First submissions to the extended Civil Justice Council review of litigation funding have come out strongly in favour of formal regulation of the fast-growing sector.
In its response to the consultation, which closed on Monday, oversight regulator the Legal Services Board states that regulation of third party litigation funding 'is necessary to protect consumers from harm and to further the public interest.'
The regulator states that action is required from both financial and legal services regulators in order to adequately address the nature and scale of the risks to consumers which to a large extent emerge from the third party funding entities themselves.
’Financial services regulation needs to be introduced to the litigation funding sector, replacing the existing self-regulation model and extending their current duties. Legal services regulators also have an important role to play in protecting litigants through their existing powers, such as ensuring that law firms and legal professionals engaging with third party litigation funding comply with their obligations.’
The response notes that the uptake of litigation funding has increased ‘dramatically’ over the past decade. Despite this third party funding contributes to access to justice only in a minority of cases and ’in most instances, third party litigation funding cases are of more financial benefit to the funder than the claimant(s).’
Another concern is the imbalance in the relationship between the funder and funded which 'could allow funders to exert influence and control over litigation with their own best interests in mind, which may not align with advancing access to justice’, the LSB states.
In its response, the Association of Costs Lawyers concludes that third-party funding is of net benefit to access to justice - but agrees that regulation is necessary. Such regulation should include a cap on the funder’s return in the cast majority of cases, the association states. 'Without a cap on returns, the risk is that litigation could be brought primarily for the profit of the funder. At the same time, the ACL recognises that funders take on a significant amount of risk and any cap should reflect it.'
On the issue of whether the funding agreement should be disclosed to the defendant, the ACL considers this is not necessary unless the type of funding means the opposing party could have an additional liability for costs.
The Civil Justice Council review is looking at a broad range of issues including regulation of litigation funding; whether funders’ returns should be capped; what role the courts should play in controlling funded litigation and the extent to which the presence of funding should be disclosed. It is expected to report this summer.
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