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A litigation financing agreement is a commercial contract that allows third-party funders to provide financial backing for legal proceedings in exchange for a share of any successful outcome. Under New Zealand law, these agreements have gained judicial acceptance as a legitimate means of improving access to justice, particularly for high-value commercial disputes and class actions where claimants lack sufficient resources to fund litigation themselves.

When do you need this document?

You need a litigation financing agreement when pursuing expensive legal proceedings without adequate personal or corporate funds to cover legal costs, adverse cost risks, and case management expenses. This document is essential for commercial litigation involving substantial damages claims, class action lawsuits where multiple parties seek collective redress, insolvency-related disputes where liquidators require funding to pursue recoveries, and intellectual property disputes requiring expert evidence and lengthy proceedings. The agreement is also necessary when you want to remove financial risk from litigation while maintaining control over strategic decisions, or when existing funding sources are insufficient to see a meritorious case through to completion.

Key legal considerations

Your litigation financing agreement must clearly define the scope of funding coverage, including legal fees, court costs, expert witness expenses, and potential adverse cost orders. The investment return structure requires careful consideration, typically involving a multiple of the funding amount or percentage of recovered damages, with clear priority arrangements for fund repayment. Control provisions are crucial, establishing whether the funder has input into settlement decisions, case strategy, or legal representative selection while preserving your fundamental control over the proceedings. Confidentiality clauses must balance the funder's need for case information with legal professional privilege requirements. The agreement should include termination provisions covering circumstances where funding may be withdrawn and consequences for both parties.

Legal requirements in New Zealand

Under the High Court Rules 2016, you must disclose litigation funding arrangements to the court and opposing parties, ensuring transparency in proceedings. The Contract and Commercial Law Act 2017 governs the fundamental aspects of agreement formation and enforcement, requiring clear terms and consideration. Your agreement must comply with the Lawyers and Conveyancers Act 2006 regarding legal professional duties and potential conflicts of interest. If the funding arrangement involves financial products or services, compliance with the Financial Markets Conduct Act 2013 may be required. The Fair Trading Act 1986 ensures fair dealing provisions are met, particularly regarding disclosure of material information. Professional indemnity insurance arrangements and adverse costs insurance should be clearly addressed to manage litigation risks effectively.