Pressure groups and litigation funders clash over state regulation

Nigel Muers-Raby, chairman of the Consumer Justice Alliance, and Mary H Terzino, consultant at the US Chamber Institute for Legal Reform, have criticised the voluntary code for third party litigation funding, launched in November, and demanded state regulation.

“Third party funding is entirely unregulated,” Muers-Raby told the Westminster legal policy forum. “Funders can withdraw if it begins to look as if things are not going the right way.

“Consumers could potentially face financially catastrophic debts. The voluntary code is welcome, but if third party funding is extended to support a greater variety of cases, consumers must not be left high and dry with eye-watering fees.”

Terzino told the forum, sponsored by the US Institute, that confidentiality of funding agreements was a problem, as was the lack of sanctions for violating the voluntary code.

“Lord Justice Jackson said the question of state regulation should be looked at when the industry expands,” she said. “Profits are up over 500 per cent.”

Terzino described voluntary guidelines as “welcome, but not sufficient”. She said only state regulation could deal with a situation where some funders said they had access to funds, but in fact did not.

She said there must be disclosure so that everyone knew who was paying for litigation, and said funding for class actions should be banned.

“Third party funding, which is here to stay, deserves more attention. There need to be more speed limits and perhaps a few stop signs.”

Leslie Perrin (pictured), chairman of Calunius Capital and of the Association of Litigation Funders, responded by describing the US Institute as “one of the best funded lobbying organisations in the world”.

He told Terzino that her organisation “would be better served” if it redoubled its efforts to achieve tort reform in the US to tackle the problems of “spurious litigation and distorted compensation”.

Perrin suggested that Terzino should focus her attention on these issues, together with jury trials, triple damages and the lack of costs shifting, “rather than creating so much fuss about a tiny market that is trying to do things right”.

Earlier he described how it had been “extremely difficult” for Calunius Capital to raise the money it needed, which had taken four years.

He said litigation funders could make a lot of money if they made the right choices, but as non-recourse funders, were liable for the whole loss if things went against them.

“A company may have a good claim, but not want to take the risk. This is a very, very common use of litigation funding.”

Professor Rachael Mulheron, professor at Queen Mary University’s law department and a member of the Civil Justice Council, helped draft the voluntary third party funding code.

She said the code was “fit for purpose and working well”, though it could be supplemented by a complaints procedure and additional rules on collective redress.

“Senior judges are convinced that litigation funding has a role, but it must be properly supervised”.

Professor Mulheron said judges already had a significant amount of control through section 14 (2) of the Criminal Law Act, which abolished the traditional ban on maintenance and champerty but excluded contracts treated as ‘contrary to public policy or otherwise illegal’.

She added that the code was “informed by a background of judicial sentiment on what it takes to have a valid agreement” and the checks and balances in it were crucial.