Third-party litigation funders thinking of investing in law firms to avoid liability for adverse costs will have to try their luck in front of the court after an important report on contingency fees refused to make a recommendation on whether this should be possible.

Following the Court of Appeal’s Arkin ruling in 2005, which involved a conditional fee agreement (CFA), funders are liable for adverse costs up to the value of their investment. The Civil Justice Council’s contingency fees working party said today that this should be replicated for the new form of funding, which is known formally as damages-based agreements.

By contrast, where solicitors are instructed under a CFA, they are immune from an adverse costs order and the working party – chaired by former Irwin Mitchell senior partner Michael Napier – said this it would be “consistent and sensible to extend the same immunity to lawyers acting on a DBA”.

This has raised the prospect of funders either becoming alternative business structures (ABSs) or investing in law firms so as to avoid costs liability, a possibility which the working party’s report acknowledged.

It said: “There has been some speculation about the effect of ABSs on the liability of third-party litigation funders for adverse costs where the funder has an ownership share in the ABS. However, the working party does not feel that this is a matter that could at this tage by the subject of rules or regulation and is best left to the courts to resolve if and when a question arises in a particular case.”

For a full report on the working party’s recommendations, see the story on our sister site, Litigation Futures.

 

Tags: ABS, Alternative business structures, CFA, conditional fee agreements, contingency fees, damages-based agreements

2 Responses to “Litigation funders left in limbo over whether ABS status will give them costs protection”

1. Are solicitors,etc immune from the risk of an adverse costs order?

   A CFA only extends to own solicitor costs which is why a CFA is usually paired with an ATE insurance policy. If the case is lost the ATE insurers foots the opponents bill on behalf of the litigant.

   If a solicitor enters into a CFA without ATE Insurance they run the risk of a third party costs order (See for example Adris v RBS). Whilst third party cost orders are rare they are still a risk to solicitor and funder alike.

Jamie Molloy on August 3rd, 2012 at 2:34 pm

2. The litigation funding industry is trying to expand and see where the deficiencies of the legal system are and where they can have the most benefit. The system has worked well for some lawyers and plaintiffs who are seeking to get some sense of justice. The same can be done for law firms given the financial climate of many firms.

Lulaine on August 3rd, 2012 at 11:06 pm