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Jackson LJ tells solicitors to rely on new third-party funding code

23 November 2011

Lord Justice Jackson has said he anticipates that in the future solicitors will tell clients only to enter third-party funding agreements based on the new code, launched at the Royal Courts of Justice tonight.

The code was negotiated by a Civil Justice Council working party chaired by Michael Napier QC. Napier, one of the main architects of conditional fees, will retire as chairman of Irwin Mitchell at the end of this year.

Along with the code, an Association of Litigation Funders has been set up, whose members agree to abide by it.

Jackson LJ said his three main concerns about the code had been met. He described an extension in the capital adequacy requirement from three months to three years as a “very substantial improvement”.

He went on: “Obviously there are cases which will run for more than three years, although such cases are becoming rarer and I hope that other pending reforms will further reduce their number.

“Nevertheless, as a provision in a code to which funders are expected to sign up voluntarily, in my view this clause strikes a reasonable balance between practicality and client protection.”

Jackson LJ said the original draft “appeared to permit” funding agreements to be terminated without good reason half way through the litigation.

Clauses 9 and 10 of the final version make it clear that the right to terminate is not discretionary and is limited to three specific situations: where the funder ‘reasonably ceases to be satisfied’ about the merits of the dispute, ‘reasonably believes’ the dispute is no longer commercially viable or ‘reasonably believes’ there has been a material breach of the agreement.

Lord Justice Jackson said he was concerned that the funder’s ability to influence any settlement should be properly restricted and clearly defined and clause 7 of the final code should prevent them from “usurping control”.

He said there was likely to be a greater role for third-party funders if CFAs ceased to be recoverable and he hoped that litigation funders would in the future be able to support a wider range of litigation, including group actions.

The lord justice added that if his final report was implemented, other forms of financing litigation would be contingency fees, conditional fees (without recoverability), a supplementary legal aid scheme and hopefully a contingent legal aid fund.

Napier said the “long anticipated” arrival of the funding code and association provided a “welcome wrapper of confidence” to litigants and lawyers who chose this method of funding civil cases.

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