Guest post by John McElroy, a partner at Fieldfisher and vice-president of the London Solicitors Litigation Association (LSLA), and Abdulali Jiwaji, a partner at Signature Litigation and committee member of the LSLA
John McElroy
The Civil Justice Council (CJC) consultation on litigation funding closed on 3 March, and submissions were made by various industry groups, including the LSLA. With the CJC’s final report expected in the summer, opinions on the future of litigation funding remain divided.
This article looks at some of the pros and cons of bringing in changes, examining how any might influence the legal landscape, access to justice and the broader implications for claimants and defendants alike.
On one hand, many commentators recognise that litigation funding is now a key part of our legal system and should be supported. It has in many cases provided vital access to justice, for example in relation to group claims which require significant investment in book building, allowing claimants to bring cases they might otherwise be unable to afford.
Supporters argue that litigation funding has provided individuals and businesses with the opportunity to pursue legitimate claims, particularly when up against opponents with greater financial resources.
Without this financial support, many valid claims would never be brought, effectively denying access to justice. It also undoubtedly helps level the playing field in complex cases, ensuring that financial constraints do not stand in the way of proving a claim.
However, critics argue that litigation funding can sometimes incentivise claims lacking strong merit, with funders cherry picking cases based on potential settlement value rather than case strength.
Additionally, there are concerns that a funder’s involvement may skew settlement dynamics, particularly as funders will look at settlement structures from a commercial perspective with a view to ensuring that their return is covered, and will have little incentive to ensure that the claimants receive a benefit.
There are also two sides to the debate when it comes to regulation.
Abdulali Jiwaji
One argument is that litigation funders should be subject to the same oversight as other financial institutions. For example, if banks and lenders are tightly regulated, why should litigation funders operate with fewer restrictions and less red tape?
Greater regulation, supporters say, could help prevent unfair agreements and ensure that claimants receive a fair share of financial recovery.
On the other hand, opponents of increased regulation warn that excessive oversight could reduce the availability of funding, particularly for smaller or riskier claims, and dampen market activity.
If funders face strict caps on returns or additional compliance burdens, they may become more selective and focus on a very narrow band of cases, leaving other claimants without access to funding. Some believe that the existing self-regulatory framework, combined with competition in the market, is sufficient to protect claimants and maintain fair practices.
It does appear that anything beyond minimal regulation would be challenging to structure and enforce, and practitioners do not see it as viable to rely on the courts as a fallback.
Amending procedural codes to require courts to oversee funding arrangements and case outcomes to ensure fairness would likely result in an overwhelming workload for the courts.
Transparency is another key consideration. Some believe that requiring claimants to disclose their funding arrangements would promote fairness and ensure all parties understand the financial dynamics behind a case.
Others caution that mandatory disclosure could give defendants an unfair advantage, potentially switching tactics to pressure claimants into early settlements or creating unnecessary legal hurdles given the involvement of a funder.
The debate has been fierce. Ultimately, litigation funding is here to stay. The challenge now lies in refining the system without restricting access to justice. Striking the right balance between regulation and transparency will be crucial to ensuring that litigation funding continues to support claimants while maintaining fairness.
The CJC recommendations are eagerly awaited by all sides.
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