Funding fair?

CMS insurance head Stephen Netherway says litigation funders can lawfully withdraw funding from cases thanks to a recent ruling

Litigation funding has become a large and rather lucrative, market in England and Wales. Alongside the Jackson Reforms and the tightening of Legal Aid, litigation funders are at the forefront of options for those pursuing a claim in court.

In view of this trend, last week’s publication of Mr David Donaldson QC’s judgment, sitting as Deputy Judge of the High Court in Harcus Sinclair v Buttonwood Legal Capital Limited and others, took on added significance.

Our firm acted for BLC in this matter and Harcus is the first reported case to consider termination of third party litigation funding agreements since the arrival of the new Jackson regime.

The decision in Harcus effectively endorsed the approach Buttonwood Legal Capital (BLC) and its investment advisor, Argentum, adopted when conducting a merit review shortly after a defence had been filed in the funded litigation.

It not only confirms that courts will enforce the terms of commercial third party funding agreements between the relevant parties, but also emphasises the fact that a funded party and their solicitors should be fully cognisant to their respective rights and obligations under the funding agreement, to understand and observe a funder’s right of continuing review and the advisability of claimants working to keep a funder appraised of a case’s developments.

Jackson stated in his 2009 report that funders should not be entitled to pull funding without ‘proper grounds’ although, noting this is a commercial agreement, litigants and indeed more so their legal advisors should be aware of their obligations and terms of funding. This is a commercial investment and not Legal Aid.

While there is no specific statutory regulation governing litigation funding, the London-based Association of Litigation Funders, has seen its membership grow to fourteen since founding in November 2011.

Membership is voluntary but the ALF has written a code of conduct for members and a complaints process. Under ALF rules, members can only withdraw funding in limited circumstances, for example if the chances of winning drop significantly or if costs soar.

As a result of the recent costs reforms in England and Wales many funders are focusing on this market alongside the US due to the innovative ways in which legal fees can be charged and claims pursued.

However, we must not forget Australia. This was one of the first markets in which litigation funding boomed and a maturing market has resulted in an obvious shift in the types of cases being funded. This industry is expanding rapidly. Goal Group, a London-based class action consultancy firm, estimates that the income from settlements in Australia will reach US$3.4bn by 2020.

 It remains to be seen whether the UK will acquire a market as mature as this and as with any booming industry it has not all been plain sailing. It must not be forgotten that the funders are backed by investors who, like any other, require a return. The rewards can be great but the funders are reliant on the lawyers acting for the litigants (or borrower) to accurately reflect the prospects of success for each case. Ultimately, the judgement in Harcus provides due emphasis of that fact and it will be essential for interested parties to review their approach moving forward.

CMS’ insurance group head and partner Stephen Netherway