Former Lord Chief cautions against regulation of litigation funding

Thomas: A chance for the UK to show leadership

Regulation may not be answer for the future of the third-party litigation funding market, a former Lord Chief Justice has cautioned ahead of the Civil Justice Council (CJC) review of the sector.

It was confirmed in Parliament this week that the Lord Chancellor, Alex Chalk, has written to the CJC to ask it to conduct the review.

A preliminary report is due to be published this summer and a final report a year later.

Business minister Lord Offord said: “This work will ensure that claimants can get the best deal and it will expressly consider the need for further regulation or safeguards. Its terms of reference will be announced in the coming days.”

The prospect of the review was first announced six weeks ago during the committee stage of the Digital Markets, Competition and Consumer Bill in the House of Lords, and confirmed earlier this month by Mr Chalk as he announced plans for legislation to overturn the impact of last year’s Supreme Court PACCAR ruling.

The provisions in the bill aimed at tackling the impact of PACCAR on opt-out collective actions in the Competition Appeal Tribunal have now been removed as a result.

But speaking about the review this week during the bill’s report stage, where further amendments on the issue were dropped, former Lord Chief Justice Lord Thomas of Cwmgiedd said: “What the answer is, what the principles are, I will not take your Lordships’ time up with, except to say that it may not be regulation.

“Regulation is not a universal success. There are other ways of doing things—maybe codes of conduct, maybe voluntary agreements.

“It is quite clear that this gives England and Wales, and the UK, an opportunity to show what we have always had: leadership in the law. We are known throughout the world for this. I very much welcome what the Lord Chancellor has done because it shows what a real leader he is.”

Conservative peer Lord Hodgson, a businessman who has called for the regulation of litigation funding for several years, said he wanted to put on record some comments on draft terms of reference for the review that he had seen.

While acknowledging the role of funding in facilitating access to justice, he said: “We – and I hope the review – must not forget that the funders are profit-making entities. This in itself is entirely understandable, but a profit-making entity marches to the beat of a different drum.

“All I am saying is that the plaintiffs – whose interests, after all, the funders are supposed to represent – are entitled to know about the beat of that drum, the waterfall of the distribution of the proceeds, who pays costs, and all those sorts of issues.

“If obfuscation takes place, there should be a body – the courts, perhaps – that can step in. Equality of arms demands no less.”

He urged the review to ensure it went beyond “high-flown legal principles” and “get down into the real practical detail of what is happening in the industry today”, and to examine “the consequences of grouping claims together, in the way that they are put together for funding via a single investment pot”.

Lord Hodgson explained: “In particular, the review will need to consider the position where firms of solicitors are undertaking the grouping…

“Where several cases are included in a single pot, there is a danger of too early a close-out, from a plaintiff’s point of view, of the remaining case or so, when the funder would like to round up the pot and return the money to its investors.

“By contrast, when matters are not going so well, it may be in the funder’s interest to prolong the proceedings – not in the interests of the plaintiffs – in the hope that a greater result will come from the last few cases, and the result will be a much more satisfactory outcome.

“The key differentiation is that the plaintiffs have an interest in the outcome of a single case, whereas the funders have an interest in the outcome of a group of cases.”

He also highlighted the risk of an “unwitting exposure to costs” and the need to understand who was behind funders.

“It is surely not in our national interest to have unknown funders – perhaps backed by foreign governments – able to press for litigation claims against high-tech UK companies. Such actions can disrupt the management and development of the company or damage its reputation, and could in some cases give access to its technology.

“An ability for the government and/or the courts to require disclosure of beneficial ownership could be of great advantage in the future.”

Lord Thomas also referenced work being done by the Vienna-based European Law Institute on the principles that should govern third-party funding through a working group co-chaired by High Court judge Dame Sara Cockerill.

Lord Thomas is on the project’s advisory committee as an assessor. Other members include Professor Rachael Mulheron, the leading academic on funding in the UK, and Susan Dunn of funder Harbour.

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