Recently an Indian traveller, whose connecting flight from Europe to India was delayed by 24 hours, decided to sue the airlines. The aggrieved traveller sued the airline in Europe instead of a consumer court in India.

This option delivered justice to the consumer sitting in India without the hassle of visiting the chambers of advocates or the courts!

Given the complexities and the delays involved in India’s redressal grievance system, the traveller found a claims management company in Europe online that dealt in such cases.

Based on an agreement executed between the air traveller and the company, the attorneys in Europe took the case to courts there as the airline did not agree to settle the case initially.

The agreement provided that if the claim succeeded, the compensation proceeds will be split in the pre-agreed manner between the consumer and the claims management company and if it failed, the consumer did not have to pay anything to the company.

Finally, when the case was taken to court, the airline agreed to pay compensation and the claims management company transferred the agreed share out of the compensation money, to the bank account of the traveller.

Champerty Agreements

This brings into context the role of Champerty Agreements where third parties, usually attorneys, agree to finance a compensation claim in lieu of a share of awarded compensation by the courts and this practice has been prevalent in many foreign jurisdictions and has been proven to be very efficient/cost effective making the justice accessible particularly for class action suits or small claims.

In India, the status of such agreements (Champerty Agreements), is nuanced under the Indian Contract Act, 1872 and are subjected to a closer scrutiny by courts of law based on their fairness, reasonableness and the larger objectives of public policy.

Besides, such assessment by the courts depends upon the specific facts of each case. So, in India, such agreements are not per se illegal but their validity is determined on the principles of public policy and equity by the courts, which have held such arrangements to be void if they are found to be against public policy or as promoting frivolous or vexatious or unnecessary litigation or are otherwise deemed to be extortionate or unconscionable.

Pros and Cons

This framework helps claimants who do not have the financial means to pursue cases on their own.

The advocates with a financial stake in the outcome would be motivated to pursue cases vigorously, diligently and efficiently, leading to a faster resolution. Consumers, of course, do not bear any financial risk of litigation if the case is lost.

Of course, if the case is won, they will get the pre-determined and pre-agreed share out of the compensation allowed by the courts.

However, making such agreements legal also opens up the risk of exploitative practices by lawyers. They might even lead to frivolous litigation.

Need for Reform

India’s consumer law framework, though robust and accessible, can also be complex, time consuming and expensive for claimants.

The objective behind the passing of the Consumer Protection Act was to provide a simple, speedy and inexpensive remedy without any complexities of ordinary civil court.

But in practice, often cases end up taking more time than stipulated under the Consumer Protection Act for disposal of consumer complaints.

In this scenario, if champertous agreements are recognised and properly regulated, they may provide an alternative mechanism to the consumers to pursue their claims. The government can consider various safeguards before allowing such agreements, establishing clear guidelines on what will constitute a fair and balanced agreement.

To begin with, such arrangements can be allowed for consumer matters. There is also a need for a monitoring system for oversight and regulation of attorney’s conduct involved in such matters and the Bar councils need to constantly monitor lawyers’ profession conduct. This would require amendments to the Indian Contract Act, 1872, the Consumer Protection Act, 2019 and the Advocates Act, 1961.

It is time to seriously consider allowing such mechanisms, on a pilot basis for consumer cases.

Sushila is Associate Professor, and Sarangi is Student of National Law University, Delhi