The recondite topic of third-party funding of litigation has been in the news over the summer. The Gazette reported last month that the Civil Justice Council is on the verge of agreeing a code of conduct for third-party funders, and that an association for funders will be set up.

The topic is being discussed in the US as well. By way of background, the American Bar Association’s Commission on Ethics 20/20 published an issues paper last November, seeking comments.

The Commission feels that third-party funding is one of the Big Three consequences of the impact on the legal profession of globalisation and technology, the other two being outsourcing and investment in law firm equity. (I know that, given the frequency with which I cite their work, I sometimes seem like the EU arm of the Commission. But they are having serious discussions about serious issues.)

Their paper on this topic is worth reading, if only for the poetic list of ancient doctrines that used to deal with the equivalent of third-party funding - 'maintenance, champerty, barratry, usury, and unconscionability'.

Their document ends with a long list of questions, including: may a lawyer share confidential information with a third-party funder consistent with the lawyer’s duty of confidentiality? May a lawyer who is representing a client on a matter also have an equity interest in the funder that is funding the client? What duties does a lawyer have to counsel the client when either the lawyer or the client identifies a funder?

Now the New York City Bar - obviously an important player, given the law firms based there - has just weighed in with its opinion. They say that 'from the legal ethics perspective, perhaps the greatest concern stems from a financing company's involvement in the details of a claimant's case'.

In other words, to find out the risk of the investment, the funder may need to know about confidential matters. Perhaps the quickest guide to what the City Bar really thinks is in their summary, where they say that the practice is 'not unethical per se', which is hardly a ringing endorsement.

Nevertheless, the opinion gives interesting background: third-party funding began in the US in the early 1990s with a handful of small lenders and cash advances; within a decade as many as 100 companies were involved; and now the aggregate amount of funding outstanding is estimated to exceed $1bn.

They conclude that a lawyer representing a client who is party, or considering becoming party, to a third-party funding arrangement should be aware of the potential ethical issues and be prepared to address them as they arise.

Australia boasts that it all began there. For instance, they have a third-party funder called IMF, which is listed on the Australian Securities Exchange. Apparently it funds less than 5% of the 350 or so cases it looks at each year. Between October 2001 and December 2010, the company funded 118 cases to completion. Of these, according to IMF, 79 resulted in settlements and 9 were outright victories, while 5 cases were lost and 25 withdrawn, bringing the company around $187m (out of settlements and awards totalling almost $900m).

It currently has around $1.7bn in active claims under management. There are 9 ex-lawyers on IMF’s 23-strong staff, former senior litigators, who make the recommendations on intervention, with a four-person committee making the final decision. Now IMF is looking to expand into the US market.

It is significant that free-market initiatives like this - take alternative business structures as another - are undertaken first in Australia, with the UK following. The USA, the home of free markets, comes to inspect them gingerly, but usually seems to conclude that the initiative is not really for them.