Litigation Funding 

By Howard Dean, President of the Forum of Insurance Lawyers and Shirley Denyer, Technical Consultant at the Forum of Insurance Lawyers.

Lord Justice Jackson, considering TPF in 2009, believed it promoted access to justice, and that a voluntary governance regime was sufficient at that stage.  Prominent cases, such as the Post Office litigation, have focused attention on both of those issues. For some, the Post Office case highlights the opportunities TPF provides, enabling claimants to participate in litigation in which the Post Office spent £24m just on disclosure. For others, the fact that funders received more than 75% of the damages awarded to the post masters demonstrates the weaknesses of the system, particularly when it comes to protecting the interests of individuals and small businesses.  

With the support of the CJC, the current voluntary regulatory regime was introduced in 2011, via the creation of the Association of Litigation Funders and its Code of Conduct. The Code provides some protections, including duties of confidentiality and provisions on capital adequacy, control of the litigation, settlement and termination of the agreement. 

However, the adequacy of those protections is questionable. Funders are not obliged to join the Association or adhere to the Code, and of the 44 funders in England and Wales, only 16 are members. Critics of the regime raise concerns at its light touch, noting it has few teeth, with the maximum fine of £500 providing no real financial deterrent. 

So, is it time for more robust regulation? It is a question being asked not only in England and Wales but also in Europe and the US. The European Law Institute, reporting on TPF in 2024, highlighted the need for a balanced approach. Too little regulation may allow agreements which disproportionately favour the funder, whilst excessive regulation may deter funders from offering financial backing, leaving would-be claimants unable to finance their claim. The ELI broadly endorsed the view that regulation is only appropriate “where there is an identifiable problem or market failure”. 

The CJC’s review sought input on a very wide range of issues. What impact does the existence of funding have on legal costs? In Lord Justice Jackson’s view, funders are highly experienced litigators who exercise effective control over costs, but there are those who argue that funding increases costs. 

Should third party funders be exposed to adverse costs orders? Although the Court of Appeal in Arkin v Borchard Lines Ltd in 2005 held that a funder’s liability for costs should be limited by reference to the level of funding provided, judges since then have been more willing to expose funders to full adverse costs, especially where they will receive the lion’s share of the damages. 

Should a funder’s return under the agreement be capped? Should individuals and SMEs, at least, get more protection? The questions raise the same issues as those considered by the European Law Institute. Would a cap which gave protection to claimants, deter funders from supporting meritorious claims? 

It is for the CJC to square the circle: provide access to justice at proportionate cost, provide regulatory protection for the most vulnerable in our society, whilst preserving the litigation funding market. 

With the validity of many funding agreements currently uncertain and with the future of the sector under scrutiny, the one thing all will agree upon is the need for certainty – and the sooner the better.