Bailey-Vella: Much to like in report
This week’s Civil Justice Council (CJC) report on litigation funding has received a positive reaction from across the legal profession.
But there was concern about the idea that law firms in receipt of ‘portfolio funding’ could be jointly regulated by the Solicitors Regulation Authority (SRA) and Financial Conduct Authority (FCA).
David Greene, co-president of the Collective Redress Lawyers Association and senior partner of London firm Edwin Coe, predicted that the recommendations would be “a boon for access to justice”.
“Reversing PACCAR will finally put an end to the uncertainty that has hampered funders’ willingness to invest in important and meritorious cases. We urge the government to take up the recommendation immediately.
“The proposed light-touch regulation of funders is a much-preferred route in this very young market.”
Danile Gore, senior associate in the litigation and arbitration team at Withers, added: “It will be important for any future legislation to find the right balance between some regulatory oversight and maintaining the commercial flexibility of the parties involved.”
Garbhan Shanks, an insurance litigation partner at City firm Fladgate, described the report as welcome and “pragmatic”, and hoped the government’s failed attempt to intervene in the car finance litigation “does not signal a lack of support for funded group actions in the UK”.
He stressed the importance of the recommendations for costs management and control in group actions to maintain the attractiveness of the UK market.
‘’The English judiciary have been lacklustre and inconsistent in their approach to managing costs in such legal proceedings, where a ‘blank cheque’ regime has been allowed to exist.”
David Bailey-Vella, chair of the Association of Costs Lawyers, said: “Our first reading of the CJC report is that there is a lot to like in it. The working party has put forward measured proposals to regulate third-party funding, as the ACL had recommended.
“It seems to have borne in mind the lessons of the costs war in the 2000s, when parties went to extreme lengths to try and show that conditional fee agreements (CFAs) breached the regulations and so were unenforceable – but much will depend on how the new litigation funding regulations, if introduced, are drafted.
“We welcome recommendations to introduce mandatory costs management for all funded group actions and to give the court the power to make pre-action costs budgeting and case management orders in funded cases on the application of a prospective party.
“This recognises how the legal profession as a whole, and costs lawyers in particular, have worked to make budgeting an increasingly effective tool.”
Yanthé Richardson, president of CILEX, backed the headline recommendations but expressed reservations about the proposed Access to Justice Fund, funded by a small percentage of the profits from litigation funding, CFAs and damages-based agreement.
“CILEX is well versed in the desperate need for funding in civil litigation, but notes that there is a concern that the introduction may inadvertently discourage private litigation funding. CILEX is concerned that this could lead to a reduction in the availability of funders for meritorious claims, ultimately hindering access to justice rather than promoting it.”
She also highlighted the recommendation that consumers entering funding agreements should take independent advice from a KC.
“This requirement could impose significant financial burdens on claimants and their legal representatives, potentially leading to delays in the court system. To ensure efficiency and maintain access to justice, CILEX advocates for a more flexible approach that allows for the appointment of qualified independent legal advisers, not limited to KCs.”
Neil Purslow, chair of the International Litigation Funding Association’s executive committee, said they hoped the government would acts on the CJC’s first and most urgent recommendation to legislate at the earliest opportunity to reverse the effects of PACCAR, “which for almost two years has denied access to justice for claimants like the subpostmasters”.
He added: “This thoughtful and considered report quite rightly concludes litigation funding can and should remain an essential route to securing access to justice, while ensuring it works fairly for claimants and funders.”
The association was particularly happy that the CJC had rejected caps on litigation funders’ returns, said the terms of litigation funding agreements should not, generally, be subject to disclosure, and said funding costs should be recoverable in exceptional circumstances.
Seema Kennedy, the former Conservative MP who is executive director of Fair Civil Justice, which has been lobbying for regulation of funding, said the recommendations were “long overdue”.
“Proper oversight is essential to protect consumers, ensure transparency, and restore public confidence in a sector that currently operates without sufficient safeguards.
“We are also pleased to see the promotion of alternative dispute resolution highlighted in the report. Encouraging earlier, fairer resolution of disputes must remain central to a balanced and accessible justice system.
“What we need now is a funding environment that promotes access to justice but also protects consumers, gives them meaningful redress, and avoids unintended harm to the wider UK economy.”
Geoff Dover, chief executive of funder Heirloom Fair Legal and claims law firm HFL Law, said the recommendations would mark “a major step forward in striking the right balance between consumer protection and access to justice”.
“It’s regrettable that the industry hasn’t managed to self-regulate, but recent high-profile failures make it clear: stronger oversight is needed. That said, overregulation is a real risk. The CJC’s proposals, in our view, strike a thoughtful balance – safeguarding the environment for ethical funders while targeting bad actors.”
He particularly welcomed the push to divert many mass consumer claims away from the courts and into redress schemes – which can be “faster, clearer and more efficient” – and tighter rules around the enforceability of legal expenses insurance (LEI), “which would significantly reduce consumer exposure”.
There were some proposals that risked being impractical and costly, however, such as the KC advice, mandating court reviews of all funding terms and a pre-action protocol for mass claims.
“Yet with some smart adjustments – such as approving combined funding and LEI packages for similar claims, backed by general KC advice, we believe the intended safeguards could still be achieved efficiently.
“We agree that requiring FCA registration for funders is a sound move. However, making solicitor firms register with the FCA just to handle portfolio funding is excessive.
“The SRA is better placed to build in appropriate oversight without duplicating regulatory burdens.”
City firm Macfarlanes took up this point in a statement. “In our experience, many different financial products and facilities can be used by law firms for a wide range of commercial purposes.
Whilst the report, via a footnote, suggests that ‘portfolio funding should be distinguished from normal business loans to law firms’, if this recommendation is to be pursued it will be of vital importance to the legal industry generally for that distinction to be very carefully drawn.
“Law firms of all shapes and sizes use funding lines provided by third parties, some of which are linked directly or indirectly to underlying litigation. It is not the case that all such funding arrangements are ‘portfolio funding’ of the sort which featured in one or two high-profile law firm collapses, and to seek to regulate commercial arrangements between sophisticated parties would be unfortunate.
“Prudent law firm management, coupled with suitable oversight by the SRA, would seem to be central to any solution and we encourage more discussion on this topic.”
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