with the rules of markets and the core issue of the practice is how to prevent market failure.Chapter Two:The History and Present Situation of the TPLF. This part aims at examining the theoretical foundations, development and current situation of the TPLF. Firstly, the author argues that the theoretical premises consists of the satisfaction of the parties’ desire to access to justice, fair risk management, parties concerned possess commercial rationality in most cases and respect for freedom of transferring anticipatory profits. Secondly, the historical development of TPLF practice in various judicial domains shows that its development is also a gradual expansion of tolerance for litigation financing behaviors. TPLF was originated from the real demand of a society, the development of which, however, was followed by doubts and negation. The core element by which its tolerance is to be judged is whose hands the power of controlling litigation lays. Based on comparative analysis, this paper reveals also the rules underlying the development of TPLF, and argues that the maturity of its practice depends mainly on the current situation of TPLF and the judicial policies in a certain country. In addition, for further understanding of the outline of the system, the author chose the European market as a subject matter of empirical study and summarized the normal operating models, current situation and future tendency in markets, with the view of providing data for further studies on the operational mechanism of it.The third Chapter:an extensive study on the operational mechanism of the TPLF. This chapter aims at abstracting and classifying the behaviors with respect to the TPLF from the aspect of functions, and analyzing the rationale by which it abide, effects it renders, what effects or problems it may produce, and the ways to deal with the problems. To start with, this paper is intended to display, in commercial cases which the TPLF is most frequently involved, the dynamic functions of the TPLF in preliminary neutrality assessments, of protecting of Right of Action, of managing risks in the course of litigation, its effects on society as a whole, together with the possible operational defects in the course of execution. To put it in a more detailed way, preliminary neutrality assessment might be achieved by means of screening tests, the result of which, however, might lead to unfair bargaining between investors and parties involved in litigations; transferring litigation fees might help achieving protection of Rights of Action, it may, however, cause the problem of right abuses; cost managements and reports on material facts might attribute to the realization of risk management in the course of litigation, it however, may impose constraints on the freedom of parties to dispose their rights, hampering appropriate use of rights of action, endangering the independence and professionalism of lawyers and resulting inequality judicial statues of the defendants. The realization of TPLF’s dynamic adjusting function on the social orders shall be realized by means of deterrence power, and appropriate allocation of social costs shall be achieved by way of adjusting the quantities of various types of litigations. Secondly, In addition to its usual operational mechanism as observed in most ordinary cases, TPLF might have some extraordinary effects and problems in a couple of particular cases. Thirdly, by summarizing the main-stream attitudes towards TPLF of the countries where it is currently practiced, this paper reveals that it is wise to encourage and regulate TPLF by way of legislation so as to draw out the advantages, while avoid the defects of it. This part further discussed the cures to the mechanical defects of TPLF in these countries.Chapter Four:Localization of TPLF. This chapter in devoted to exploring the necessity and feasibility of transplanting TPLF into China, and the route of introduction. Firstly, based on the examination of burdens of litigation fees on parties engaged in civil litigation proceedings in China and the defects in the systematic construction and coverage of TPLF, this paper draws the conclusion that it’s necessary for China to introduce TPLF. Secondly, this paper further discussed the possibility of introducing TPLF into contemporaneous Chinese law system with respect of legal and social conditions. As to the first condition—Adequate Provision of Judicial Systems and the second condition—the Contradiction between the Need of Access to Justice and the Pressures on Judiciary, this paper argues that, taking into account of the revision of the Civil Procedure Law and improvement in ADR in China and the rapid growth in litigations, the way has been paved out for the future development of TPLF. As to the third condition—highly professionalism of legal services and the forth—controllable risks, this paper holds, however, that there are still much to do in China. With regard to the fifth condition—reforms in financial industries and financial services, and the sixth condition—governmental involvement and legislature support, this paper argues that it is obvious there lacks the objective condition for the introduction of TPLF. Therefore, it is still not feasible for China to introduce TPLF into China at present. Thirdly, this paper analyzed the potential of introducing TPLF in the future, based on the examination of the embryo of TPLF in China. Lastly, considering the trend of economic, social and legal developments, the author probed into the possible route to introducing the system in China.