Justice secretary Kenneth Clarke may reconsider the case for statutory regulation of third-party litigation funding amid claims that a voluntary code has ‘manifest weaknesses’.

The government, which has so far favoured self-regulation for external litigation funders, hinted at the change when it came under pressure for tighter ­controls during a House of Lords debate.

During the committee stage of the Legal Aid, Sentencing and Punishment of Offenders Bill, Liberal Democrat Lord Thomas of Gresford tabled an amendment that would create a statutory code.

However, justice minister Lord McNally (pictured) said an amendment was unnecessary as Clarke ‘needed further time to reflect’ on the code, published only last November. McNally added: ‘The code of conduct was drawn up with the specific requirement that the matter would be revisited if and when third-party funding expanded. It is a question of whether it has now expanded to a point where the matter should be revisited.’ Labour’s Lord Beecham, supporting statutory regulation, said there was a danger of the ‘genie getting out of the bottle’ and warned that external litigation funding may run contrary to the UK’s traditions of justice.

‘A voluntary code will not suffice, however well intended the motivations of those who sought to produce one,’ he said.

Third-party litigation funding is likely to increase in importance if the provisions of the legal aid bill become law. Selvyn Seidel, the founder of US litigation funder Fulbrook Management, called for more time to let self-regulation ‘work, improve and survive, rather than leapfrog into a statutory process’.

Seidel, whose company arranges for individual case funding up to $10m, said: ‘It has just seen the light of day and has not even taken one tiny baby step.

‘The entire debate, between the industry and those who have problems with it, is starting to occur at a decibel level that is becoming deafening and counterproductive.

‘It would be far better if we all lowered our voices, tried to listen and discuss more, and tried harder to get things right.’

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