Litigation funding has recently hit the headlines, in particular through news reports that an accountancy firm is facing a £90 million negligence claim brought with the help of outside funders. In addition, the Privy Council has very recently had to consider the extent to which claimants can sell their litigation claims to others, which in theory represents an attractive model for those wishing to invest in litigation. All this reflects the growing trend towards litigation funding which litigators have been seeing for some time.
Growth of Litigation Funding
- Litigation funding is not new - in formal insolvency contexts such as liquidation, limited types of de facto funding have been permitted for over 100 years.
- The recent developments outside the insolvency context can be traced to a legislative change in 1995 which allowed lawyers to work for clients under conditional fee agreements such as "no win no fee". This change aimed to facilitate access to justice for poor claimants.
- Reflecting this new mood which favours access to justice, the Courts now more readily accept litigation funding which furthers that objective.
- In the Hamilton v Al Fayed libel litigation, for example, Mr Hamilton relied on the donations of well-wishers to fund the costs of bringing his claim. When he lost and was unable to pay Mr Al Fayed's legal costs, the Court of Appeal refused to make his 'friends and family' donors liable for Mr Al Fayed's costs. To have done so would deter such donations in the future and thereby prejudice poor litigants' chances of obtaining access to justice.
Professional Litigation Funders
- With the increased legal flexibility in this area, we now see the emergence of professional litigation funders whose very business is to profit from investing in litigation - this is good news for would-be claimants of limited means, but unwelcome for organisations which regularly find themselves defendants in litigation.
- It is not inherently objectionable for a professional litigation funder to fund a claimant of limited means. The question in each case is whether the particular funding arrangements create a risk that the litigation process will be abused (for example through improper interference by the funder eager for the claim to succeed at any cost).
Pitfalls Remain
- A professional litigation funder should not exercise too much control of the litigation, as this is seen to increase the risk of the funder abusing the litigation process for commercial gain.
- The same concern arises if the funder's success fee if the claim succeeds appears to be disproportionate to the funding which he offers.
- Likewise, unlike the well-wishers in the Hamilton case, the Courts are not prepared to accept that professional funders should escape liability for costs if the funded claim fails.
Further Developments
- Many boundaries in this area still remain to be tested.
- Will the law develop further to allow a wealthy claimant to hedge his litigation risk by obtaining professional litigation funding? The "access to justice" argument is clearly more limited in that scenario.
- To what extent can claimants sell their litigation claims outright to a third party? On 26 February 2007, the Board of the Privy Council (made up of English Law Lords) gave judgment in a case (Massai Aviation) which considered just such issues. Clearly, the freedom to buy and sell litigation claims (which remains constrained by legal rules) presents a potentially attractive method by which claimants can obtain value from their claims, and by which would-be funders may be able to structure investments in litigation.