Rules on the Costs and Funding of Shareholder Litigation

Chen, Wenjing

doi:10.1007/978-981-10-3623-1_3

Wenjing Chen²

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Abstract

Different forms of shareholder litigation, including shareholder derivative actions, shareholder direct actions and shareholder class actions, are all considered to fall within the scope of civil litigation.

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Notes

1.
For example, in the United States, the procedural requirements of the derivative action are incorporated in Rule 23.1 in Federal Rules of Civil Procedure; In the United Kingdom, such kind of provisions are found in Part 19.9 of Civil Procedure Rules. And in China, article 3 of the PRC Civil Procedure law provides that ‘the provisions of this law is dealing with civil litigation arising from disputes on property and personal relations between citizens, legal persons or other organizations’.
2.
Christopher Hodges, Stefan Vogenauer and Magdalena Tulibacka, The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 12.
3.
Christopher Hodges, Stefan Vogenauer and Magdalena Tulibacka, The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 13.
4.
Ibid.
5.
‘A tariff system’ refers to rules on how much fees could be charged from litigation parties by the court and how the fees are calculated.
6.
The importance of predictability of the cost will be discussed later.
7.
诉讼费用交纳办法(Measures for the Payment of Litigation Costs), (2007), English version is available at http://www1.lawinfochina.com/display.aspx?lib=law&id=5765 (accessed on 13 July 2016).
8.
Article 20 of the MPLC.
9.
The ‘retrial proceeding’ (再审程序) indicates a court proceeding where litigation parties could apply for a new proceeding on a case which has been adjudicated before. Article 177 of the PRC Civil Procedure Law.
10.
‘A third party with an independent claim’ (有独立请求权第三人) refers to a person who has an independent claim to the object of the current action. Article 56 of the PRC Civil Procedure Law.

11.

The monetary value of the case (RMB)	The case acceptance fee to be charged (RMB)
Lower than 10,000	Fixed fee of 50
From 10,000 to 100,000	50 + 2.5% (A-10,000)
From 100,000 to 200,000	2300 + 2% (A-100,000)
From 200,000 to 500,000	4300 + 1.5% (A-200,000)
From 500,000 to 1,000,000	8800 + 1% (A-500,000)
From 1,000,000 to 2,000,000	13,800 + 0.9% (A-1,000,000)
From 2,000,000 to 5,000,000	22,800 + 0.8% (A-2,000,000)
From 5,000,000 to 10,000,000	46,800 + 0.7% (A-5,000,000)
From 10,000,000 to 20,000,000	81,800 + 0.6% (A-10,000,000)
More than 20,000,000	141,800 + 0.5% (A-20,000,000)

12.
Article 15 of the MPLC.
13.
Under article 193(1) of the 2007 Civil Procedure Law, the holder of transferable negotiable instruments may apply for a public summons where such negotiable instruments are stolen, lost or destroyed. The effect of a public summon is to nullify such negotiable instruments and protect the interest of the holder of it.
14.
The calculating method is stipulated in article 14(1)(2)(3)(6) of the MPLC. And the application fees for preservation measures and for insolvency proceedings are capped at RMB 5000 and RMB 300,000, respectively. According to subsection (4)(5)(7) of this article, with regards to public summons, revocation of arbitral awards, confirmation of effectiveness of arbitral awards, and certain types of applications under 1999 PRC Special Maritime Procedure Law, the application fees are fixed, ranging from 100 RMB to 10,000 RMB.
15.
Chinese law provides that the losing party in a civil lawsuit should be liable for the winning party’s court charges (article 29 of the MPLC).
16.
From 2006 to 2011, there were just 60 derivative lawsuits brought into the courts. Dan Wang, Theoretical analysis on shareholders’ derivative actions, (in Chinese) (公司派生诉讼论), (China legal publishing house, 2012), p. 325.
17.
Changwu Zuo and Guanghua Yu, ‘The rationality of legislation and the efficiency of the law enforcement: begin with the analysis of derivative actions’ (in Chinese) (理性立法和法律实施的效率: 从分析公司派生诉讼机制开始), http://hub.hku.hk/handle/10722/136717 (accessed on 10 August 2016).
18.
Ibid. The reason for the proposal about fixed court charges for derivative actions might be that, from the points of view of this book, derivative actions demonstrate boarder public significance than ordinary civil litigation. It could have deterrence effects for potential wrongdoers and set as an example for good corporate governance.
19.
Peizhong Gan, ‘An overview of shareholder derivative actions in Chinese company law’, (in Chinese, 简评中国公司法对股东派生诉讼制度的借鉴 ‘jianping zhongguo gongsifa dui gudong paisheng susong zhidu de jiejian’), http://www.civillaw.com.cn/Article/default.asp?id=25127 (accessed on 10 August 2016).
20.
Ibid.
21.
The current Chinese company law provides two main company forms—limited liabilities companies (LLC) and joint stock limited companies (JSLC), which are provided respectively in Chaps. 2 and 4 of PRC company law.
22.
See Guanghua Yu and Junhai Liu, ‘Legislation and the enforcement of law’, (in Chinese), (理性立法和法律实施), commercial law forum no. 330, the minute of this forum could be available at (in Chinese) http://www.civillaw.com.cn/article/default.asp?id=43662 (accessed on 10 August 2016).
23.
It demonstrates after the fees reduction for derivative claims, there was a rise in the filing of such actions in Japan. Dan W. Puchniak, ‘The complexity of Derivative Actions in Asia: an Inconvenient Truth’, in The Derivative Action in Asia: a Comparative and Functional Approach, Dan W. Puchniak et al. (eds), (Cambridge University Press, 2012), 90, pp. 144–145.
24.
Christopher Hodges et al., The cost and funding of civil litigation, (Hart Publishing, 2010), p. 295.
25.
Lord Jackson, Review of Civil Litigation Costs: Preliminary Report, (the preliminary report), May 2009, p. 63.
26.
Lord Jackson, Review of Civil Litigation Costs: Preliminary Report, (the preliminary report), May 2009, p. 63–65.
27.
Lord Jackson, Review of Civil Litigation Costs: Preliminary Report, (the preliminary report), May 2009, p. 63.
28.
In Lord Jackson’s preliminary report 2009, he indicated that taxpayer afforded around 20% of the funding of the court system. A document of Ministry of Justice in 2012 showed that the taxpayer paid 18% of the funding of court system. Therefore, it seems that Lord Jackson’s proposal has not been adopted. See ‘Why we charge court fees’, (March, 2012), available at http://www.justice.gov.uk/courts/fees/why-we-charge (accessed on 14 August 2016).
29.
Andrew Le Sueur, ‘A Report on Six Seminars About the UK Supreme Court’ (December 2008), p. 26. QueenMary School of Law Legal Studies Research Paper No. 1/2008, Available at SSRN: http://ssrn.com/abstract=1324749 or http://dx.doi.org/10.2139/ssrn.1324749 (accessed on 10 August 2016).
30.
Deborah R. Hensler, ‘The national report on cost and funding of civil litigation in the United States of America’, in Christopher Hodges et al. (eds), The Cost and funding of Civil Litigation, (Hart Publishing, 2010) 535, p. 539.
31.
Ibid.
32.
For more details about the filing fee in court of chancery in Delaware, http://courts.delaware.gov/help/fees/chanceryfees.stm#civilaction (accessed on 10 August 2016).
33.
ibid.
34.
Institute for the Advancement of the American Legal System, ‘Preserving access and identifying excess: areas of convergence and consensus’, (2010), p. 13.
http://civilconference.uscourts.gov/LotusQuickr/dcclMain.nsfl$defaultview/7B6BO47956592D3A8525771900011F6A/$File/IAALS,PreservingAccess_and_IdentifyingExcess.pdf (accessed 10 August 2016).
35.
Institute for the Advancement of the American Legal System, ‘Preserving access and identifying excess: areas of convergence and consensus’, (2010), p. 14.
36.
Ibid.
37.
See Christopher Hodges et al., The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 71.
38.
Yong’an Liao, A Research on Litigation Costs, (诉讼费用研究), (Press of China University of Political Science and Law, 中国政法大学出版社, 2006), pp. 31–32.
39.
For example, article 84 of the Civil Procedure Rule of Taiwan provides if the case is ended with a settlement, half of the case acceptance fees could be refunded. And see Yong’an Liao, A Research on Litigation Costs, (诉讼费用研究), (Press of China University of Political Science and Law, 中国政法大学出版社, 2006), pp. 33–34. (it stated that Chinese courts encourage litigation parties to achieve a settlement through negotiation in order to save judicial resources and maintain the social harmony).
40.
See Christopher Hodges et al., The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 16.
41.
The self-determined power is still subject to government’s guidance. Article 6 of the MALF provides that ‘the benchmark price and the floating range of market-regulated price shall be determined by the competent department of price of the people’s government of each province, autonomous region or municipality directly under the central government together with the judicial administrative department at the same level’.
42.
Like in Article 9 of the MALF, it provides: The following main factors shall be taken into account when a law firm is consulting about the lawyers’ fees with its clients: (1) time to be spent on the work; (2) complexity of the legal affair; (3) affordability of the clients; (4) risks and responsibilities the law firm might assume; and (5) social reputation and working level, etc. of the lawyers. http://www.chinalawinfo.com/ (accessed on 10 August 2016)
And the United States of America, article 1.5 of the Model Rules of Professional Conduct (the MRPC) adopted by American Bar Association (ABA) provides a similar standard that ‘(a) A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses. The factors to be considered in determining the reasonableness of a fee include the following: (1) the time and labour required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer; (3) the fee customarily charged in the locality for similar legal services; (4) the amount involved and the results obtained; (5) the time limitations imposed by the client or by the circumstances; (6) the nature and length of the professional relationship with the client; (7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (8) whether the fee is fixed or contingent.’http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_5_fees.html (accessed 10 August 2016).
43.
Many countries adopt the cost-shifting rule. For instance, China (but loser is only liable for the winning party’s court charges); Japan (only shifts the court charges to the losing party, the same like China’s cost-shifting rule); The Netherlands (a mitigated cost-shifting rule where the shifting lawyer’s fees are based on tariff is applied); Spain; Switzerland. See Christopher Hodges et al., The Cost and funding of Civil Litigation, (Hart Publishing, 2010), pp. 187–545 (the Party of ‘National Reports’).
44.
Christopher Hodges et al., The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 17.
45.
Fewer countries and arears adopt the US non cost-shifting rule. Examples of non cost-shifting rule could be found in British-Columbia in Canada for collective redress litigation. (British Columbia Class Proceedings Act, s. 37).
46.
Christopher Hodges et al., The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 80.
47.
Ibid.
48.
However, Chinese legislators may adopt the shifting of lawyer’s fees and other relevant costs (reimbursement of witnesses and expert’s fees) might be adopted in the future (article 29 of the MPLC). A consultant paper in this regard was issued to collect opinions from the general public. The consultant paper proposed that the losing party should bear the lawyers’ fee as well as other relevant costs (such as reimbursement of witnesses and experts’ fee). According the responses from the public, some people support this amendment while other people oppose it. The people who support it hold that expanding the scope of ‘shifted cost’ would prevent frivolous cases. People opposing it argue that this amendment might deter some claimants who are impecunious. And the expanding of the scope of ‘shifted cost’ would make litigation riskier. All-China Lawyers Association, ‘Proposed amendments to Chinese Civil Procedure Law, A Consultation Paper’, (中华全国律师协会,民事诉讼法修正案修改意见稿), (2011), (in Chinese), available at http://www.legaldaily.com.cn/index_article/content/2011-12/01/content_3150583.html (accessed on 14 August 2016).
49.
Christopher Hodges et al., The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 78.
50.
Steven Shavell, Foundations of Economic Analysis of Law, (Harvard University Press, 2004), p. 429.
51.
Ibid.
52.
Ibid.
53.
Tom Schepens, ‘Bridging the funding gap-the economics of cost shifting, fee arrangements and legal expenses insurance and their prospects for improving the access to civil justice’, German Working Papers in Law and Economics, (volume 7, article 1, 2007), p. 8. http://www.core.kmi.open.ac.uk/download/pdf/6541012.pdf (accessed on 10 August 2016).
54.
The marginal cost of an activity is the increase in total cost that results from carrying out one additional unit of an activity. The marginal benefit of an activity is the increase in total benefit that results from carrying out one additional unit of activity. From the economic perspective, it is thought that ‘marginal cost equals marginal benefit is an optimal condition’. See Robert H. Frank and Ben S. Bernanke, Principles of Economics, (Mcgraw-Hill Irwin, 2001), p. 12.
55.
Ibid.
56.
For a comprehensive overview of the empirical literature on cost shifting, see Herbert M. Kritzer, ‘Lawyer Fees and Lawyer Behaviour in Litigation: What Does the Empirical Literature Really Say?’, Texas Law Review, (2002) 1946, p. 1952.
57.
Edward A. Snyder and James W. Hughes, ‘The English rule for allocating legal costs, evidence confronts theory’, Journal of Law, Economics and Organization (1990), Volume 6, 345, p. 374.
58.
James W. Hughes and Edward A. Snyder, ‘Allocation of litigation costs: American and English rules’, in Peter Newman (ed.), The new palgrave dictionary of economics and the law, (Palgrave Macmillan, 2004), 51.
59.
Matthias Kilian ‘Alternatives to Public Provision: The Role of Legal Expenses Insurance in Broadening Access to Justice: The German Experience’, Journal of Law and Society, (2003), Volume 30(1), 31, p. 42.
60.
Maria Glover, ‘The structural role of private enforcement mechanisms in public law’, William & Mary Law Review, (2011), volume 53, 1137, pp. 1138–1139.
61.
Christopher Hodges et al., The cost and funding of civil litigation, (Hart Publishing, 2010), p. 79.
62.
For example, in corporate governance, minority shareholders could supervise and rectify misbehaviours of directors and other senior managers through private enforcement.
63.
The fact that shareholder litigation is expensive has been confirmed by legal scholars and legal practioners in many countries. For instance, for US, see Roberta Romano, ‘The Shareholder Suit: Litigation without Foundation?’, The Journal of Law, Economics and Organization, (1991), Volume 7(1), 55; Daniel J. Morrisey, ‘Shareholder Litigation After the Meltdown’, West Virginia Law Review, (2011), Volume 144, 531; Randall S. Thomas, ‘A Theory of Representative Shareholder Suits and its Application to Multijurisdictional Litigation’, Northwestern University Law Review, ((2012), Volume 106(4), 1753; Mark J. Loewenstein, Shareholder Derivative Litigation and Corporate Governance, Delaware Journal of Corporate Law, (1999), Volume 24(1), 1; Jacob Gershman, ‘Losing a shareholder lawsuit could soon become more expensive’, (May, 2014), available at http://blogs.wsj.com/law/2014/05/19/losing-a-shareholder-lawsuit-could-soon-become-more-expensive/ (accessed on 14 August 2016); For the UK, see Joan Loughrey, ‘Directors’ Duties and Shareholder Litigation: the Practical Perspective’, in Derectors’ Duties and Shareholder Litigation in the Wake of the Financial Crisis, Joan Loughrey (eds), (Edward Elgar, 2013), p. 239; Arad Reisber, Derivative Actions and Corporate Governance: Theory and Operation, (Oxford University Press, 2007), p. 222; William Kaplan and Bruce Elwood, ‘The derivative action: a shareholder’s bleak house?’, University of British Columbia Law Review, (2003), Volume 36, 443; For China, see Lei Hao, Study on the Practical Aspects of Shareholder Litigation, (股东诉讼的实施问题研究), (China Legal Publisher, 2012); Guiqing Liu, A Study on Shareholder Litigation: from the Perspective of Corporate Governance, (公司治理视角中的股东诉讼研究), (China Fangzheng Publisher, 2005); Jun He, ‘Will the Company pay for the Shareholder Litigation’, (股东代表诉讼,公司“埋单”?), (2007), available at http://finance.sina.com.cn/stock/t/20070131/03341189782.shtml (accessed on 15 August 2016); Kaixiang Liu, ‘Judicial Enforcement of Shareholder Litigation’, (股东代表诉讼的司法适用和立法完善), (2008), available at http://www.chenglawyer.com.cn/ShowArticle.shtml?ID=20114918262598297.htm (accessed on 15 August 2016).
64.
Lawyer’s fees charged on a contingent basis could not be regarded as a financial burden on the litigant. In fact, it appears like a reduction on the litigant’s compensation in a successful case because the litigant must share proceeds with the lawyer.
65.
In fact, this potential rise in share value is not certain because a derivative action could negatively affect a company’s reputation which may reduce its share price. See Arad Reisberg, Derivative Actions and Corporate Governance, (Oxford University Press, 2007), p. 222.
66.
For instance, the length of the court proceeding for each class action differs, but a typical class action will take 2–3 years. (data from a US law firm specializing in representing class actions, available at http://www.rgrdlaw.com/cases-questions.html, accessed on 16 August 2016); In China, shareholder class actions generally have a lengthy court proceeding. For instance, a recently settled shareholder class action in China (Investors v. Wuliangye Company) has lasted for 5 years before being settled. See Wenliang Liu, ‘141 investors in Wuliangye are compensated with 13 million RMB’, (in Chinese), (October, 2014), available at http://finance.people.com.cn/stock/n/2014/1011/c67815-25809971.html (accessed on 16 August 2016).
67.
This section only attempts to deliver a general introduction regarding general funding ways. Chapters 4, 5 and 6 of this book will discuss, in detail, how these funding ways function and potential problems with them.
68.
‘Public funding’ discussed in this book excludes legal aid.
69.
‘Public funding’ investigated in this book includes public funding provided by a public authority (for instance, the Israeli Securities Authority) and public funding provided by a non-profit organization (for instance, Ontario law foundation). See infra Chap. 4.
70.
The scope of the professional litigation funder in third party litigation funding does not include lawyer, public funding provider and legal insurer.
71.
Christopher Hodges, Stefan Vogenauer and Magdalena Tulibacka, The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 22.
72.
Lord Jackson, Review of Civil Litigation Costs: Final Report, (the final report) (2009), p. 68.
73.
Ibid.
74.
Ibid.
75.
Ibid.
76.
The influence brought by the downturn of the state economy on the legal aid budget and the increase on people’s income both contribute the downside on the number of eligible people. See Lord Jackson, Review of Civil Litigation Costs: Final Report, (the final report) (2009), pp. 68–69.
77.
See Lord Jackson, Review of Civil Litigation Costs: Final Report, (the final report) (2009), pp. 68–69.
78.
Most of the legal aid schemes are provided by the government, while a small part of them can be provided by the legal aid centre based in the law school of a university.
79.
See generally Benjamin L. Liebman, ‘Legal Aid and Public Interest Law in China,’ Texas international Law Journal (1999), volume 34, 211; Benjamin L. Liebman, ‘Lawyers, Legal Aid, and Legitimacy in China’ in WPALford (ed) Raising the Bar: The Emerging Legal Profession in East Asia (East Asian Law Studies, Harvard Law School, 2007), 211. Legal aid is delivered in a number of ways in China, and is varied in each province. Namely, first, a full time legal aid lawyer scheme; second, an arrangement allocating work to lawyers (for example, by requiring a law firm to offer various legal services annually); and third, a system of legal aid centres staffed by lawyers from law firms and legal aid workers. Legal aid typically involves either the provision of free legal advice or the allocation of a lawyer or an employee (who may or may not be a lawyer). Regulations on Legal aid (PRC, 2003) (法律援助条例), article 2, 21 and 25.
80.
Article 3 of the 2003 Regulations on Legal Aid.
81.
A well-known legal aid centre in Shanghai is based in East China University of Political Science and Law (ECUPL), see its website (in Chinese) http://www.hzfy.ecupl.edu.cn/ (accessed on 5 August 2016).
82.
See http://www.chinalegalaid.gov.cn/China_legalaid/content/2010-08/26/content_2260702.htm (In Chinese) (accessed on 5 August 2016).
83.
In some wealthy province, such as Guangdong Province, few restrictions are placed on eligibility of potential applicants. See, Guangdong Provincial Rules on Legal Aid, http://www.chinalegalaid.gov.cn/China_legalaid/content/2010-08/24/content_2257106.htm?node=24970 (in Chinese) (accessed on 5 August 2016). And in Shanghai, the municipal government heightened the minimum income eligibility level for legal aid to let more people access to the court. http://www.shanghai.gov.cn/shanghai/node2314/node2319/node2404/node28669/node28670/u26ai29887.html (in Chinese) (accessed on 5 August 2016).
84.
Christopher Hodges, Stefan Vogenauer and Magdalena Tulibacka, The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 22.
85.
Deborah R. Hensler, ‘The Cost and Funding of Civil Litigation: A National Report on the United States of America’, in The Cost and funding of Civil Litigation, Christopher Hodges et al. (eds), (Hart Publishing, 2010), 535, pp. 539–541.
86.
The unmet rate was as large as 80% in 2005. See Legal Service Corporation, ‘Documenting the Justice Gap in America’, (2005), www.lsc.gov/press/documents/LSC%20Justice%20Gap_FINAL_1001.pdf (accessed on 5 August 2016).
87.
Deborah R. Hensler, ‘The Cost and Funding of Civil Litigation: A National Report on the United States of America’, in The Cost and funding of Civil Litigation, Christopher Hodges et al. (eds), (Hart Publishing, 2010), 535, p. 537.
88.
Legal Service Corporation, Documenting the Justice Gap in America, (2005), available at www.lsc.gov/press/documents/LSC%20Justice%20Gap_FINAL_1001.pdf (accessed on 10 August 2016).
89.
Ibid.
90.
Ibid.
91.
For instance, CGFAs are permitted in the US, UK (just from 2013), China, Canada. But they are banned in, for instance, Denmark. Christopher Hodges, Stefan Vogenauer and Magdalena Tulibacka, The Cost and funding of Civil Litigation, (Hart Publishing, 2010), pp. 25–26.
92.
CGFA is used in the US to fund, mostly, civil damage cases. For instance, 87% of people in personal injury litigation choose to sign CGFAs with lawyers. See Deborah R. Hensler et al., Compensation for Accidental Injuries in the United States, (RAND Corporation Reports, 1991), Table 5.11, p. 136.
93.
Contingency fee arrangements are, in principle, illegal in Germany. The judgement by the German Constitutional Court (1 BvR 2576/04) explored an exception to the general rule. But the requirements laid down in this case is very high, which leads to a fact that in practice contingency fees still do not play a significant role in German civil litigation. It generally requires that if the client, without the contingency fee arrangement, was not able to enforce or defend his or her rights in a proper manner for personal financial reasons, such agreement would have been allowed. Eric P. Polten, ‘Rules for costs and fees for lawyers---a comparison of German law and the lawof the province of Ontario/Canada’, (Feb 2011), pp. 8–9, available at http://www.poltenassociates.com/Resource-Links/Legal-Fees-English.pdf (accessed on 16 August 2016); For more, see also Bernhard Schmeilzl (attorney at law, Munich Bar), ‘How expansive is a German lawsuit?’, (November, 2013), available at http://www.crosschannellawyers.co.uk/how-expensive-is-a-lawsuit-in-germany/#more-502 (accessed on 16 August 2016). In France, the same as that in Germany, contingency fee arrangements are in principle banned. But they are allowed to be used in the combination with another method, such as lawyer’s hourly fee and flat fees. For more details, see ‘French attorneys and legal fees’, available at http://www.french-business-law.com/french-attorneys-and-legal-fees-page21.html (accessed on 16 August 2016).
94.
CGFAs were formally adopted in the UK since 2013, and it is known as Damaged Based Agreements (DBAs), see http://www.justice.gov.uk/civil-justice-reforms/main-changes (accessed on 5 August 2016).
95.
Article 13 of the MALF.
96.
Article 12 of the MALF provides that administrative cases, collective actions, criminal cases and state compensation claims should not be funded through CGFAs.
97.
The reason why collective actions are banned to be funded through CGFAs may be in line with the court’s resistance to mass litigation. See infra 4.4.3.3.
98.
Jonathan T. Molot, ‘A Market in Litigation Risk’, University of Chicago Law Review, (2009), Volume 76, 367, pp. 408–409.
99.
See GP Miller, ‘Some Agency Problems in Settlement’ (1987) 16 The Journal of Legal Studies, 189, pp. 192–193; T Thomason, ‘Are Attorneys Paid What They Are Worth? Contingent Fees and the Settlement Process’ (1991) 20 The Journal of Legal Studies, 187, pp. 191–193.
100.
Hugh Gravellea and Michael Waterson, No win, No fee: Some Economics of Contingency Legal Fees, The Economic Journal, (1993), Volume 103 (420), 1025, p. 1026.
101.
CFAs are also allowed in other countries, such as Greece and Australia.
102.
In April 2013, the 25% cap came into effect. http://www.justice.gov.uk/civil-justice-reforms/personal-injury-claims (accessed on 5 August 2016).
103.
The success fee in a case is fixed, therefore, the incentive for the lawyer is just to win the case, while in a case funded by a CGFA, both a favourable outcome and the extent of the success make sense.
104.
Through the investigation on public funding in this book, it is found that the both the Ontario Fund and the Israeli public funding have the ‘public interests’ requirement. See infra 4.2 and 4.3.
105.
See infra 4.2.3.3.
106.
Steven Shavell, Foundations of Economic Analysis of Law, (Harvard University Press, 2004), p. 177.
107.
Marco de Morpurgo, A Comparative Legal and Economic Approach to Third-party Litigation Funding, Cardozo Journal of International and Comparative Law Spring 2011, p. 5.
108.
U.S. Chamber Institute for Legal Reform, ‘Selling Lawsuits, Buying Trouble: Third Party Litigation Funding in the United States’, (October 2009), pp. 5–7. Available at http://www.instituteforlegalreform.com/sites/default/files/thirdpartylitigationfinancing.pdf (accessed on 5 August 2016).
109.
U.S. Chamber Institute for Legal Reform, ‘Selling Lawsuits, Buying Trouble: Third Party Litigation Funding in the United States’, (October 2009), p. 5.
110.
U.S. Chamber Institute for Legal Reform, ‘Selling Lawsuits, Buying Trouble: Third Party Litigation Funding in the United States’, (October 2009), p. 19.
111.
As some data presented, the selection of litigation to be funded is quite stringent. For example, in Australia, the largest litigation funding company (IMF) only funded 5% among the funding applications during 2001–2010. Similarly, in the US, the Juridica Capital Management only funded 6% of the cases considered. See RAND ICJ conference in Washington D.C. Conference: ‘Alternative litigation finance in the U.S—where are we and where are we headed with practice and policy?’, Washington, D.C., May 20–21,2010.
112.
David S. Abrams and Daniel L. Chen, ‘A Market for Justice: A First Empirical Look at Third Party Litigation Funding’, University of Pennsylvania Journal of Business Law, (2013), Volume 15, 1075, p. 1091.
113.
Ibid.
114.
See Paul H. Robin, ‘Third-party financing of litigation’, Northern Kentucky Law Review, (2011), Volume 38, 673, p. 682.
115.
See Jason Lyon, ‘Revolution in Progress: Third-Party Funding of American Litigation’, UCLA Law Review (2011) Volume 58, 571, p. 590.
116.
See Kevin Pennell, ‘On the assignment of legal malpractice claims: a contractual solution to a contractual problem’, Texas Law Review (2004), Volume 82, 481, pp. 494–496.
117.
See Steven Shavell, ‘The social versus the private incentive to bring suit in a costly legal system’, Journal of Legal Studies, (1982), Volume 11, 333, p. 335.
118.
See infra 6.3.1 (‘the conflict of interests and the agency problem under a CGFA’).
119.
The Standing Committee of Attorneys-General in Australia, ‘Litigation Funding in Australia: Discussion Paper’, (May, 2006), p. 8 http://www.imf.com.au/docs/default-source/site-documents/discussionpaperstandingcommitteeofattorneysgeneral_may2006 (accessed on 5 August 2016).
120.
See Wayne Attrill, ‘Ethical issues in litigation funding’, (Feb 16th, 2009), p. 8 http://www.imf.com.au/docs/default-source/site-documents/ethical-issues-paper-imf09---globalaw-conference (accessed on 5 August 2016).
121.
Oliver v. Board of Governors, 779 S.W. 2d 212, at 215 (Kentuky 1989) (‘an attorney’s primary loyalty will, as a practical matter, rest with the person or entity who pays him.’).
122.
Further analysis in this regard, see infra 5.1.3.
123.
See infra 5.1.3.2.
124.
For instance, in countries applying tariff, litigation costs are predictable to a certain extent. (such as Germany).
125.
For definition, see http://www.lawsociety.org.uk/for-the-public/faqs/before-the-event-insurance/ (accessed on 19 August 2016.
126.
Christopher Hodges, Stefan Vogenauer and Magdalena Tulibacka, The Cost and funding of Civil Litigation, (Hart Publishing, 2010), p. 21.
127.
For definition, see http://www.lawsociety.org.uk/for-the-public/faqs/after-the-event-insurance/ (accessed on 19 August 2016).
128.
ATE arose in England and Wales from 1995 to insure plaintiff against adverse costs which are not covered by CFAs. See Christopher Hodges, ‘England and Wales: Summary of the Jackson Cost Review’, in The Cost and Funding of Civil Litigation, Christopher Hodges et al. (eds) (Hart Publishing, 2010), 303, pp. 305–306.
129.
Jackson’s final report (2009), pp. 82–86.

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Wenjing Chen

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Chen, W. (2017). Rules on the Costs and Funding of Shareholder Litigation. In: A Comparative Study of Funding Shareholder Litigation. Springer, Singapore. https://doi.org/10.1007/978-981-10-3623-1_3

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DOI: https://doi.org/10.1007/978-981-10-3623-1_3
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