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Australia legalizes champerty; prize money

Dale Oesterle at Business Law Prof reports:

Australia does not permit lawyers to use contingency fees in class action and derivative litigation. The Australian High Court has legitimized a new wrinkle however. Companies, called "litigation funding companies," can purchase a share of a lawsuit, paying litigation expenses and lawyer's fees, in exchange for a percentage of the recovery (usually one-third to two-thirds). Hedge funds, including some in the United States, back the funding companies. We allow the limited assignment of some debt claims in the United States but do not allow full-scale claims sales by injured private plaintiffs. The Australian experiment will be worth watching.

While on the subject of contingency fees, Prof. Bainbridge has a post on the traditional British naval custom of "prize money", that is to say, letting captains keep for themselves a share in the booty of hostile merchant ships they capture. It's a practice with numerous parallels to that of letting lawyers take contingency fees in the lawsuits they file, and, not surprisingly, resulted in problems getting the incentives of the captains properly aligned with those of the nation (for example, they had reason to engage the richest and least defended enemy vessels, rather than the most militarily significant). For much more, see chapter 2 of The Litigation Explosion (PDF).



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.