THE FUNDING OF ACTIONS
| Pages | 155-172 |
| Published date | 01 April 2000 |
| Date | 01 April 2000 |
| DOI | https://doi.org/10.1108/eb027271 |
| Subject Matter | Accounting & finance |
Chapter Four
THE FUNDING OF ACTIONS
Journal of Money Laundering Control — Vol. 4 No. 2
55 Executive summary
55.1 In this chapter, the options for funding large-
scale corruption actions for the recovery of assets
and the seizure of assets as part of civil claims for
damages for human rights abuse are considered. We
have sought to set out our understanding of particular
funding mechanisms which are either available to be
used in England and Wales or are available in other
jurisdictions and thus could potentially be made
available in England and Wales.
55.2 We have identified six alternative methods of
funding corruption cases:
(1) Conditional fee arrangements are now used in
England and Wales to finance the cost of some
forms of civil litigation. This has otherwise
been termed 'no win, no fee' litigation and is
distinct from the contingency fee regime which
is permitted in the USA. Conditional fees
require a degree of risk sharing between the
client and the lawyer. It may be that due to the
enormity of the potential costs involved in this
type of litigation and the fact that such cases
tend to be one-off (thus reducing the pportu-
nity for the lawyers or accountants to spread
the risk of losing one case against the probability
of winning others), this is a less attractive form of
funding.
(2) After the event litigation costs insurance enables
the claimant to insure against the contingent
liability for its own costs and disbursements in
the case and also for the contingent risk of incur-
ring costs and disbursements for the defendant in
the case. This form of funding has been used in a
small number of large-scale cases in the last five
years.
It may provide some level of risk manage-
ment and accounting certainty to the claimant,
which may be a public body. It may also provide
an incentive for the defendant to settle the case in
view of the claimant's cost protection. The insur-
ance policy may also form the basis of security
for a loan to finance the costs of the actual liti-
gation. However, any insurer requires that
there is a reasonable prospect of success.
(3) Venture capital may be used to allow victims to
assign a partial share of their claim to an owner of
capital, who in return funds the cost of the liti-
gation. The venture capital company funds the
action in the expectation that the case will win
and the venture capital company will receive
satisfaction through its partial share of each of
the victims' claims, while the victim receives
damages to the value of its remaining interest
in the claim.
(4) At least the initial investigatory stages of any
litigation could be financed by an international
lending agency or bilateral aid agency. We
consider that litigation which ought to have
the effect of deterring corruption by public
sector officials and securing recoveries to, in
part, permit repayment of loans owed to the
international lending agency could be within
the mandate of such international bodies. We
also believe that funding multijurisdictional
litigation by such an international body would
enhance the international respectability and
accountability of such litigation.
(5) Large law firms might be prepared to take on an
international corruption case on a pro
bono
basis if
they anticipated receiving worthwhile positive
press coverage from their involvement or
wanted to use the case as a means of showing
their expertise in the area in order to win further
work.
(6) 'Booty hunters' are considered in passing in the
report for the sake of completeness. We consider
whether there is a role for the 'booty hunter' in
financing the tracing of assets in corruption
cases in return for a share of the assets if they
are recovered.
55.3 Case management issues are also considered of
relevance by the group due to the number of pro-
fessionals from different disciplines who would
need to be involved in cases of this magnitude and
complexity.
55.4 Finally, we consider the ethical aspects of
different methods of financing litigation. We note
Journal of Money Laundering Control
Vol. 4, No. 2, 2000, pp. 155-172
Henry Stewart Publications
ISSN 1363-5201
Page 155
The Funding of Actions
that conditional fees and after the event litigation
costs insurance are currently permitted by the ethical
rules governing solicitors and barristers in England
and Wales. Success fees, whereby the fee is based on
a per centage of the ultimate recovery, are not per-
mitted for lawyers in England and Wales, although
they are a method of funding litigation which
could be used in certain other jurisdictions, most
notably certain states in the USA, and they can also
be used by forensic accountants, where they are not
engaged as experts to assist the court. We note that,
subject to certain exceptions (such as insolvency
law),
venture capital finance or other purchasing of
unliquidated claims is not permitted in England
and Wales by the doctrine of champerty and main-
tenance. However, we consider whether a reform
of this doctrine 'might facilitate greater access to
justice for victims from developing countries, who
are unable to pay the high costs of litigation in
England and Wales.
56 Recommendations
56.1 In order to improve access to justice for the
victims of corruption, we recommend:
(1) International and bilateral agencies, including the
World Bank, should consider whether they are
prepared to finance at least an initial investi-
gation into the possibilities of asset recovery
litigation in cases of corruption by public sector
officials.
(2) The government should undertake further study
to consider the place of the doctrines of main-
tenance and champerty in the legislative frame-
work of the twenty first century and whether
the demands of public policy have changed
such that these doctrines are in need of reform.
(3) As a part of such a study, the government should
consider whether the use of venture capital and
US-style contingency fees should be approved
forms of funding for litigation undertaken in
England and Wales.
(4) While the provision of legal services on
a
pro bono
basis will never provide a complete solution
to this type of costly and risky litigation, the
Law Society and the Solicitors Pro Bono
Group should consider including this type of
work in any future survey of pro bono work, to
ascertain whether any of the large law firms
would be interested in undertaking this sort of
international corruption litigation on a pro bono
basis.
57 The nature of the problem
57.1 Legal action to recover money misappro-
priated by public sector officials tends to be very
expensive. Recovery is an avenue which is beyond
the financial reach of many of the victims of such
wrongdoing. In this chapter, we consider the
mechanisms for the finance of legal actions that are
or could be available to the victims in England and
Wales, and how these might be used to assist the
victims of misappropriation to recover their assets.
We have assumed, for the purposes of this paper,
that the costs of mounting an effective multijurisdic-
tional investigation and legal action will be in excess
of £1m, and they may be considerably in excess of
this amount.
57.2 Examples of the type of misappropriations
of funds which we have considered are the well-
publicised cases of alleged corruption by ex-President
Mobutu of the former Zaire, ex-President Marcos of
the Philippines, ex-Prime Minister Bhutto and her
husband, Asif Ali Zadari of Pakistan, President
Milosevic of Serbia and others. In considering these
cases,
we have relied on press reports and have
made no attempt to verify the accuracy of such
reports.
57.3 The types of victims in cases such as these can
be summarised as cither:
— sovereign states; or
— victims of human rights abuses or other
individuals who have suffered loss.
57.4 Individual victims are often unlikely to have
access to sufficient funds to mount a legal action in
their own right, as are sovereign governments of
many of the developing countries which have
suf-
fered from such misappropriations by public sector
officials. Governments of richer nations may have
difficulty in justifying the spending of large sums of
money on legal actions in jurisdictions outside their
own where the likely outcome is subject to a high
degree of risk.
57.5 Litigation may be commenced in England
either because the underlying act of wrongdoing
was committed in this jurisdiction, because the rele-
vant assets are located in this jurisdiction, or because
Page 156
To continue reading
Request your trial