On 23 November 2011, a voluntary code of conduct for litigation funders (the “Code”) was launched by the Civil Justice Council, an independent public body tasked with the oversight and coordination of the modernisation of the civil justice system in England and Wales. Also newly established is the Association of Litigation Funders (the “Association”), a body which seeks to promote best practice in litigation funding. The Code represents the latest indication that third-party litigation funding is becoming more widely accepted (and practised) in England and Wales.
The creation of the Code forms a discrete part of a broader review which has been undertaken in recent years regarding the civil justice system as a whole in England and Wales. In November 2008, the Master of the Rolls appointed Lord Justice Jackson to conduct a fundamental review of the rules and principles governing the costs of civil litigation and to produce recommendations in order to promote access to justice. One of those recommendations, contained in the final report of Lord Justice Jackson published in January 2010, was that a satisfactory voluntary code for litigation funders be drawn up.
What is litigation funding?
Litigation funding (also known as third party funding) is where a funder, who has no other connection with a legal claim, agrees to fund the litigation or arbitration costs of a party to the claim in return for a share in the proceeds, if successful. Until relatively recently, English law regarded such outside interference in litigation as unwarranted and unlawful in light of the rules regarding maintenance (interference in the disputes of others without justification or excuse) and champerty (an aggravated form of maintenance). However, the progressive narrowing of these doctrines through judicial decisions has indicated a softening in approach. Consequently, properly structured litigation funding will no longer fall foul of these rules.
The Association of Litigation Funders
Membership of the Association, a private company limited by guarantee, is open to funders (defined in the Code as those with immediate access to funds in their control or, alternatively, those who act as an exclusive investment advisor to an investment fund which has access to such funds) who can satisfactorily demonstrate their compliance with the Code. Associate membership is also available to any person or entity that possesses an interest in the funding of disputes within England and Wales. All members of the Association must abide by the new Code. Two of the world’s largest litigation funders have already announced their intention to join the Association.
Whilst brief, the coverage of the Code is broad and extends from the cradle to the grave of the litigation funding process. At the outset, litigation funders must ensure that their promotional material is clear and not misleading. Funders must also take reasonable steps to ensure that a litigant has taken independent advice on the terms of a litigation funding agreement (“LFA”). In addition, funders must maintain, at all times, adequate financial resources to meet their obligations in funding the disputes they have agreed to fund.
Under the Code the LFA must also state, first, the circumstances in which a funder may provide its input on any settlement discussions and secondly, when the funder may terminate the LFA. The Code stipulates that an LFA will not establish a discretionary right for the funder to terminate the LFA outside the circumstances provided in clause 9(b) of the Code (namely, where the funder reasonably ceases to be satisfied about the merits of the dispute, reasonably believes that the dispute is no longer commercially viable or reasonably believes that a material breach of the LFA has been committed by the litigant). If a dispute should arise between a funder and litigant concerning either settlement discussions or termination of the LFA, the Code stipulates that an opinion from a Queen’s Counsel must be obtained under joint instruction from the parties (failing which, under nomination by the Chairman of the Bar Council) and that opinion shall be binding upon them.
The Code seeks to provide greater certainty and transparency in a previously nascent area of English law. It is also broad in scope. For example, whilst the Code primarily applies to members of the newly-established Association, clause 3 states that a funder involved in the funding of the resolution of a dispute within England and Wales will also be deemed to have adopted the Code.
In this newly developing area, litigants and funders involved in actual or potential disputes in England and Wales are encouraged to seek expert advice.