My Dissertation examined litigation funding, the practice of third parties covering the costs of bringing a case such as legal fees and fees for professional witnesses. In return the funder then takes a cut of the winnings of the case to cover their investment and the risk they took. If the case in unsuccessful then the funder is liable for any costs order made against the claimant. The use of this practice has increased over time as the costs of litigation have spiralled. This practice is currently only regulated by a voluntary code, administered by the Association of Litigation Funders (ALF), of which some but not all of the major players in the market are members of. My dissertation was split into three sections, covering the potential requirement for a minimum capital holding by funders, the potential of capping the costs of an unsuccessful funded claim, and finally I looked at the case for introducing mandatory regulation of litigation funders. This dissertation built on the Jackson Report (2009) Review of Civil Litigation Costs.

Firstly, I covered the potential for funders to have a minimum capital holding in order to fund cases, in order to not only protect the funded party but also the defendants and wider court system. Failure to have properly capitalised funders potentially undermines the system, with the funder liable for the costs but unable to pay, either the funded party would have to pay, or potentially if they are unable to pay then the defendant would potentially end up bearing their own costs. This brings an unfairness, particularly as the defendant has no choice in bringing the claim. There have been several cases recently in which there have been disputes over who pays when a funded case fails, and this has led to several long and complex satellite disputes over costs, taking up court resources. The ALF already mandates a minimum capital holding, with access to £5m and committing to fund all costs from the dispute. This is however unenforceable, the only remedy being expulsion from the ALF. In addition, there have been several interim hearings on security in order to try and guarantee that defence costs would be met. Overall I concluded that there would be stronger protection for the court system and users if funders were required by law to have a minimum capital holding and be liable for all costs. This would provide greater certainty and prevent spiralling satellite litigation.

Secondly, I looked at the previous practice in the UK of capping the liability of funders to the amount they had funded, which came from the case of Arkin, and is known as the Arkin cap. Recently, the capped costs have come under judicial criticism, with Davis v Money instead considering that it was not a binding rule. The Arkin approach is not a method that has been replicated in other jurisdictions, and came under harsh criticism in the Jackson report and judicially. However, the Arkin case has never been explicitly been overruled, and so there is some confusion as to what is the correct approach. Introducing regulation would clarify that a funder is liable for all costs that the funded party incurred, bringing certainty for all users and encouraging parties to enter funding arrangements, as they know that this combined with a minimum capital holding will guarantee that any adverse costs are met.

Thirdly, I examined the case for implementing mandatory regulation of this sector, as opposed to the current voluntary code. I examined the effect this would have not only on the funder and the funded party, but also wider users of the justice system, particularly defendants in these matters. I concluded that introducing a system of mandatory regulation would bring much needed clarity and certainty to all users of the justice system, and would allow the development of litigation funding while mitigating many of the risks associated with the current system. Any perceived cost of the introduction of this regulation would be offset by the benefits of the introduction of mandatory regulation.

While commercial litigation funders are not motivated by access to justice, an increase in the use of funding would nevertheless have an incidental benefit to access to justice, as it can be used to allow those who have an valid claim to bring an action they would otherwise be unable to bring. The due diligence of the funder means that, as it becomes more popular, claims with reduced prospects of success would not be brought, and as such the courts’ resources would be used in a more efficient manner, which frees up judicial resources to hear legitimate claims.

Ultimately, my conclusions were largely in agreement with the report of Lord Rupert Jackson in 2009. Litigation funding is a large and growing industry, that if properly regulated has the potential to bring huge benefits given the ever growing cost of bringing a claim. The introduction of mandatory regulation would, in my view, help to facilitate this growth, while avoiding complex and costly satellite litigation, prevent confusion over who pays when a funded claim fails, and ensure best practice in the industry.

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