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Litigation Funding

Litigation Funding, also known as legal financing[], third-party funding or TPF is one of several options available to Claimants in England and Wales and other jurisdictions to help manage the very high costs and associated risks of commercial litigation. Litigation funding is where a party, who is not the Claimant to an action, agrees to cover all or some of the costs of the litigation, in return for a share of the proceeds if the litigation is successful. If the litigation is not successful, the third-party funder bears the costs it has agreed to fund. Funding is non-recourse, i.e., it is only repayable if the claim is successful and money is recovered.

Claimants often find they have a good case but not the financial resources to bring the claim. Alternatively, Claimants do not wish to accept the legal costs risk associated with litigation funding, particularly in England and Wales where the general rule is that the losing party pays the winning party's costs.

Litigation funding is not a new concept - it has been permitted in England and Wales since 1967 - but until relatively recently it was limited in England and Wales to insolvency situations. The last 10 years have seen its growing acceptance as part of the litigation landscape.

Case Law
Seear v Lawson [1880] 15 Ch D 426 - funding endorsed in the United Kingdom in the context of insolvencies. Martell v Consett Iron Company [1955] 1 Ch 363 – states that a defendant shall not be entitled to stay proceedings even if a funding agreement is deemed champertous. Trendtex Trading Corp v Credit Suisse [1982] AC 679 HL - 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.

Giles v Thompson [1994] UKHL 2 - considered champerty and the correct question of whether in accordance with contemporary public policy, the funding agreement agreement has in fact caused the corruption of public justice.

Stocznia Gdanska v Latreefers [2001] 2 SCLC 116 (CA) - 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. The Eurasian Dream (No 2) [2002] 2 LIoyd's Rep 692 - 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. Download PDF document

R (on the application of Factortame) v Secretary of State for Transport, Environments and the Regions (No 2) [2002] EWCA Civ 932, [2003] QB 381 – Court of Appeal held that funding agreement not champertous.

Hamilton v Al-Fayed (No 2) [2003] QB 1175 – 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.

Gulf Azov Shipping Co Ltd v Idisi [2004] EWCA Civ 292 – 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.

Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655 - 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.

London & Regional (St George’s Court) Ltd v Ministry of Defence [2008] EWHC 526 – 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.

Adris and others -v- RBS and others [2010] EWHC 941 - The failure of a firm of solicitors to obtain legal costs insurance for unsuccessful claims alleging breach of the Consumer Credit Act 1974 s.78 amounted to a gross breach of its duty to its clients and rendered it liable to a non-party costs order.

Merchantbridge v Safron [2011] EWHC 1524 – addresses liability of litigation funders to adverse costs. Download PDF document

Sibthorpe and Morris v Southwark London Borough Council [2011] EWCA Civ 25 - an indemnity in a conditional fee agreement against the client having to pay the opponent's costs if the claim were unsuccessful and if the client had been unable to obtain insurance against that risk was not champertous and did not render invalid the otherwise valid CFA.

Jennifer Simpson (as assignee of Alan Catchpole) v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149 – assignment of claim void for champerty

Policy & Regulation
1787 - Legal reformer Jeremy Bentham declares that restrictions against litigation funding are a “barbarous precaution” born out of a “barbarous age”.

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.

2009 - In a keynote address Lord Neuberger of Abbotsbury, the Master of the Rolls, referred to the importance of ADR and the Lord Justice Jackson’s review of civil litigation costs.

2010 - Chapter 11 of the Jackson Review of Civil Litigation Costs was published, effectively providing judicial endorsement to litigation funding.

2011 - Cook on Costs published a chapter dedicated to litigation funding.

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 [Andy see note of Jackson’s lecture attached and also CJC press release] and commended by the Chair of the Civil Justice Council, Lord Neuberger of Abbotsbury, the Master of the Rolls.

2011 - The regulatory body responsible for litigation funding and ensuring compliance with the Code is formed, namely the Association of Litigation Funders (ALF). The members of ALF have adopted the Code and undertake to comply at all times with it.