Lawyers’ failure to rein in their fees is the biggest source of tension between law firms and litigation funders, according to research published by the Legal Services Board.

Funders fear lawyers see them as a ‘walking wallet’, a comprehensive report on litigation funding led by Professor Rachael Mulheron KC (Hon) of Queen Mary University of London has found.

The LSB commissioned Mulheron to conduct a study into the potential of litigation funding to improve access to justice and to examine issues related to consumer protection and regulation. Her review concludes funding ‘serves a public interest’ by supporting claims that could not otherwise be funded; but notes that as funders carefully select only 3% to 5% of funding opportunities, it is ‘not a solution that could be scaled up to provide access to justice to a large proportion of the population across a wide range of subject matters, types of grievances, and value of claims’.

The report also found funding plays a role in protecting and promoting the interests of consumers, with a ‘significant amount’ of litigation funding having been used to challenge anti-competitive conduct.

The study pointed to own-side costs as the primary source of tension between funders and the claimant legal team. While funders had much experience to offer in reviewing and scrutinising costs budgets, none that contributed to the review felt their monitoring had led to lawyers reining in fees.

One funder told the review: ‘On occasion, we have had to bring in third parties to review costs being incurred by the funded client’s law firm and to press that legal team to undertake more serious costs-budgeting… Just taking cases commenced in the last five years in English courts or arbitrations, budgets have been exceeded in 21% of cases; and for those cases where the budget has been exceeded, the budget increased, on average, by 60%.’

The funder said initial budgeting was often ‘poorly done and incomplete’, while law firms ‘frequently do not stick to budgets and expect to be paid irrespective of any previous budget estimate that may have given… We have experienced some egregious examples of law firm behaviour in relation to costs’.

Another funder added: ‘Law firms see funders as a walking wallet, and a blow-out in own-side costs can have serious ramifications for the funder’.

The report noted that own-side costs may also increase due to factors outside the control of the firm or funder, such as third-party disclosure or problems with expert evidence.

The wide-ranging, 183-page report was based on questionnaires and interviews with funders, lawyers, insurers and brokers, as well as a literature review.

Neil Purslow, chair of the International Litigation Finance Association, said ILFA welcomed the LSB’s findings that funding serves a public interest. Susan Dunn, chair of the Association of Litigation Funders, added that the ALF board will ‘reflect on the findings contained in this important and thoughtful research, which recognises the utility of the ALF as a self-regulating body and the benefits of the code of conduct to claimants, law firms and funders.’

 

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