CILEX calls for stronger litigation funding regulation

Third-party funding (TPF) of litigation plays a crucial role in ensuring access to justice and equality of arms but requires a more robust regulatory framework, CILEX has said in response to the Civil Justice Council’s review of TPF.

While TPF allows claimants to pursue legal action they could not otherwise afford, CILEX warns that the current self-regulatory regime does not do enough to prevent under-settlements or the perception that the justice system is being treated as a business venture. Strengthening regulation would better safeguard claimants’ interests while maintaining the integrity of the legal process.

Rather than prescribing a specific model, CILEX suggests that an enhanced version of the Association of Litigation Funders’ existing code of conduct would be the simplest approach. It argues that this would provide flexibility while avoiding the complexities of amending the Civil Procedure Rules.

Judicial oversight should play a key role in regulating funders’ influence over cases, with CILEX advocating for mandatory disclosure of funding agreements. It suggests adopting a process similar to family law proceedings, where a judge must approve settlement orders prepared by legal representatives, as a more efficient alternative to measures such as infant settlement hearings.

The response also highlights the need to prevent funders from backing high-risk claims with weak legal merit, proposing that public interest litigation could be incentivised through tax benefits for funders.

CILEX raises concerns about the risk of under-settlement, noting that while lawyers are regulated, this alone is insufficient to protect vulnerable claimants. “This is not a guaranteed protection, especially where vulnerable claimants are facing financial pressures and fear losing the funding for their claim” it says, adding that “clear and consistent regulation on settlement provisions for funders” is essential to mitigate this risk.

Stronger regulation could also help reduce litigation costs by increasing transparency. “As an example, mandating transparency and accountability in funding agreements through disclosure would provide clearer understanding of the total financial costs associated with the type of dispute or litigation. This helps create better informed decisions surrounding the overall costs and the risks associated with litigation” CILEX says.

It outlines core principles that should underpin any regulatory framework, including transparency, independence, conflict of interest management, prioritisation of the funded party’s best interests, and ensuring costs remain fair and proportionate. This would also support making litigation funding costs recoverable for successful claimants, in line with other litigation expenses.

Addressing broader issues raised in the consultation, CILEX suggests that before-the-event insurance could be expanded to provide more comprehensive coverage and greater freedom in choosing legal representatives. However, it opposes mandatory legal expenses insurance, arguing that reforming existing funding mechanisms should take priority. It also calls for litigation crowdfunding to be subject to regulatory standards similar to those of the Association of Litigation Funders.

CILEX Director of Policy & Public Affairs, Simon Garrod says “Third-party funding was introduced to England and Wales to improve access to justice and it has achieved that in many cases, most famously the Post Office litigation. However, it touches so directly on the justice system that a more robust regulatory regime is needed to protect the interests of clients over those of funders and others who benefit from their money.

“Ultimately, it will be for the government to act on the final report and we will be encouraging ministers to do just that.”