Capping litigation funders’ fees would be ‘preposterously dumb’ and make the UK a less attractive place to litigate, a leading funder warned today.
Christopher Bogart, chief executive of Burford Capital, said he was not ‘particularly concerned’ about the Civil Justice Council’s current review of litigation funding but cautioned against ‘unthoughtful’ changes that may hold a ‘superficial’ appeal.
The CJC published the terms of reference for its review of the litigation funding sector last month. This includes considering whether a cap should be imposed on funder’s returns, and if so, what the extent of this should be.
Speaking at a media briefing, Bogart said: ‘The CJC has a long history of being sensible [in its] thinking about this industry. I don’t see why that would change. I think it’s well understood that the absence of this industry would be problematic for the UK legal system; both in terms of access to justice, but also just in terms of its commercial functioning. So I’m not particularly concerned about [the review].’
He added: ‘I do worry about unthoughtful things that are superficially appealing. Caps are one example; that would be a preposterously dumb idea [which] would make the UK extremely unattractive to capital providers - and you have to think long and hard [about that].’
Bogart said capping funders’ fees would send a ‘surefire message’ to those with a choice over where to litigate that the UK was a less attractive jurisdiction.
The funding chief questioned the logic of imposing a cap. He said: ‘It’s a financial transaction… I’m providing capital and expecting my capital back. It’s like buying a house, and taking a loan from the bank to renovate the kitchen. But it turns out you’re not a very good kitchen designer, and when you sell the house, people don’t really like what you did to the kitchen and you don’t get a good price. Nobody makes the argument, “I shouldn’t have to pay back the bank, because I didn’t get as much from the house sale as I would have had the kitchen been done better”. And that’s sort of the argument here. I don’t actually understand the logic behind the argument. Sure, there’s always some superficial appeal, but it doesn’t stand up to any sort of rational financial scrutiny.’
The funding veteran also warned against imposing capital adequacy requirements. He said: ‘There’s long been talk about creating a capital adequacy requirement; out of fear that you’re going to tie up with a funder, and halfway through the case the funder is going to run out of money and you will be stuck, and nobody quite knows what to do at that point.
‘So there’s a superficial appeal that says, well then, we’d better make sure to be like banks, and impose capital adequacy requirements and so on. And frankly, that would help me, because it would make it harder for smaller new entrants to enter the market. But I still don’t think it’s a very good idea, I don’t think it’s necessary. Because the reality is, this industry has been operating for over 20 years, and you don’t have a history of that happening. You do have a history of larger players being willing to step in and buy out claims if somebody doesn’t have the capital to finance [them]. I don’t know that the risk of failure is any higher for a small funder than it is for a large funder. So it’s things like that where I hope there is deep and thoughtful contemplation, rather than just a headline approach.’
In relation to regulation of the industry, Bogart added: ‘It’s just a question of how you do it. I think regulation can be fine. We’re regulated in Singapore and Hong Kong and that has not been burdensome at all. That was designed efficiently, it’s administered smoothly and it doesn’t impair our ability to function and our clients’ ability to get capital. There are species of regulation that are intrusive and burdensome and unhelpful, [but] as long as you avoid [that], then you’re fine.’
The CJC is due to publish an interim report by the summer.
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