Civil Justice Council told this should include cap on level of funder’s return
Third-party litigation funding (TPLF) is a “net benefit” to access to justice but the amount of money flooding into the market means regulation is needed to protect consumers, the ACL has argued.
Regulation should include a cap on the level of the funder’s return in the vast majority of cases, to ensure claimants are not under-compensated.
The ACL’s response to the Civil Justice Council’s interim report on litigation funding said TPLF gave access to justice for people with meritorious claimants who would otherwise be unable to bring their claim.
“However, the ACL does consider that the significant volume of funding coming into the market could have a negative impact and therefore some form of regulation, through an independent regulator or legislation, would be beneficial to ensure that the net positive that is currently provided is not eroded,” it said.
Areas to be addressed through regulation included funder returns, influence over the conduct of the litigation, and source of funds transparency.
“The ACL considers that these are legitimate concerns and that they may, in many circumstances, be hypothetical, but that these scenarios and concerns should be considered and ‘safety nets’ put in place to ensure that consumer protection is maintained.”
Without a cap on returns, the risk was that litigation could be brought primarily for the profit of the funder. At the same time, the ACL recognised that funders took on a significant amount of risk and any cap should reflect it.
It drew an analogy with success fees and the established principles and case law that underpin their assessment based on the risk that a solicitor assumed. A similar approach might be appropriate, the ACL said.
In the absence of a cap and independent regulation, court approval of the funding arrangement would be sensible, although there was a danger that funders may be deterred by the additional risk of a court not approving their return.
On the contentious issue of whether the funding agreement should be disclosed to the defendant, the ACL considered it was not necessary unless the type of funding meant the opposing party could have an additional liability for costs – although it could assist in security for costs applications.
The association did not accept that TPLF has increased the level of litigation costs. While it can open the door to the courts, there were already have rules and procedures in place to manage litigation effectively and ensure compliance with the overriding objective that claims were brought at a proportionate cost.
The response also backed the reasonable recovery of the costs of funding from an opponent, and suggested extending qualified one-way costs shifting to all types of civil litigation.
The ACL urged adoption of the changes to the Damages-based Agreement Regulations recommended in 2019 by the Civil Justice Council, aimed at encouraging the wider take up of DBAs. In particular, enabling ‘hybrid’ DBAs – where hourly rate charging is permissible in specified circumstance, such as on termination of the agreement – was essential, the response said.
ACL chair Jack Ridgway said: “Even opponents of third-party funding have to agree that it has increased access to justice and that ultimately is the litmus test. We believe claimants should have the option of litigation funding but there needs to be more control to ensure it works fairly for all parties, including defendants.
“The justice system, filled with expert judges, counsel and Costs Lawyers, is already set up to ensure litigation is pursued at proportionate cost; litigation funding does not change this.”