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Litigation funding: A US perspective

The US Chamber of Commerce is on the attack over litigation funding. Chris Smith of Vannin Capital responds.

Litigation funding: under attack Trevorb

The US Chamber of Commerce has been one of the most outspoken critics of third party litigation funding. Keen to protect the interests of the big corporations they serve, the Chamber appears to view funding as an evil which is likely to increase the number of claims brought against their members and has been lobbying for the regulation of the funding sector. We are fortunate in England and Wales to already have in place a robust self-regulatory body in the form of the Association of Litigation Funders (ALF) so I do not propose to discuss the arguments for and against regulation in the US. What I do want to look at is the objections that the Chamber has put forward to justify regulation to see how these have been overcome in England and Wales.

Funding will increase the volume of abusive litigation

Funders like Vannin make money when their clients are successful and lose money when they are not. As a business we leave no stone unturned when reviewing a potential claim and have developed a rigorous but efficient review process to ensure that we carefully manage risk across the portfolio and fund claims that have good prospects of success. In an ideal world we’d be happy if every claim we funded was successful and if claims are successful it is hard to see how they could be abusive.

In fact, rather than increasing the volume of abusive litigation, funding is actually enhancing access to justice by levelling the playing field so that anybody with a meritorious claim can bring proceedings. The benefits of litigation funding have been recognised by Lord Justice Jackson in his Review of Civil Litigation Costs where he said: ‘I remain of the view that, in principle, third-party funding is beneficial and should be supported.’

Funding takes control of litigation away from plaintiffs and lawyers

This just isn’t true. The fact that a claimant has obtained finance to pursue a claim does not alter in any way the control that such a claimant or its lawyers have over a claim. Under the ALF Code of Conduct, funders are prevented from taking control of litigation or settlement negotiations and from causing the claimant’s lawyers to act in breach of their professional duties. This is consistent with the practice in England and Wales of keeping the roles of funders, claimants and their lawyers separate. I think it’s also worth noting that a number of our clients have commented that having Vannin Capital on board actually added value to their claim, offering strategic insights and an additional perspective. 

Funding prolongs litigation because investors won’t want to settle early

This is incorrect on two grounds. First, as mentioned above, ALF prohibits us from interfering in settlement negotiations. Secondly, the assumption that an investor won’t want to settle early misunderstands the role that time plays in investment returns and calculating a funder’s IRR. Often an early settlement is the optimal outcome for a funder who would prefer to avoid the uncertainty of going to court or arbitration and receive a return on their investment in short order.

Funding compromises the attorney-client relationship and reduces the “professional independence” of lawyers

Lawyers owe duties to their clients and the court, not to a funder. The fact that a claimant has chosen to fund their claim, rather than pay for it out of their own pocket, does not change the dynamics that have existed between lawyers and their clients for centuries. Our involvement in any case once we have entered into a litigation funding agreement is confined to monitoring our investment. If we are asked to provide input to help the legal team running the claim, we are more than happy to oblige, but it’s strictly on an ‘as and when asked’ basis.

At Vannin Capital, we are seeing increasing demand for litigation funding in US cases. Claimants and their lawyers clearly recognise the value that funding can bring and it will be interesting to see whether the Chamber changes tack or continues with its misguided attacks on a burgeoning industry.  

Chris Smith, Vannin Capital. For further information go to

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21 November 2014

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