The Post Office scandal’s far-reaching impact on litigation funding

Third-party funding’s role helping to expose a widespread miscarriage of justice has put it under unprecedented political scrutiny, report Ben Rigby and John Malpas
London, UK - August 1, 2022: Closeup shot of the Houses of Parliament building in Westminster, London, UK.

Nigel J. Harris; Shutterstock

The spotlight being placed on the role of litigation funding in helping to expose the widest miscarriage of justice in UK history is proving to be a double-edged sword for funders.

On the one hand, funding’s underpinning of the 2019 group claim featured in this year’s hit TV drama Mr Bates vs The Post Office has been lauded, including by Alan Bates himself. 

On the other, there has been renewed focus on the small amount of compensation the 555 sub-postmasters and mistresses (SPMs) actually received – around £20,000 each – after the legal fees had been accounted for. 

That tension was apparent on Monday (29 April) when the Litigation Funding Agreements (Enforceability) Bill completed its committee stage in the House of Lords and peers made it clear that their support for the emergency measure to protect the litigation funding industry was conditional on a review of its practices in order to level the playing field between funders and claimants.

The bill seeks to reverse the effect of last July’s Supreme Court PACCAR decision, which unexpectedly classed litigation funding agreements (LFAs) that allow funders to receive a share of damages as being subject to the rules for damages-based agreements (DBAs) thereby rendering the bulk of them unenforceable. 

During Monday’s committee stage debate, Lord Stewart KC, the Advocate-General for Scotland, who spoke for the Ministry of Justice, brushed aside fears the retrospective nature of the bill could contravene the European Convention on Human Rights (ECHR).

But while peers agreed that the bill would be “pointless” without its retrospective provision, the need for a speedy review into litigation funding was underlined, its imminent start having been promised by Stewart during the bill’s second reading debate last month.

The Civil Justice Council (CJC) published its terms of reference alongside a relatively tight timetable last week. The review will assess the current position of third-party funding, consider whether these arrangements deliver effective access to justice, and make recommendations for reform. An interim report will be published this summer, on which comments will be sought, with the final report due by the summer of 2025.

During this week’s Lords debate, Liberal Democrat justice spokesman Lord Marks KC, of 4 Pump Court, noted: “I was particularly pleased to see in the terms of reference that the questions to be addressed included whether there should be regulation and how, if there is to be regulation, it should be framed. In particular, there was the question of the funder’s return – this comes to the Post Office case, where such a derisory proportion of the overall damages went to the sub-postmasters – and whether there should be a cap.”

The CJC review is being co-chaired by Mr Justice Simon Picken and UCL academic John Sorabji, principal legal adviser to the Lord Chief Justice and the Master of the Rolls, and has invited expressions of interest for individuals to join a wider consultation group which will play a crucial role in informing the review’s work and providing a larger forum for expert discussion in support of the working group. 

The CJC’s chairman, Master of the Rolls Sir Geoffrey Vos, said the CJC’s “reputation for collaborative and effective work” preceded it, noting “it was amongst the first to recognise that litigation funding raises serious access to justice issues” and promising “fair and proportionate access to justice for all”.

The CJC’s progress will be closely watched, not least because the public enquiry into the Post Office scandal is ongoing and generating awkward headlines for the legal profession and its inner workings on a daily basis.

The legal sector’s response to the CJC inquiry

Jeffrey Wale, technical director of the Forum of Insurance Lawyers, said the CJC review came “at a crucial moment” and would “examine the current self-regulatory framework for third-party litigation funding, and its role in affording claimants access to justice”. Coverage will include possible limits on external funder’s returns, the role of funding relative to other funding sources, and the function of professional and procedural rules in protecting users, including avoiding conflicts of interest, he noted.

John McElroy of Hausfeld, speaking as vice-chair of the London Solicitors Litigation Association, said: “Our hope must be that the review will lead to a better and wider understanding of the benefits that litigation funding can bring to enable access to justice,” noting the CJC’s review “[formed] an important staging post in realising that objective”.

Susan Dunn, chair of the Association of Litigation Funders (ALF), said: “Litigation funding is still a niche industry and self-regulation through the ALF has been very effective.” She added that the ALF “continues to support high standards of conduct and governance amongst its members. We look forward to working closely with the working group”.

Neil Purslow of Therium, which financed the Horizon group action, commented in his role as chair of the International Legal Finance Association (ILFA). “We will work with the review to share ideas to further level the playing field for claimants facing defendants with deep pockets and cynical tactics,” he said.

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