The pioneers of third-party litigation look for a market

IN his landmark Review of Civil Justice Costs published earlier this year Lord Jackson devoted a whole chapter to the nascent market in third-party litigation funding, the practice where funders are prepared to back legal claims in exchange for a share of the spoils.

This has been historically regarded by courts as unlawful, but Jackson opened the door for it, writing: “I remain of the view that, in principle, third-party funding is beneficial and should be supported”. That endorsement sounded a somewhat ambivalent note in the context of a wider package of recommendations including a strong case made for contingency fees and wholesale reform of conditional fee agreements by scrapping the recovery of success fees and after-the-event insurance premiums. But third-party funding could be about to boom.

Tom Custance, head of dispute resolution at the City firm Fox Williams LLP says that third-party funding is “the point at which the law meets the worlds of business and finance” and that “the prospect of a vibrant funding market has huge opportunities and some threats for the business community.” Under the Legal Services Act the legal profession is going through its own version of the Big Bang experienced by the City in the 1980s. “The question remains where third-party funding will take root in this newly liberalised legal service market,” continues Custance.

The third-party funding industry is very much in its infancy with the oldest UK funder less than 10 years old and the leading ruling of Arkin – where the appeal judges endorsed funding but held funders should be exposed to liability for costs – only dating back to 2005. However there are now some 19 potential funders as listed in the Law Society magazine Litigation Funding. That number shot up by 20 per cent in light of the Jackson review.

Growing numbers of funders haven’t yet translated into a significant upsurge in activity. According to the Civil Justice Council (CJC), since third-party funding’s emergence in England and Wales no more than 100 cases have been funded in this way. Robert Musgrove, who left his post as chief executive of the CJC over the summer, reckons that that number has gone up slightly. “One of the things that I’ve sensed from some of the funders coming into the market is that they have been more nervous than the funding behind it. There is a lot of money behind it, more than the funders appear prepared to risk.” Musgrove describes the industry as in “pioneering stage” with “those pioneers trying to find their place in the market”.

“Just because you haven’t heard about it, doesn’t mean that it’s not going on,” says Susan Dunn, who set up Harbour Litigation Funding in December 2007 after co-founding IM Litigation Funding in 2002; adding that “a lot of the cases that we fund have been confidential”. Harbour has recently raised a £60m fund (having targeted £50m) and claims to have looked at a total of 375 cases.

“We fund about 8 per cent of what we see because we find that they do not fulfil one of our criteria,” she adds. “The benefits of promoting access to justice for individual or corporate clients who can’t afford to pay legal fees or, indeed, those who would rather hedge the financial exposure of litigation by involving a funder are huge though,” reckons Tom Custance, adding that the prospect of third-party funding fuelling unmeritorious legal activity is unlikely in commercial cases because funders will only back those cases with a strong chance of success. There needs to be “a process of education both for business and indeed for the legal profession,” he adds.

Jon Robins is a director of Jures and a freelance journalist. The new, new thing: A study of the emerging market in third-party litigation funding is published by Fox Williams in association with Jures. To order a copy email mail@foxwilliams.com