Litigation Funding – Understanding the ILR’s claims

The US-based Institute for Legal Reform (ILR) published a document containing 11 separate claims against litigation funding within the UK in 2009. The issues raised in this document have caused much discussion in the industry.

Litigation funding, which is also known as third party funding; provides financial assistance to mainly big businesses fighting commercial cases, rather than aiding those with consumer or personal injury claims. Its use in the UK is growing.

The ILR made a number of misguided comments and attempted to blast the Code of Conduct set out by the Association of Litigation Funders (ALF). All members of the Association adhere to this code.

Some of the comments made by the ILR included: 

1) Litigation funders don’t always make agreements in writing

Those interested in litigation funding always go through their solicitor, therefore it is implausible to believe that a solicitor would allow their client to agree to funding without a written contract.

2) Third party funders should have enough capital to last for more than 36 months

The ALF’s Code of Conduct states that all litigation funders must have enough capital to last for 36 months to ensure they do not run out of money part-way through a case. The ILR believes this is not enough.

However, when you take into account the fact that many cases may not even last that long, and that a lot of cases are settled before even going into court, this claim is completely unfounded. The upper-limit of funding is rarely reached.

3) Litigation funding companies should continue to fund a case to its completion

This comment is very surprising; as the ILR has previously mentioned that it believes that third party funding encourages companies to fund cases without merit. The idea that third party funders shouldn’t be allowed to pull out of cases that are doomed to fail is incredibly misguided.

Litigation funding companies go through rigorous vetting processes when taking on a client, as they must ensure the case is strong enough to win out. However, if a case loses its merit it would be in neither party’s best interests to continue to provide funding.

4) Funders should never provide input concerning settlement decisions

Funders in the UK do not interfere with the litigation process and leave all of the decisions up to the client, who is guided by their lawyer. Of course, if they do have any concerns they can always voice them, but it is still the client’s choice at the end of the day.

The ILR completely misunderstood the litigation funding industry in the UK. However it could be argued that their views are driven by their big-business members who want to stop plaintiffs from bringing cases against them by limiting their funding options.

Litigation funding has many rules and regulations specifically to ensure that the industry remains well-managed, which is why the ALF’s Code of Conduct exists.

 This article was written by Aurora Johnson on behalf Vannin Capital, a litigation funding expert.