Litigation funding is vital but niche provider of legal services, major study finds

Report commissioned by Legal Services Board reveals that funders back 3-5% of potential cases

London's High Court Alexandre Rotenberg; Shutterstock

Litigation funding in the UK improves access to justice but is likely to remain a niche – albeit “vitally important” – aspect of legal services provision, according to research commissioned by the Legal Services Board (LSB).

The report by Professor Rachael Mulheron KC (Hon) of Queen Mary University, London, which was published on 23 May, finds that while litigation funding provides access to justice for some individuals, small- and medium-sized enterprises and corporations, funders only back a small fraction of potential cases amounting to 3-5%.

And while litigation funding can allow claimants to have their day in court, levels of compensation can fall short, especially when rectification costs are involved.

It concludes that – as long as legislation is passed to reverse the impact of the Supreme Court PACCAR decision, which rendered thousands of litigation funding agreement unenforceable – “litigation funding is likely to develop further as a niche, but vitally important, feature of legal services provision”.

The report identified 54 cases from 2019 to 2024 that had utilised litigation funding. These included collective actions such as the high-profile ‘diesel-gate’ vehicle emissions case and the successful claim by 550 sub-postmasters against the Post Office for loss and damages in the Horizon IT scandal.

Litigation funding was also identified as being instrumental in challenging alleged anti-competitive behaviour, such as train fares and mobile phone and landline contract costs.

The report’s publication comes hard on the heels of the launch of the Civil Justice Council’s review into third party funding, which is due to report next summer, and the demise, due to the general election, of the Litigation Funding Agreements (Enforceability) Bill, which set out to reverse the effects of the PACCAR decision. 

Neil Purslow, chair of the International Litigation Finance Association, said while the industry was still nascent, funding “has become a key feature of legal services provision that supports the development and enforcement of the rule of law”.

He added: “The report also clearly shows how claimants would benefit if funding costs were recoverable from an unsuccessful defendant. We look forward to this becoming a key consideration in the upcoming CJC review.”

Mulheron’s report recognises the role of the Association of Litigation Funders (ALF), which provides a system of voluntary self-regulation via a code of conduct, including capital adequacy requirements and sanctions for non-compliance.

However, it adds: “The ALF-related membership procures a number of advantages for each of the parties to ‘the funding triangle’, viz, funded client, the funder and the law firm – but that membership is not the ‘badge of honour’ that was envisaged when the Code was promulgated in 2011.”

Richard Orpin, the LSB’s interim CEO, recognised the role of the ALF, pointing out that there can be “tension between litigation funders seeking financial returns and claimants pursuing justice”.

He added: “Financers may try to avoid long, costly ongoing cases that tie up their investment, while claimants want to take a case as far as possible. The ALF’s Code of Conduct provides a pathway through these tensions.”

Meanwhile, the report’s publication will add pressure on whichever party or coalition of parties win the general election to quickly revive the Litigation Funding Agreements (Enforceability) Bill.

John McElroy, vice president of the London Solicitors Litigation Association (LSLA) and a partner at Hausfeld, said: “Such research is vital because it helps to understand better why we need litigation funding – and why the legislation needs to be pushed through.”

The report was released as the LSB announced that Craig Westwood, director of policy, communications and research at the Electoral Commission, will become chief executive officer in August as a permanent replacement for long-term incumbent Matthew Hill, who left in January.

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