Orpin: Increase in poor practice by some law firms
There should be mandatory regulation of the litigation funding industry by the Financial Conduct Authority (FCA), the director of regulation and policy at the Legal Services Board (LSB) said yesterday.
Richard Orpin said the expansion of litigation funding had “coincided with an increase in poor practice by some law firms in receipt of that funding, particularly in the high-volume consumer claims sector”.
Speaking in Oxford at a consultation event for the Civil Justice Council review of litigation funding, he went on: “We’re concerned that this pattern of behaviour undermines trust confidence in the ‘no win, no fee’ sector.
“We’re concerned about poor standards of client care, short-term financial gain being put above the interests of client and duty to the court.”
Mr Orpin said the LSB was also concerned by the failure of law firms receiving funding to properly assess the merits of the case and advise clients on liability.
There were further concerns about litigation funders exercising excessive control of cases and demanding excessively high returns.
Regulation is one of the issues raised in the CJC’s interim report, consultation on which closes next week. No conclusions were drawn at this stage, but concerns were raised about the adequacy of voluntary self-regulation.
Mr Orpin said a response was required both by legal and financial services regulators.
Legal regulators, particularly the Solicitors Regulation Authority, needed to be “more proactive” and effective to ensure law firms, particularly in the high-volume claims sector, complied with their obligations, and if not, take effective action.
Meanwhile, there was a case for “bringing litigation funding into the remit of the FCA” to ensure consumers did not suffer detriment from poor practice.
“This would mean, clearly, moving away from the voluntary model of regulation to a mandatory model.”
Rather than being anti-competitive, the LSB believed that it would help promote growth by providing a “stable and predictable regulatory environment” and a “level playing field” that currently did not exist.
Richard Blann, head of litigation and conduct investigations at Lloyds Banking Group, agreed that self-regulation was “ineffective and inadequate”, with not all litigation funders signed up to the Association of Litigation Funders (ALF), which in any case “has no teeth”.
Other financial services providers had to be regulated in terms of capital adequacy, transparency to consumers, fair marketing and duties to prevent money laundering, he pointed out.
Mr Blann argued that there should also be a cap on litigation funders’ returns or a floor to what they could take from damages.
Funders should be under a duty to funding parties, just as financial services companies were under a consumer duty.
Control by the court should be exercised through a pre-action protocol, including the requirement that clients had explored ADR and the name of funders should be disclosed from the outset.
However, Adrian Chopin, managing director and founder of Bench Walk Advisers, a litigation funder in London, said that if funders took too much control, whole agreements could be unenforceable.
The idea that there were “waterfalls where the funders take everything and the client gets nothing” betrayed a “gross level of ignorance” of the market.
High pricing “may once have been the case”, but the issue had been fixed by competition.
When price caps were introduced, the effect was a restriction in supply. “A better response to high pricing is to increase supply.”
He added: “What is the alternative? Would we rather not have these cases funded? Is it not better that claims obtain some redress than claimants remain entirely unable to bring their cases?”
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