UK: The Evolution Of Third Party Funding

Litigation funding can help control costs & add value to the litigation process, says Sergei Purewal.

If in a particular erudite game of trivial pursuit, about a decade or so ago, you were asked whether litigation funding by a third party in the UK was a part of the mainstream consideration for litigation costs, your answer almost definitely would have been: 'What is third party litigation funding?'

Litigation funding, and its emergence as a professional market, developed outside of the UK in a common law jurisdiction largely within the insolvency sector. In many civil law jurisdictions, an outright assignment of a claim to a third party has always to an extent been legally possible. Despite some corners of the legal profession believing otherwise, the days of applying the principles of maintenance and champerty have not gone away. There are still checks and balances in place when it comes to funding arrangements deemed to be contrary to public policy, or indeed illegal. What is established as a working principle, however, is that the litigation funder should not be controlling or manipulating the litigation risk for its own purpose.

When the UK courts were called to rule on the litigation funding profession and its viability, they set the path with a positive endorsement in 2005. Traditionally litigation was funded either by the litigant through their own means and/or via an insurer with risk sharing by way of conditional fee agreements (CFAs) with their legal team or through legal aid.

The growth and establishment of litigation funding in the market has in part been due to the creative and innovative way the legal sector has had to adapt to the modern demands, needs and requirements of their clients when it comes to paying for litigation costs and managing risk.

There have been recent instances where the courts have been asked to consider whether litigation funding as a source for financing litigation may be contrary to the public interest and illegal. In these situations, however, rather than attack the freedom to contract, the courts have focused on the behaviour of the funder rather than the funding arrangement.

Other civil and common law jurisdictions have also found their way to accepting the litigation funding profession. Hong Kong and Singapore for example passed legislative measures last year allowing third party funding in some circumstances. Third party is adopted as part of the mainstream in the US and Australia.

The way in which litigation is pursued, and more importantly funded, has changed since Lord Justice Jackson's 2009 Review of Civil Litigation Costs. The theme running through Jackson LJ's findings, which continues to date with his recent recommendations for fixed recoverable costs has been the need to be disciplined and the desire to provide more certainty when it comes to costs and thereby providing access to justice. This thinking has been evident in some recent decisions where costs and properly budgeting for the same have been strongly pursued and enforced by the judiciary.

There are still those in the legal profession wary about creating an advisory relationship on funding packages, however, this should be discussed with the litigation funder via proper communication. This supposed fear should be weighed against the distinct possibility of not properly advising the client of the options to fund legal costs. Failure to advise on all the available options may store up possible professional and conflict issues with their clients for an uninformed choice when carrying out its cost-risk benefit analysis on litigation risks and legal costs.

There is a real opportunity for instance for the legal profession in a fixed cost setting, offered up recently by LJ Jackson and low value cases, for the serious consideration of a portfolio arrangement with a funder. That is, a book of cases with legal merit funded as opposed to a single case that would otherwise not obtain funding due to commercials. Here, the funder would group together higher risk with lower risk claims where the damages on one case manages the risk on all the others in the portfolio. Thus allowing for cases with legal merit, that would not otherwise be brought if assessed only on their own merits due to commercials, to be pursued.

Conclusion

Controlling costs of litigation, providing clarity and certainty as to each party's financial commitment are vital elements to achieving access to justice and impacts the client's freedom to contract. Litigation funding should be a part of that process, adding real value. Litigation funding cannot guarantee a case will be successful, no more than the clients own legal team can—all recognise that litigation ebbs and flows and there is always an element of risk. But, what funders can do alongside the legal team is give a guarantee and certainty on price to the client.

Article published in New Law Journal, 20 October 2017

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