Litigation funding supports justice

Third-party litigation funding (TPLF) is a "net benefit" to access to justice, but the significant capital flowing into the market requires regulation to protect consumers, the Association of Costs Lawyers (ACL) has argued.

The ACL has responded to the ’s interim report on litigation funding, acknowledging that TPLF enables claimants with meritorious cases to pursue justice where they would otherwise lack the financial means. However, it warns that the growing volume of investment in litigation funding could have adverse effects, making independent regulation or legislative oversight necessary to maintain its positive impact.

Regulatory measures should include a cap on funders’ returns in most cases to ensure claimants are not under-compensated. Other areas requiring oversight include funders’ influence over litigation, transparency around funding sources, and fair treatment of claimants.

"The ACL does consider that the significant volume of funding coming into the market could have a negative impact and therefore some form of regulation, through an independent regulator or legislation, would be beneficial to ensure that the net positive that is currently provided is not eroded," it states.

Without a cap on funders’ returns, there is a risk that litigation could be driven primarily for profit rather than justice. At the same time, the ACL recognises that funders assume significant risk, and any cap should fairly reflect this. It draws a comparison to success fees, where established principles and case law assess fees based on solicitors’ assumed risks, suggesting that a similar approach could be appropriate.

In the absence of a cap and independent regulation, the ACL suggests that court approval of funding arrangements could provide a safeguard. However, it cautions that this requirement could deter funders due to the additional risk of judicial intervention in their expected returns.

On the issue of disclosing funding agreements to defendants, the ACL maintains that disclosure is generally unnecessary unless the funding arrangement could impose additional cost liabilities on the opposing party. However, it acknowledges that disclosure could assist with security for costs applications.

The association rejects the claim that TPLF has driven up litigation costs, arguing that while it expands access to litigation, existing court rules and procedures already ensure that cases are conducted efficiently and cost-effectively. It also supports the reasonable recovery of funding costs from an opponent and proposes extending qualified one-way costs shifting (QOCS) to all civil litigation.

Additionally, the ACL calls for reforms to the Damages-based Agreement (DBA) Regulations, particularly the adoption of ‘hybrid’ DBAs. These would permit hourly rate charging in specified circumstances, such as when an agreement is terminated, thereby encouraging broader use of DBAs.

ACL chair Jack Ridgway (pictured) states: "Even opponents of third-party funding have to agree that it has increased access to justice and that ultimately is the litmus test. We believe claimants should have the option of litigation funding but there needs to be more control to ensure it works fairly for all parties, including defendants."

"The justice system, filled with expert judges, counsel and Costs Lawyers, is already set up to ensure litigation is pursued at proportionate cost; litigation funding does not change this."