Litigation Funding in England & Wales (Legal Services Board Report)

A recent report submitted by QMW Professor Rachael Mulheron KC (Hon) to the Legal Services Board (LSB) comprehensively examines litigation funding in England & Wales. The report titled “A REVIEW OF LITIGATION FUNDING IN ENGLAND AND WALES, A LEGAL LITERATURE AND EMPIRICAL STUDY” examines the (limited) impact of litigation funding on access to justice, the public interest, and consumer protection.

The report explores the role of litigation funding through the lens of the LSB’s regulatory objectives enshrined in the Legal Services Act 2007. Researchers conducted a multifaceted study, including a literature review, analysis of court cases involving litigation funding, and surveys of participants in the industry, such as funders, insurers, law firms, and clients. It is important to note that litigation funding is very niche and applies to a tiny fraction of litigation cases in England & Wales and more cases are funded by solicitor and counsel provided CFA and DBA no win no fee agreements.

Key Findings of the Litigation Funding Report

The report’s key findings highlight both the potential benefits and limitations of litigation funding which is offered in very few cases:

• Access to Justice: While litigation funding offers a valuable tool for some individuals, small and medium-sized enterprises (SMEs), and even corporations, allowing them to pursue legal claims that would otherwise be financially prohibitive, the report acknowledges its selective nature. Funders typically choose only a small percentage of cases (between 3% and 5%), limiting its ability to be a widespread solution for access to justice issues.
• Compensation and Costs: The report underscores the potential tension between claimants’ pursuit of justice and funders’ financial objectives. While litigation funding allows claimants their “day in court,” the ultimate compensation received after accounting for costs and the funder’s return may not adequately address the damages suffered, particularly in cases involving rectification costs. However, the report also recognises the role of litigation funding in facilitating legal actions that would otherwise be financially impossible.
• Consumer Interest Cases: The report finds that litigation funding is often used in cases with broader implications for consumer interests, affecting a significant segment of the population. These cases can influence consumer markets, legal developments, and the enforcement of the rule of law. Between 2019 and 2024, 54 documented cases involved litigation funding, with many being high-profile collective actions like the “diesel-gate” emissions case and the successful claim by sub-postmasters against the Post Office in the Horizon IT scandal. Additionally, litigation funding has been instrumental in challenging alleged anti-competitive practices in areas like train fares and mobile phone contracts.
• Regulation and Self-Regulation: The report acknowledges the potential impact of the Litigation Funding Agreements (Enforceability) Bill 2024, suggesting that if successful in reversing the UK Supreme Court decision in Paccar, it could contribute to the continued growth of litigation funding as a niche but significant aspect of legal services. The research also examines the role of the Association of Litigation Funders (ALF) in providing a self-regulatory framework through its Code of Conduct, including capital adequacy requirements and sanctions for non-compliance. However, the report notes that for some law firms, the funder’s track record holds more weight than their membership in the ALF.
• Anti-Money Laundering (AML) and Know-Your-Client (KYC) Concerns: The report acknowledges a potential risk of using litigation funding for economic crime, particularly where law firms may struggle to ascertain the ultimate source of funds used by the funder. However, the research also highlights the seriousness with which law firms and litigation funding brokers approach AML and KYC checks, mitigating this risk.

Impact on LSB’s Regulatory Objectives

The report explores how litigation funding interacts with the LSB’s regulatory objectives outlined in the Legal Services Act 2007. The LSB’s regulatory objectives provide a framework for evaluating litigation funding. The report finds that litigation funding aligns with several of these objectives.

Firstly, by enabling financially challenging cases to proceed, it serves the public interest by facilitating legal challenges against corporations and ensuring the proper application of law.

Secondly, while not a universal solution, litigation funding undeniably improves access to justice for those who receive funding, allowing them to pursue claims that would otherwise be financially impossible. It also benefits consumers by empowering them to fight against anti-competitive practices and seek compensation. Additionally, the report highlights the role of litigation funding as a filter, ensuring that only meritorious cases are funded.

Competition within the legal services market appears healthy, with no evidence of restricted competition between funders and law firms. However, the report acknowledges a debate regarding the balance between encouraging new entrants to the market and implementing consumer protection measures.

Litigation funding also contributes to a strong and effective legal profession by ensuring cash flow for law firms’ legal fees and disbursements, while helping them manage risks associated with costs awards.

Finally, high-profile litigation funded cases can raise public awareness of legal rights and responsibilities. However, the report acknowledges the potential risk of money laundering through litigation funding and emphasizes the importance of robust anti-money laundering (AML) and know-your-client (KYC) checks to mitigate this risk.

Litigation Funding Report Conclusions

The LSB report paints a nuanced picture of litigation funding’s impact on the legal landscape. While it offers undeniable benefits, challenges remain.

Access to Justice: Litigation funding unquestionably broadens access to justice for some, enabling meritorious cases that might otherwise be financially untenable. However, the report acknowledges the selective nature of funding, with only a small percentage of cases receiving support. This raises questions about its ability to be a large-scale solution for access to justice.

Consumer Protection: The report highlights potential benefits for consumers. Litigation funding allows them to challenge unfair practices and seek compensation for financial losses. It also acts as a filter, ensuring funded cases have a good chance of success. However, concerns remain regarding potential cost overruns by law firms, which could ultimately impact the compensation received by consumers.

Regulation and Competition: The research found no evidence of restricted competition between funders and law firms. However, there’s a debate regarding balancing the need for new entrants to the market with consumer protection measures like minimum capital requirements. The report also acknowledges the tension between funders and law firms regarding legal fees. Some funders feel law firms do not control costs effectively.

The LSB’s report offers a thorough analysis of litigation funding in England and Wales. It highlights its niche potential to address access to justice issues, its role in consumer protection, and the importance of a robust regulatory framework. While highlighting its limitations, the report acknowledges the limited significance of litigation funding as a niche market that supports a specific and small segment of legal claims. These insights will undoubtedly inform policy discussions and shape the future of litigation funding in England and Wales.