Lawyers set up companies to tackle cases on risk

Private financial backing for legal battles to drive a specific strategic agenda is not a new phenomenon in South Africa and has been possible through an appeal court decision almost nine years ago, according to Business Day.

Reports that a group of attorneys have formed a company to fund civil litigations for a share of the settlement has raised eyebrows over whether this was ethical, along with the possibility of a conflict of interest. Pretoria attorney Chris Schoeman and two partners recently formed a company, Sterling-Rand, to fund civil cases.

The company picks up the legal fees on behalf of plaintiffs and takes a cut of any settlement achieved.

The company has funded former Vodacom employee Nkosana Makate to the tune of R5m in legal fees in his "Please Call Me" case against Vodacom. Mr Makate claims he devised the concept in 2000 and was promised compensation for it.

High court advocate Greta Engelbrecht said on Monday there were several civil pressure groups with specific social, political or humanitarian agendas that would fund litigation to drive their message and promote the interests of a group or individual they represented. She said that the legal fraternity sometimes referred to "the art of losing", where the main objective was to influence the public debate, notwithstanding a win or loss in court.

Ms Engelbrecht also said it was understandable that organisations such as AfriForum, the Freedom of Expression Institute and the Legal Resources Centre would fund specific matters in the interest of the people they represented.

However, it was quite unusual for a group of lawyers to fund litigation. "Here the agenda is not known, (unlike) in the case with civil rights organisations," she said.

But Jan van Rensburg, a councillor of the Law Society of the Northern Provinces, said on Monday it had become common practice to establish a company, to identify with or lobby for specific cases and then fund the litigation.

However, he said it would raise eyebrows if an attorney who formed such a company to finance litigation, also did the litigation and through that gets a double bite of the cherry in the form of contingence fees and a cut from the financial reward.

But it was not against any rules of the law society and there was no legislation that prevented it from happening. It was more of an ethical problem, Mr van Rensburg said. "Personally I feel uncomfortable with a situation where the firm finances the litigation, and the same person is the attorney of record."

Ms Engelbrecht said the overarching principle was whether there is any conflict of interest.

Where the attorney had an interest in the financing company, it could be in the attorney’s interest to settle the case when there is little hope of winning, yet an early settlement might not be in the interest of the litigant.

However, strategic litigation is important for creating jurisprudence in South Africa. "Our democracy is strengthened through debate, often triggered by a legal issue that influences the lives of people or empowers individuals," she said.