Litigation crowdfunding: a tool for change

Crowdfunding started out as a way to raise money for charity, or to jump start a business idea. However, in recent years it has transformed into a powerful social and legal tool.

Crowdfunding is not a new concept. In the 1700s, war bonds were issued by governments so the populace could help to finance the military operations of the state. Its modern, more altruistic online incarnation emerged in the early 2010s, with most people having used a justgiving.com page or similar to help someone complete a physical challenge or to spur on that wacky cousin who’s trying to cycle around the world dressed as a penguin to save the melting ice caps.

While your cousin’s efforts may not succeed, their sentiment is at the heart of an emergent issues-based form of litigation finance. When people care about an issue, crowdfunding can serve as a powerful tool to effect change.

There have been two key emerging trends in recent years:

1. The growth of litigation crowdfunding platforms.
2. The rise of cause-based litigation.

PLATFORMS

Litigation can be an expensive undertaking and has traditionally been the reserve of the rich and powerful. Too often, whichever party has the deeper pockets will have the upper hand in a dispute.

As Marc Galanter noted in his 1973 essay, Why the Haves Come Out Ahead, there are two types of protagonists in litigation: the ‘haves’ who are repeat players; and the ‘have nots’ who are one-shotters. The repeat players can invest in the best practitioners; through experience acquire better strategies; and over time develop advantageous relationships to optimise their chances of winning. The oneshotters will try, but all too often fail, as the odds are stacked against them.

While that dynamic is unlikely to change any time soon, the growth of litigation crowdfunding platforms provides an opportunity to try to shift this paradigm and fill the gap left by the cuts to civil legal aid.

There are various crowdfunding platforms such as CrowdJustice, AxiaFunder and Lex-Shares. Between them they offer a variety of collaborative finance models alongside more traditional litigation financing options.

Fundamentally, for those willing to invest in litigation in this way, the majority of the crowdfunding models are not focused on financial reward, but rather on achieving an issue-based outcome with an intrinsic reward for those contributing.

The primary advantage of specialist legal crowdfunding platforms is that they work directly with legal practitioners to ensure regulatory requirements are met regarding client care, provenance of funds and anti-money laundering issues.

CAUSE-BASED LITIGATION

There are, of course, any number of causes that individuals and groups might want to pursue. However, the common thread to the majority of crowdfunded litigation to date is the ‘issue’ that enables potentially disparate individuals to coalesce to pursue a common agenda. Typically, issues relating to gender, race, sexuality and the environment are fertile ground for crowdfunded litigation.

Identifying the best forum to pursue a particular issue will be another important consideration. Judicial reviews have been used for decades to hold public bodies to account, ensuring that they act within their powers and follow a fair process. As a result, judicial reviews have been an effective tool to influence public policy, with pressure groups or representative organisations frequently bringing claims or participating as interested parties. As funding is digitised and decentralised, the use of judicial reviews as a tool to effect policy change is likely to increase.

Crowdfunding can also be used to support individuals in overcoming perceived injustice or in pursuing test cases which raise issues of wider principle – for example in employment tribunal cases, inquests or appeals against regulatory decisions.

Social media can enable significant sums to be raised quickly, from thousands of individual donors who may donate as little as £5 or £10 each. Initial funding is usually on an ‘all or nothing’ basis – if the initial target is not met, all donations pledged are returned to the individual donors. In the event that there are surplus funds at the end of a case (for example, because the public body concerned concedes early on), these are either applied to an alternative case which advances a similar cause, donated to the Access to Justice Foundation, or received by the case owner if it is a nongovernmental organisation (NGO) or not for profit organisation.

Examples of successful funding via Crowd-Justice include:

— Brexit-related judicial reviews, including one of the claimants in the 2019 prorogation judicial review which raised more than £200,000; and one of the interested parties in the earlier article 50 judicial review, which raised more than £150,000.

— An appeal to the Court of Appeal by Dr Bawa-Garba against her erasure from the medical register, which raised more the £350,000.

— A challenge to Uber’s approach to VAT on fares which, raised £100,000.

— Women Against State Pension Inequality, campaigning for the rights of women born in the 1950s affected by changes to their state pension age, which raised £100,000.

— A challenge to the energy national policy statement on the basis of its presumption in favour of fossil fuel projects, which raised £100,000.

— A judicial review by junior doctors challenging the legality of new contracts, which raised more than £300,000.

— A challenge by a 12-year-old deaf boy to the government’s decision to delay introduction of a GCSE in British sign language, which raised more than £6,000 and resulted in a concession at the pre-action stage. Adverse costs risk still has to be addressed.

In the Uber case, the claimants were ordered to pay more than £100,000 in respect of Uber’s costs. A costs capping order may be available where the proceedings are an appropriate mechanism for resolving an issue of general public importance in the public interest.

Another approach gaining popularity is minority shareholder actions under section 994 of the Companies Act 2006. Concerned groups or individuals buy a share in a company promoting or pursuing an agenda (often environmental) with which they disagree. Those groups or individuals then pursue a claim for prejudice to the value of their share based on the conduct of that company.

The courts have determined that prejudice justifying a claim can include wider considerations including reputation and corporate responsibility. This can provide a direct means for effecting corporate change on an issue, such as polluting a river, deforestation or destruction of a natural habitat.

CONCLUSION

There is a groundswell of cause-based legal action which is being funded by a diverse array of individuals and interest groups, rather than the traditional power brokers. As society moves towards increasingly issue-based politics, it will be intriguing to see whether there will be increased activism through crowdfunded litigation.

CrowdJustice alone has raised over £20m for more than 1,000 legal matters. With the number of crowdfunded matters doubling since 2019, this growing area presents significant opportunities for practitioners willing and able to engage with collaborative issue-based litigation and funding.

Tom Pritchard is an associate solicitor at Russell Cooke russell-cook.co.uk