Litigation funding: Cutting up rough

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  • Why is the SRA not involved re: Clifford Chance?

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  • This article takes a jaundiced, skewed view of the litigation funding industry. It is filled with unwarranted conclusions and opinions by people who have no experience of participating in funded cases other than as defendants.
    In an attempt to tarnish the practice of third party funding, the article focuses on the widely-reported Excalibur case – and while properly noting that the case did not involve any UK funders, it misses the critical point that the litigation funding mechanism in the matter worked exactly as it should, with the funders ending up footing the bill for the casts of the victorious defendants. In a similar fashion, the article holds out the Buttonwood case as an example of a broken deal, but fails to point up that the court found for Buttonwood in its final judgment.
    The journalist who wrote the story appears frustrated with her inability to obtain information on cases from funders – yet this is an industry built on confidentiality, our reticence to share information should be seen as nothing more than standard and praiseworthy practice. Rather than accept this, she accuses the industry of being “under-reported” and quotes lawyers who proudly boast that litigation funding is their “area of ignorance”.
    Overall the piece lacks balance, and is filled with slanted or inaccurate specifics – implying, for instance, that a new code is being put in place by the Association of Litigation Funders (the Code of Conduct of Litigation Funders has, of course, been in place since 2011), claiming that litigation funding has been “de-regulated” (it was never regulated, but on the advice of Lord Jackson has been subject to self-regulation); and conflating confusion around poorly drafted DBA regulations with supposed concerns with funders.
    All in all, a very disappointing piece of journalism. A new and valuable industry – that is helping to solve the issue of costs and budget pressures that continue to afflict the legal market – deserved much better than this.

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  • The initial message is valid in that some funders may have little appreciation for the need to be a long term supporter of an impecunious litigant bringing a case against a more financially powerful opponent and hence needing funding support. Such funders are beguiled by the supposed riches to be earned in a short period of time with allegedly little effort, whereas it normally turns out (i) to require a lot more application and (ii) takes a great deal longer.

    Certainly too the 7 years in which we have been involved in the business of commercial litigation funding have shown us that indeed one has to “kiss a large number of frogs” but the litigants whom one helps merit support. Without that support I’m afraid that the concept of justice becomes an illusion.

    That said, funding is a business arrangement where the objective of the funder is to obtain a return for their investment risk. Also the first canon to recognise is the fact that it is the claimant who seeks funding. Although there might be exceptions, the defendant tends not to require funding and it is difficult to arrange an adequate return for the funder if they were to support the defendant.

    Clearly potential defendants are unlikely to be wholehearted supporters of litigation funding preferring no doubt the perpetuation of a status quo which gives them the financial advantage. Nevertheless there have been litigants assisted by funding whose views are valid and would be encouraging to others.

    For example; we have arranged funding for cases where an SME in dispute with a multinational company had run out of money and was in danger of losing not only what they had spent to get to that point but would receive no compensation for their original loss. Funding the remainder of the case enabled them to obtain the compensation which they had been seeking for a number of years, previously to no avail.

    Another example is a large group action case where there was a finding of fault against a cartel resulting in a fine by the OFT but that did not compensate the many SMEs who had lost money as a result of the cartel’s actions. Many of the SMEs could not afford to bring an action to obtain redress and the cost of the case if brought individually would not be proportionate to the loss suffered. However by combining into a group not only were the impecunious litigants helped but those who would otherwise not have pursued the matter, due to the proportionate cost of the case, were enabled to seek justice.

    No doubt others in our field have similar stories to tell.

    In the context of commercial cases there is no legal aid to assist the impecunious claimant. Where can they turn to but funders? Otherwise they have little choice but to fold their tent and either accept a paltry settlement or in most cases nothing at all. So if one espouses the ideal of access to justice one has to recognise that it may only be available for such plaintiffs where funding is provided.

    There are several other factors which are important in the context of litigation funding. For instance how appropriate is the funding? In this context appropriate means a) secure [i.e. that funding is not likely to dry up during the course of the case] and b) legitimate [i.e. that the case is not financed with laundered funds]. Providing that these two imperatives are met the funding may be a feasible business arrangement. The next question which relates to the case itself is; does it merit support? A significant number of cases need to be reviewed for the few which are funded. The return for the funder reflects the risk factor of choosing cases which are likely to win.

    Assuming that the case is then funded, there should be no loss of control arising from the funding process. Whilst access to justice now recognises litigation funding, it has not abolished champerty. Litigants therefore have the right to expect that their solicitor remains in control. Indeed there should be no difference between a litigant who finances the case themselves and one using funding since the funder must not interfere.

    Another topic worthy of comment is the time most cases take to conclude. This is likely to be much longer than anticipated. To improve access to justice, it would be useful to focus on this delay issue. The English legal system is not as protracted as that applying in some parts of the world but there is little doubt that delay (with attendant cost implications) is an unfortunate feature of the legal process. That applies to both claimant and defendant but tends to affect the claimant more where, as can be seen from our first illustration, the SME had exhausted their capacity to continue the case.

    So to recap there are various factors involved in the topic of litigation funding:
    • There is the financial challenge facing impecunious litigants.
    • Such litigants seeking funding will invariably be claimants who will otherwise have to concede for lack of sufficient funds.
    • Sharing of cost allows greater access to justice where costs are likely to be disproportionately high in relation to the loss suffered.
    • How appropriate are the funds to be invested in the case in terms of sufficiency and legitimacy?
    • The choice of case will reflect the risk undertaken by the funder for the reward they seek.
    • There should be no loss of control since champerty still exists.
    • The delay in the progress of cases can rack up costs. This is an area where improvements in procedures could be usefully sought.

    Finally I am pleased that the subject of litigation funding is now getting some “air time” but it needs to be properly understood.

    Richard Sheehan, Access to Justice Limited

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