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Beware the ethical pitfalls of crowdfunded litigation


Crowdfunded legal action has potential ethical perils for both litigants and lawyers, writes legal commentator Morry Bailes.

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What do the owners of a gigantic, aging, arthritic steer apparently in need of his own shed, and a couple of attention-seeking, indolent, travel-obsessed Instagram “stars” who want more free holidays have in common? GoFundMe campaigns, of course.

We have a reached an age where, if you don’t have the means yourself, you ask others to fill the funding breach. This instinct is facilitated in large part by the American not-for-profit company GoFundMe with subsidiaries in many other countries including Australia.

These campaigns include sad stories, mostly from the US, of people who lack medical insurance and ask others to pay for their treatment.

Then there is the likes of Big Moo the bovine beast from the South-East.

But there are plenty of other appeals that sound very much like begging in the electronic age: people who cannot be bothered doing a day’s work and expect others to fork out for their various whims and desires, like gap years, music festivals and holidays.

And then there is litigation funding.

Of late, rugby union player Israel Folau turned to GoFundMe to fight his sport’s bosses, only to have the company disown him (he later found “crowd” support through different means). Greens Senator Sarah Hanson-Young asked the “crowd” to fund her dispute with former Senator David Leyonhjelm.

Litigation funding in diverse forms has existed in Australia since the old common law rules of champerty and maintenance were largely abolished. Prior to that, it was unlawful, in the words of Chief Justice Steyn in Giles v Thompson, to engage in the “support of litigation by a stranger without just cause”.

But crowdfunding is something relatively new.

What is interesting from a lawyer’s point of view is how taking crowdfunded fees for litigation has the potential to be an ethical hand grenade.

In light of high profile recent crowd-funded litigation, the Law Council of Australia has decided to establish a working group to look into the issue.

LCA President Arthur Moses SC recently expressed an opinion that the challenges for lawyers could be broken down into four areas:

  1. It is not necessarily evident from a crowdfunding platform where the money has come from, and that can be an ethical problem for a lawyer who is being paid from those funds. It would be a potential problem if, for example, the money was illicitly gained before donation, or was contributed by a foreign agent of power.
  2. A donor may contribute on a false premise – on an assumption that a legal case is about one thing when it may be decided on an altogether different basis. A lawyer being paid from donated money may later have to answer for any perceived misrepresentation regarding what the case was actually about or how it was litigated.
  3. As advice and information about a legal case may be shared by a litigant — to tell the “crowd” what it’s all about — legal professional privilege may be waived, perhaps inadvertently, which may be a problem for lawyer and litigant alike.
  4. Terms and conditions by which donated funds can be used must be very clear, as money is effectively held in trust for a purpose. What happens, for example, if money is un-needed and unused? The rules obviously need to be very clear or ethical problems for lawyers will emerge, including potential criticism of whether in the sales pitch the pudding has been over-egged.

Given the increasing cost of litigation and many people’s difficulty in accessing the courts and our justice system, I believe there is a place for alternate means of funding, including crowdfunding, as long as the rules are clear.

It is right, therefore, for the Law Council to look at the ethics of crowdfunded litigation, to protect not only the public, but lawyers and litigants.

In the rush to help others, we cannot underestimate the problems that can arise if the rules are unclear. The devil is, most assuredly, in the detail. We need to tread this area with caution. Pitfalls could include a donor misled, a litigant underestimating the complexity of litigation, or a lawyer involving themselves with the best of intentions only to fall short of their duty to the court or our high ethical standards.

These challenges are not beyond us. Potential conflicts of interest already exist in cases supported by litigation funders, and in other forms of financially supported litigation. The courts must play a role, as they actively do when third party funders are involved, to ensure parties are litigating properly. Sources of funds from third parties supporting litigation, for instance, may need to be declared to the court.

As the popularity and regularity of crowdfunding increases, the law must keep up: it would be fundamentally unfair if governments, corporations and corporate litigation funders are permitted to support litigation, but a bunch of “little guys” are not.

This is why I support the notion of crowdfunding, but donors, litigants and lawyers need to know exactly what they’re getting themselves into and why.

We should await with interest the recommendations of the Law Council of Australia in this area.

Morry Bailes is managing partner of Tindall Gask Bentley Lawyers and immediate past president of the Law Council of Australia.

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