Mythbusting

The litigation funding industry has promoted a number of myths in an attempt to maintain the current unfettered, under-regulated environment. But, as litigation funding continues to expand in the UK, the facts are clear: it is imperative that the Government introduces robust regulation of the industry to address the risks posed by third party litigation funding and protect the integrity of the British justice system.

Myth: The litigation funding sector doesn’t need statutory regulation.

Busted: In the past three years alone, the litigation funding industry in the UK has grown rapidly. If this industry is left unregulated, it will skew the British justice system towards profit rather than justice. A recent study conducted by researchers at the Universities of Oxford and Lincoln concluded that statutory regulation is essential:

“Regulation will be necessary to control commercial activities, financial prudence and the reliability of the funding source, and to maintain the integrity of the legal system.”

Strict statutory regulation of litigation funding is essential to protect the British justice system from devastating consequences.

Myth: Litigation funding provides access to justice for individuals who would have no other recourse, and will be an important substitute to cover cuts in legal aid funding.

Busted: Litigation funders, which are typically hedge funds or other financial services firms, seek only a high return on investment without regard for the neediness of the claimant. As a result, most funders only get involved in cases where there is a claim for a very large sum of money, ideally more than £1 million. In sharp contrast, legal aid mainly supports cases where there is no financial return, such as immigration or family cases. Litigation funders’ interest in the cases they fund is purely financial; they will not make up for reductions in the funding available for legal aid.

Myth: The voluntary code of conduct will regulate the industry effectively.

Busted: The voluntary code is a case of the fox guarding the hen house. The code was prepared by a working group made up mainly of representatives of the litigation funding and legal insurance industries; both will benefit from exponential growth in the volume of litigation. The code erodes the traditional protections of the lawyer-client relationship as it fails to protect clients from excessive interference from funders, and it lacks an effective enforcement mechanism to ensure compliance with its provisions. It is a transparent attempt by a flourishing industry to avoid essential statutory regulation.

Myth: Parliamentarians and relevant stakeholders have been extensively consulted on this issue by the Civil Justice Council.

Busted: The Civil Justice Council set up a working party to draft the final version of the code. That working party was made up primarily of representatives from the litigation funding and legal insurance industries. Those industries stand to benefit from an increase in litigation and the continuing growth of third party litigation funding unconstrained by statutory regulation. Although there was consultation on earlier drafts of the code, a range of serious concerns were not taken on board in the final version, which is a transparent attempt to avoid regulation from an industry that pursues profit rather than justice.

Myth: The rapid growth of the litigation funding industry is positive for the UK economy.

Busted: If left unregulated, the rapid growth of the litigation funding industry poses a grave threat to the health of the UK economy and to UK consumers. Following a decade of criticism over “no win, no fee” personal injury claims, litigation funding will encourage a new wave of litigation, and companies will be forced to spend time and money defending cases that might not otherwise have made it to court. Insurance premiums for UK companies looking to protect themselves against an onslaught of litigation will rise, increasing the cost of goods and services for consumers. Unregulated litigation funding will create a culture of litigation that will strongly discourage foreign companies from investing in the UK economy.