Litigation funding

Litigation funding, also known as legal financing and third-party funding, enables a party to litigate or arbitrate without having to pay for it, whether because they are unable to pay for it or because they do not want to. A third party professional funder can pay some or all of the costs/expenses associated with a dispute in return for a share of the proceeds of the dispute if it is successful. If the litigation is not successful, the funder bears the costs it has agreed to fund.

Whilst it is primarily large cases that receive funding, there is no official minimum requirement for funding as this is decided on merit by each individual funder on a case by case basis.

Various new websites are also promoting the use of litigation crowdfunding, in which case hundreds or tens of thousands of individuals can help to pay for a legal dispute, either investing in a case in return for part of a contingent fee, or offering donations to support a legal right that they believe in.^[1]

Litigation funding can be broadly split into 4 different forms in the UK, Conditional fee agreements, Damages Based Agreements, Fixed Fees and Third Party Funding.

Litigation funding is not a new concept. It has been permitted in England and Wales since 1967, but until relatively recently it was limited to insolvency situations. Litigation funding's journey from its prohibition in Ancient Greece to its present-day status as ‘the life-blood of the justice system’ were all covered in Lord Neuberger of Abbotsbury's lecture at Harbour's inaugural keynote address, ‘From Barretry, Maintenance & Champerty to Litigation Funding’ at Gray’s Inn, London, on 8 May 2013.^[2]Lord Neuberger is President of the UK Supreme Court.

Selected key judgments relating to Litigation Funding, handed down by the Courts of England & Wales, are summarised below as well as key policy and regulatory developments.

Case law

2011

Merchantbridge v Safron^[3]

Addresses liability of litigation funders to adverse costs.

2010

Pedro Emiro Florez Arroyo and Others v BP Exploration Company (Colombia) Limited^[4]

A dispute in relation to whether the defendants should be allowed to have inspection of an agreement made between the Claimants and a third party, in this case a policy issued by an After The Event Insurer. The High Court held that it did not have jurisdiction under the Civil Procedure Rules (the “CPR”) to compel the Claimants to produce the Agreement. In addition to this, the Court found that the document was not relevant for the purpose of disclosure, and that, in any event, it attracted litigation privilege as it was individually negotiated between the solicitors for the Claimants and the Insurer. The disclosure of the agreement was likely to prejudice the Claimants in the conduct of the litigation.

Citing the Government’s conclusions following its consultation in 2000 on “Conditional Fees: Sharing the Risks of Litigation”, the Senior Master reiterated that in privately funded litigation there is no obligation on either party to disclose how a case is being funded. However, in spite of this, the CPR does ensure that a losing party who may be subject to additional costs as a result of a funding arrangement should have access to certain specific information about that arrangement. The Court held that these requirements of the CPR balanced the “interests of the parties with funding arrangements and the interests of those who face the claims for additional costs which result from them” and should therefore be considered sufficient without the necessity to disclose the entire agreement.

2008

London & Regional (St George’s Court) Ltd v Ministry of Defence^[5]

States that the modern authorities demonstrate a flexible approach where courts have generally declined to hold that an agreement under which a party provided assistance with litigation in return for a share of the proceeds was unenforceable.

2007

Myatt v National Coal Board (No.2)^[6]

In this case there had been an unsuccessful appeal to the Court of Appeal against a decision holding that a CFA entered into by a particular firm of solicitors in 4 test cases was unenforceable. This had two consequences. The first was that the claimants themselves would have to bear the cost of the ATE insurance premium from the damages recovered by them. The second was that the solicitors would be unable to recover their profit costs in those cases and in other similar cases; the total sum at stake so far as the solicitors were concerned was in the region of £200,000. The solicitors had apparently agreed to fund the appeals at their own expense, and the successful respondent sought an order that they should pay the costs of the appeal as a non-party funder. The Court of Appeal made the order sought. They held that the court had jurisdiction to do so where litigation was pursued by the client for the benefit, or to a substantial degree, for the benefit of the solicitor, because in such circumstances the solicitor was a real party to the litigation. However, because the respondents had failed to give prior notice of their intention to make such an application, which they held was normally incumbent on a party seeking such an order so as to give the solicitor the opportunity to consider whether or not to continue in the light of the risk of such an order being made, and because the appeal had been pursued in part for the client’s own interests, the fair order was that the solicitors should pay 50% of the costs.

2005

Arkin v Borchard Lines Ltd & Ors^[7]

English Court of Appeal decision explicitly endorses funding as part of its judgment. Also finds that a funder is liable to the other side for costs only to the extent of its own funding.

2004

Gulf Azov Shipping Co Ltd v Idisi ^[8]

Lord Phillips said that public policy now recognises that it is desirable, in order to facilitate access to justice, that third parties should provide assistance designed to ensure that those who are involved in litigation have the benefit of legal representation.

2003

Hamilton v Al-Fayed (No 2)^[9]

States that a person not standing to benefit from the result of litigation, but supporting the Claimant for other reasons, may avoid an order for costs.

2002/2003

R (on the application of Factortame) v Secretary of State for Transport, Environments and the Regions (No 2)^[10]

Court of Appeal held that funding agreement not champertous.

2002

The Eurasian Dream (No 2)^[11]

Marine claims assessors had carried out work for the claimants on the basis of a no-win, no-fee agreement providing for 5% of recoveries.

The judge rejected an argument that the agreement was champertous, saying it was necessary to consider the role played by the consultants to see whether the nature of their interest in the outcome carried with it any tendency to sully the purity of justice.

The opportunity for the consultants to influence the outcome was limited, as solicitors and counsel were instructed. It was relevant that it was the practice in this market to be remunerated on a similar basis.

2001

Stocznia Gdanska v Latreefers^[12]

Funders agreed to finance commercial litigation in exchange for 55% of the proceeds.

They agreed to pay the between-the-parties costs if the litigation failed. They also had a prior commercial interest in the litigation because they were already owed money under an agreement which successful litigation would enable them to recover.

The defendants sought a stay of the proceedings on the ground of champerty. Although the Court of Appeal did not have to decide whether or not the agreement was champertous, it was strongly of the view that it was not, because the alleged disproportion was more theoretical than real, the funders were undertaking a very substantial potential costs liability, they had a pre-existing interest in the subject-matter of the claim and they would not be able to influence the conduct of the litigation because that, including any negotiations, was in the hands of experienced solicitors

1994

Giles v Thompson [1994]^[13]

Considered champerty and the correct question of whether in accordance with contemporary public policy, the funding agreement has in fact caused the corruption of public justice.

1987

Guinness Peat Properties Ltd and G.M. Group Finance Ltd v The Fitzroy Partnership^[14]

Considered whether a document prepared for a third party was privileged. In this instance the third party was an insurance company, but the judgment bears relevance for all third parties because it sheds light on how the concept of the “dominant purpose” of a document will be interpreted in such circumstances. In this instance, the document was a notice of a potential claim under an insurance contract, sent to the insurer, who would then send it on to their legal advisors to obtain an opinion on the merits of the potential claim.

The Court of Appeal decided that the document attracted litigation privilege because at the time it was created, litigation had commenced and the document was created for the dominant purpose of obtaining advice in relation to that litigation. It was held that, when looking at the dominant purpose of a document, it was necessary for the Courts to take a wider view; the entire context of the creation of the document should be considered. In particular, the Court of Appeal held that it was important to look at the motivation of the party requiring the document to be created (which was that it would be used by the insurer for the purpose of obtaining legal advice) and not simply the intention of those composing or preparing the document (which was in order to fulfil its obligation to notify the insurer). The document prepared for the third party was therefore held to be privileged

1982

Trendtex Trading Corp v Credit Suisse^[15]

Although there was a champertous element in the funding agreement it contained a clause giving the Swiss courts exclusive jurisdiction and there was room for the operation of this clause notwithstanding the element of champerty.

1955

Martell v Consett Iron Company^[16]

States that a defendant shall not be entitled to stay proceedings even if a funding agreement is deemed champertous.

1880

Seear v Lawson^[17]

Funding endorsed in the United Kingdom in the context of insolvencies.

Policy and regulation

2013

The Damages-Based Agreements Regulations came into force on 1 April 2013 and govern the use of Damages-Based Agreements (DBAs) in UK litigation. DBAs are agreements between a lawyer and a client under which the lawyer’s agreed fee is contingent upon the success of the case and is determined as a percentage of the compensation received by the client. DBAs were not permitted in the UK in contentious work, except for employment claims, until 1 April 2013.

2011

The regulatory body responsible for litigation funding and ensuring compliance with the Code is formed, namely the Association of Litigation Funders (ALF).^[18] The members of ALF have adopted the Code and undertake to comply at all times with it.

2011

A Code of Conduct for Litigation Funders was launched, which sets out the standards of best practice and behaviour for litigation funders in the UK.

The Code of Conduct provides transparency to claimants and their solicitors. It requires litigation funders to provide satisfactory answers to certain key questions before entering into relationships with claimants.

Under the Code, litigation funders are required to give assurances to claimants that, among other things, the litigation funder will not try to take control of the litigation, the litigation funder has the money to pay for the costs of the funded litigation and the litigation funder will not terminate funding absent a material adverse development.

The Code has been approved by Lord Justice Jackson and commended by the Chair of the Civil Justice Council, Lord Neuberger of Abbotsbury, the President of the Supreme Court.^[19]

2010

Chapter 11 of the Jackson Review of Civil Litigation Costs was published, effectively providing judicial endorsement to litigation funding.^[20]

2009

In a keynote address Lord Neuberger of Abbotsbury, the then Master of the Rolls and now President of the Supreme Court, referred to the importance of ADR and the Lord Justice Jackson’s review of civil litigation costs.^[21]

2007

The Civil Justice Council, an Advisory Public Body established under the Civil Procedure Act 1997 with responsibility for overseeing and coordinating the modernisation of the civil justice system, published a report recommending the acceptance of litigation funding.

1787

Legal reformer Jeremy Bentham declares that restrictions against litigation funding are a “barbarous precaution” born out of a “barbarous age”.^[22]

See also

• Legal financing
• Champerty and maintenance

References