Voluntary code for third-party funders is "fit for purpose", says author

Out-Law News | 03 Dec 2012 | 9:29 am | 2 min. read

A code of conduct for third-party litigation funders is "working well" one year on from its adoption and there are no plans to replace it with a system of mandatory regulation, according to one of its authors.

Speaking at the Westminster Legal Policy Forum, Professor Rachael Mulheron of the Civil Justice Council (CJC) said that the voluntary code, published last November, had become a "badge of honour" for those firms that had signed up to it. She said that judges would retain the ultimate responsibility for upholding good behaviour and practice, according to a report in the Law Society Gazette.

"The code is working well and is fit for purpose for what we intended," she said. "It remains under review."

Third party funding, or litigation funding, is where a person or business which has no other connection with a case agrees to fund the costs of a party's case in return for a share of the award if that party is successful.

The Code of Conduct for Litigation Funders (3-page / 27KB PDF) was first published in November 2011. Although voluntary, compliance is mandatory for funders seeking to join the newly-formed Association of Litigation Funders of England and Wales. The Code was developed by the CJC Working Group on Third Party Funding, which was set up in response to leading judge Lord Justice Jackson's comprehensive review of civil litigation costs in 2010.

Funders that agree to abide by the code are preventing from attempting to influence the litigation, and must ensure that the party to the dispute receives independent advice. They must also agree to pay all debts when they become "due and payable", and must ensure that they have enough capital to cover all the arrangements on their books for a minimum period of 36 months.

Litigation funding expert Keith Levene of Pinsent Masons, the law firm behind Out-Law.com, said that there were some areas of the market that could potentially benefit from regulation. However, this would and should develop over time, he said.

"There is a balancing act to be performed," he said. "Over-regulation could stifle the market and restrict access to justice for those parties that might not be able to bring their case without the benefit of litigation funding. Funders do not provide loans, but rather non-recourse finance based on utilising an asset in the form of the underlying litigation."

He added that the question of 'who' was one that would develop once changes to the way in which litigation is funded take effect from April next year.

"Sophisticated players, such as large companies funding good claims on behalf of corporate entities may not need to be regulated," he said. "Individuals, of course, will need more protection."

In February, a Liberal Democrat peer suggested the introduction of a statutory code of conduct as part of a debate on reforms proposed by Lord Justice Jackson. Lord Thomas of Gresford said that the voluntary code had "manifest weaknesses" and should be replaced with mandatory standards. The Legal Aid, Sentencing and Punishment of Offenders Act (LASPO), which implements many of Lord Justice Jackson's recommendations, comes into force from April 2013.