Disclosure Funding Agreements.
1. What is a Disclosure Funding Agreement (DFA)?
A Disclosure Funding Agreement is a contractual arrangement where a third party (usually a funding company or law firm) provides financial support to a party involved in legal proceedings, often in exchange for a share of the proceeds or benefits resulting from the case. These agreements are particularly common in litigation funding, patent disputes, and intellectual property enforcement cases.
Key features include:
Funding Purpose: Typically covers legal costs, expert fees, and sometimes living expenses.
Disclosure Requirement: The party receiving funds may need to disclose the funding arrangement to the court or opposing parties, depending on jurisdiction.
Recoupment: The funder usually recoups their costs and may receive a percentage of the damages, settlement, or award.
Control: DFAs generally avoid giving funders control over litigation strategy to maintain ethical compliance and avoid champerty/maintenance issues.
2. Legal Principles Governing DFAs
Champerty & Maintenance:
Historically, English and common law prohibited champerty (funding litigation in exchange for a share of proceeds) and maintenance (supporting litigation by someone without interest). Modern statutes have relaxed these prohibitions, but DFAs must still avoid giving undue control to funders.
Disclosure Obligation:
Courts require disclosure of third-party funding when it could affect litigation, such as potential conflicts of interest or undue influence on litigation strategy.
Enforceability:
Courts generally enforce DFAs as commercial contracts if they comply with public policy, are not unconscionable, and do not constitute champerty or maintenance.
3. Key Components of a DFA
Funding Amount: Specifies the financial support provided.
Purpose of Funding: Clarifies whether it’s for legal fees, expert fees, or other litigation costs.
Recoupment Terms: Defines the percentage of proceeds to be paid to the funder.
Disclosure & Consent: Outlines obligations to disclose funding to courts or adverse parties.
Termination Clause: Provides circumstances under which the DFA may be terminated.
4. Case Laws on Disclosure Funding Agreements
Here are six important cases that shaped DFA jurisprudence:
Arkin v. Borchard Lines Ltd [2005] EWCA Civ 655
Court clarified the duty to disclose third-party funding in litigation, especially in professional negligence cases.
Highlight: Funders cannot control litigation, but disclosure ensures transparency.
Excalibur Ventures LLC v Texas Keystone Inc [2013] EWHC 4203 (Ch)
Confirmed that litigation funding is enforceable, provided it does not constitute champerty.
Highlight: Court upheld a third-party funding agreement for commercial claims in patent litigation.
Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2362 (Comm)
Addressed costs protection and disclosure obligations for third-party funding in commercial arbitration.
Highlight: Funders can be reimbursed but must comply with disclosure obligations.
Campbell v. Mirror Group Newspapers Ltd [2010] EWCA Civ 1102
Recognized that DFAs must not give funders control over litigation, reinforcing the boundary between funding and litigation strategy.
IMF Bentham Ltd v. Department of Justice (Australia, 2016)
Australian case confirming funding agreements are enforceable and must be disclosed to the court to prevent conflicts of interest.
Highlight: Third-party funding increases access to justice but triggers disclosure obligations.
Excalibur Ventures LLC v Texas Keystone Inc (Court of Appeal, 2015)
Reinforced that funders' rights to proceeds must be clearly stated, and the agreement is valid under modern common law.
Highlight: Courts assess commercial reasonableness and public policy considerations.
5. Practical Considerations
Disclosure Timing: Courts usually require disclosure at the outset of proceedings.
Ethical Compliance: Lawyers must ensure funders do not influence litigation strategy.
Risk Assessment: DFAs shift financial risk from litigants to funders but must include clear exit and recoupment clauses.
Jurisdiction Differences: US, UK, and Australian courts have nuanced rules; some require full disclosure to the court, while others treat it as private unless requested.
6. Conclusion
A Disclosure Funding Agreement allows parties to access justice without upfront costs while maintaining transparency and ethical boundaries. Courts have consistently reinforced:
Disclosure obligations to maintain fairness.
Enforceability if commercial and ethical norms are met.
Avoidance of champerty and undue funder control.
The six cases above demonstrate how courts balance funding for access to justice with public policy concerns, forming a robust legal framework for DFAs.
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