Post Office scandal: Litigation funding is not the villain

The media coverage around the Post Office scandal has been nothing short of extraordinary but we shouldn’t forget how, for many years, the sub-postmasters remained unheard no matter how loudly they shouted, and how it was down to the perseverance of the victims led by the truly exceptional Alan Bates.

But let’s also not forget that few victims of injustice have a 'Mr Bates'. As litigation funders, we see this regularly because the majority of funding applications are from victims of injustice, often against well-funded corporates whose strategy is to ensure they remain unheard. Victims seek funding because they simply cannot afford to pay the prohibitive costs of accessing justice and they have few other options. (Can anyone imagine legal aid agreeing to fund a claim against the Post Office?) And even then, most funders typically reject over 95% of applications – a statistic that usually draws criticism that funders don’t do enough but often from the same critics who argue funders fund frivolous litigation. For most victims, the route to getting is heard is nigh on impossible.

Those same critics have also often criticised the expense of litigation funding. In the GLO action against the Post Office, the 555 sub-postmasters received only £11m of the total £57.75m compensation paid by the Post Office, an optic which looks like lawyers and funders profiting from the misery of others. For a start, Alan Bates had already expressed his support for litigation funding, stressing the importance that it played in helping bring justice against the Post Office. But even if he hadn’t, to accept the first instance, high level narrative would be to miss the bigger issues at play.

The cost of litigation is a function of the harsh reality that well-funded parties often instruct the most expensive law firms to pursue a strategy that involves outspending their impecunious opponents. The Post Office spent £24m just on disclosure courtesy of 46 lawyers from Herbert Smith Freehills, and a total £100m plus in defending the indefensible. Is it then a surprise that a large chunk of the £57.75m of compensation would be swallowed up by the cost of accessing justice? To look at it another way, if the Post Office hadn’t spent as much as they had, then the costs would have been lower and the sub-postmasters would have recovered more.

Even if legal costs were moderate, the issue is not one of the cost of litigation funding. Funding litigation is risky and pricing reflects that risk. If in doubt, I invite anyone to fund a meritorious claim at the pricing most funders charge. Certainly, no one would have funded the action against the Post Office at the time that a professional funder did. The real issue is that the cost of funding is a tax that impecunious claimants have to pay to access justice and this goes against the compensatory principle that damages are awarded to put the claimant in the same position as if the wrong had not occurred.

This can be, and needs to be, addressed by giving the courts the powers at its discretion to allow for the recoverability of success fees, ATE premiums and litigation funding costs. Remember that these were all swept away following the Jackson Review, which was written at a time when commercial litigation funding barely existed. Only a handful of the pages touched on commercial litigation and the focus was actually on the mass market personal injury sector. But it is not a case of one-size-fits-all – commercial litigation cases such as the action against the Post Office are clearly very different from personal injury claims arising out of minor car accidents.

For those resistant to change, it is also worth highlighting that recoverability is not a flatly rejected notion, as can be seen in arbitration matters. In Essar Oilfields Services v Norscot Rig Management and Tenke Fungurume Mining SA v Katanga Contracting Services SAS, the High Court refused to deem the award of funder costs as erroneous. And it is widely known that there are other arbitrations where funding costs have been recoverable.

There is also the issue of common sense and justice. At a human level, it seems there is not enough deterrence to stop these kind of injustices happening in the first place. I have written previously that courts should have the right to award exemplary damages to discourage corporate wrongdoing, a notion that probably has far more support than most appreciate. In 1997, the Law Commission, chaired at the time by the future Supreme Court Justice Lady Arden of Heswall, published a report titled Aggravated, Exemplary and Restitutionary Damages, supporting the introduction of exemplary damages precisely for this reason. While I argued that exemplary damages should not be paid to the claimants but instead fed into legal aid, so as to achieve the objectives of deterrence without encouraging a US-style punitive damages culture, the Post Office scandal is as good an example as any where the courts having the right to award exemplary damages would have been widely supported.

But moreover, while each defendant is different, it seems reasonable to assume that the risk of exemplary damages might actually have made the Post Office act earlier and instead of spending the reported £100m-plus in defending the case in the first instance, that money could have recompensed the victims.

The Post Office scandal has highlighted a grave injustice but beyond trying to right this particular wrong, it would be a significant lost opportunity if this did not trigger a much broader debate about how the recoverability of costs and exemplary damages might have a role to play in promoting access to justice.

Tets Ishikawa is managing director of LionFish, a litigation funder