PACCAR parked as CJC mulls lit funding

Last week, the wheels began turning in earnest in the Civil Justice Council’s litigation funding review. The CJC published an 85-page report setting out the main issues – without giving much away about the direction of travel – along with some 40 consultation questions on which it invites responses. The review’s core working group has already been taking soundings from a wider ‘consultation group’ of nearly 20 lawyers, funders, academics and others. But last week’s consultation threw open the doors for the wider world to have their say. Given that litigation funding always attracts impassioned views, the CJC can expect a strong response.

So what do the consultation questions cover? First, should litigation funding be regulated; and if so, how and by whom? The wide-ranging questions also cover the relationship between litigation funding and other finance options; the role of court rules in controlling funded litigation; provisions to protect claimants; and the encouragement of litigation. Two particularly controversial questions lurking in the consultation relate to whether funders’ fees should be capped, and whether parties should have to disclose the presence of funding.

Turning first to regulation, the CJC report notes that funding has ‘expanded significantly’ since self-regulation was introduced by the Association of Litigation Funders’ code of conduct in 2011. It points out that, while around 44 funders are thought to operate in England and Wales, only 16 are ALF members; but it also acknowledges that funded parties are represented by solicitors, who are regulated. The report says the CJC is ‘particularly interested’ in receiving submissions on what ‘principles and best practices’ should inform the future development of funding, ‘which could underpin whichever regulatory approach is recommended’.

This emphasis on ‘principles’ is particularly notable in light of a separate report published last month that may hold real clues as to what the CJC is thinking – and which puts ‘principles’ at centre stage. This report, by the European Law Institute, is the product of an in-depth research project on litigation funding jointly led by High Court judge Sara Cockerill (pictured), who is also one of the six members of the CJC’s litigation funding review core working group. Its findings are therefore likely to influence the CJC.

The ELI report looked in detail at how best to regulate litigation funding. Rather than the conventional choice between a regime based either on codes of conduct or more prescriptive regulation, it sets out an alternative way forward centred on 12 ‘key principles’. These are designed to act as a ‘blueprint’ that could be adopted as best practice guidance, used to inform judicial decisions, or could form the basis of ‘light-touch regulation’ of the funding market. This new approach is intended to be more flexible, levelling the playing field between funders and clients without imposing overly restrictive obligations. Along with the 12 principles, the ELI report also stipulates minimum content that litigation funding agreements must cover, along with sample wording. The blueprint has been favourably received by the European Commission, which is currently conducting its own ‘mapping study’ to gather data on the operation of litigation funding in the EU.

As to the actual content of the ELI principles, these cover everything you would expect, including managing conflicts, terminating agreements and ensuring funders can meet their financial liabilities. What do they say about costs capping? Perhaps to the relief of funders, while the report considers this in depth, it ultimately sidesteps the issue by concluding that the right percentage level for any cap would vary too much according to the type of proceedings to be included within a set of ‘universal’ principles.

From the funders’ perspective, the most worrying aspect of the ELI report relates to disclosure. According to Cockerill, this was the single most controversial element of the project.

The ELI principles specify that a funded party must tell the court and all parties to the litigation not only that they are using litigation funding, but also the identity of the funder. The report concludes this is necessary to enable parties to obtain costs security or other costs orders, and to ensure conflicts of interest can be identified. However, funders have always strongly opposed any such disclosure obligation, which reveals information about a claimant’s financial position and could lead to funders being targeted with tactical interlocutory applications. Given that defendants do not have to disclose that their insurer is funding their litigation, why should claimants have to announce the presence of funding? No doubt funders will be making these arguments vociferously to the CJC, for fear that it may follow the ELI approach.

Meanwhile, the elephant in the room is that the CJC review has not been tasked with looking at the PACCAR problem. The government says it plans to wait until after it has considered the CJC’s final report – not due until next summer – before dealing with PACCAR together with other reforms. It is hard to understand why the government is choosing to wait so long to tackle the biggest issue facing not only the funding industry, but also the clients who need its financial support to access the courts.

Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs.

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