The growth of third-party litigation funding shows that a contingency legal aid fund (CLAF) could succeed and should be set up, Lord Justice Jackson said yesterday.

The fund would operate as a not-for-profit funder, financing some ‘ordinary’ commercial and non-commercial cases, and some ‘deserving’ cases for individuals of modest means; at the fund’s discretion.

The CLAF would need an initial injection of cash, which Jackson (pictured) said could come from the government in mitigation of legal aid cuts; from the National Lottery; or from investors who could purchase ‘fixed interest coupons’ or ‘quasi-debentures’ – the latter offering a higher return but exposing the investor to greater risk.

Noting the success of commercial litigation funders, Jackson said individual lawyers may be willing to buy, for example, £10,000 bonds, if they had confidence in the management of the scheme.

He noted that a CLAF would have a number of advantages over the commercial funding sector, as it would not have ‘owners or shareholders creaming off the profits’ and could re-invest these back into the scheme.

Following the initial ‘seed’ funding, the CLAF would be self-financing. It would pay the claimant’s costs win or lose, and if the claimant succeeds, the CLAF would recover its costs from the other party, together with a share of the proceeds of the action.

The CLAF could take on adverse costs risk on behalf of clients, either by self-insuring or by taking out block or case-by-case after-the-event insurance cover.

Jackson, who was speaking at IBC’s Solicitors Costs conference, proposed that the Law Society and Bar Council would need to appoint experienced managers to administer the scheme, noting that ‘there is no shortage of such people in the City’.

The CLAF could employ ‘experienced lawyers’ to evaluate and grade the claims, and decide which cases should be supported. These costs could be recoverable through a fixed sum, determined by the amount finally recovered.

Jackson called on the Law Society, Bar Council and Chartered Institute of Legal Executives to take the CLAF project forward, and the three have already begun discussions on setting up a joint working party to examine how the scheme could work. All three bodies expressed a desire to work together.

Law Society president Jonathan Smithers said: ‘Lord Justice Jackson has put forward some interesting proposals for legal aid funding, which we will consider carefully. The market has changed since this idea was last proposed, and it makes sense to see whether the obstacles which prevented it from proceeding in the past can now be overcome.

‘We will speak to our colleagues at the Bar Council, CILEx and the judiciary with a view to working jointly on this issue.’

The concept of a CLAF was originally proposed by legal charity Justice in 1978, and has been successfully introduced in Hong Kong and Western Australia.

However, in England and Wales, initial progress stalled in 2011 when lawyers working on the project decided that it would be better to wait and assess the impact of Jacksons’ broader civil justice reforms.

Jackson noted that these reforms have now been in place for some time.

Referring to his proposal last week for a major extension of fixed costs the judge added that this would be ‘beneficial’ to the CLAF by providing certainty over adverse costs risks, and avoiding ‘all the expense of costs management and costs assessment’.

The judge said costs management ‘may in the future become a discretionary rather than mandatory procedure,’ noting that this had been his original recommendation in 2010, and also in his Harbour lecture.