Litigation financing is crucial but is a niche provider of legal services, a major study has found

Litigation funding in Britain is improving access to justice, but is likely to remain a niche – albeit “critically important” – aspect of legal services, according to research commissioned by the Legal Services Board (LSB).

The report by Professor Rachael Mulheron KC (Hon) of Queen Mary University, London, published on 23 May, shows that while litigation financing provides some individuals, SMEs and corporations with access to justice, the funders only a small proportion of potential cases, namely 3-5%.

And while litigation funding can ensure that plaintiffs can get their day in court, the level of compensation can fall short, especially if there are remediation costs involved.

It concludes that – as long as legislation is passed to undo the impact of the Supreme Court’s PACCAR decision, which made thousands of litigation financing agreements unenforceable – “litigation financing is likely to continue to develop as a niche, but vitally important, hallmark of legal services. stock”.

The report identified 54 cases between 2019 and 2024 where litigation funding was used. These include class actions such as the high-profile ‘diesel-gate’ case over vehicle emissions and the successful claim by 550 sub-postmasters against the Post Office for loss and damage in the Horizon IT scandal.

Litigation funding was also found to be key in challenging alleged anti-competitive behaviour, such as rail fares and mobile and fixed telephony contract costs.

The publication of the report comes shortly after the start of the Civil Law Council’s review of third-party financing, which will be published next summer, and the demise, as a result of the general election, of the Litigation Financing (Enforceability) Act, which aimed to undo the effects of the PACCAR decision.

Neil Purslow, chairman of the International Litigation Finance Association, said that while the sector was still nascent, financing “has become an important feature of legal services that supports the development and enforcement of the rule of law”.

He added: “The report also clearly shows how claimants would benefit if financing costs could be recovered from an unsuccessful defendant. We look forward to this being a key consideration in the upcoming CJC review.”

Mulheron’s report recognizes the role of the Association of Litigation Funders (ALF), which provides a system of voluntary self-regulation through a code of conduct, including capital adequacy requirements and sanctions for non-compliance.

However, it adds: “The ALF-related membership brings a number of benefits to each of the parties in the ‘financing triangle’, namelythe funded client, the financier and the law firm – but that membership is not the ‘badge of honour’ that was intended when the Code was promulgated in 2011.”

Richard Orpin, the interim CEO of the LSB, acknowledged the role of the ALF, pointing out that there is “tension between litigation funders seeking financial returns and plaintiffs seeking justice.”

He added: “Financers may seek to avoid lengthy, costly pending cases that tie up their investments, while claimants may want to take a case as far as possible. The ALF Code of Conduct offers a way through these tensions.”

Meanwhile, the publication of the report will put pressure on whichever party or coalition of parties wins the general election to quickly revive the elections Financing Agreements (Enforceability) Bill..

John McElroy, vice-president of the London Solicitors Litigation Association (LSLA) and partner at Hausfeld, said: “Such research is vital as it helps to better understand why we need litigation funding – and why the legislation needs to be pushed through. “

The report was released as the LSB announced that Craig Westwood, director of policy, communications and research at the Electoral Commission, will become chief executive in August, permanently replacing long-serving Matthew Hill, who left in January.

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