An influential US legal lobbying group has warned of 'serious concerns' about the growing power of third-party litigation funding in the UK.

The Chamber Institute for Legal Reform (ILR) has already pleaded with the American Bar Association to halt the increasing use of external litigation funding in the US. The UK government is keen to promote third-party funding and the Civil Justice Council last year outlined plans for a self-regulating voluntary code of conduct for litigation funders.

The code will create a new Association of Litigation Funders for hedge funds or investors willing to front a claimant’s costs in exchange for a portion of any award or settlement.

However, the ILR’s president Lisa Rickard says there are already concerns in the US that financial incentives are driving litigation abuse. She said that the UK must impose mandatory rules to prevent exploitation.

‘These investors are completely profit-driven and not in it to bring access to justice,’ said Rickard. ‘We don’t think a voluntary code will have any teeth or enforcement powers and lacks any built-in safeguards against wrongdoing.

‘There is no mechanism for disciplining members of the association who violate the code. You’re barreling down the superhighway of litigation abuse.’

The ILR has submitted its verdict to the American Bar Association’s committee on ethics as it prepares to state its position on external litigation funding. Third-party litigation funding came to prominence in the mid-1990s and has been most prevalent in Australia, with the likes of the UK, Germany and Holland also allowing the practice.

Last November, the Civil Justice Council released the code of conduct that was first recommended in chapter 11 of Lord Justice Jackson’s costs review in 2010.

Michael Napier, chair of the working group that set up the code, said it would provide a ‘welcome wrapper of confidence’ to litigants and lawyers choosing this method of funding civil cases.