We are all, to some degree, familiar with the rules regarding maintenance and champerty and the long standing consensus that parties without an interest in proceedings should not be given the opportunity to meddle with the disputes of others (British Cash and Parcel Conveyancers Limited v Lamson Store Service Co Ltd [1908]). These rules have changed very significantly within the last century and it is useful to remind ourselves of these developments in order put the current state of litigation funding into perspective.
Historic developments
The first shift away from the attitude regarding champertous agreements was taken by virtue of The Criminal Law Act 1967 where the offences of champerty and maintenance were abolished; however champertous agreements remained invalid. There were minimal further changes until the Courts and Legal Services Act 1990 allowed the funding of litigation by way of a Conditional Fee Agreement, provided that the CFA met the requirements of that act. Following this, the Access to Justice Act 1999 provided for the recoverability of ATE premiums from an unsuccessful opponent.
The position pre LASPO
Coulson J provided a definition of maintenance and champerty within the case of London & Regional (St George’s Court) Ltd v Ministry of Defence [2008] which usefully outlines the changing attitudes towards litigation funding (and has been affirmed by Sir Rupert Jackson):
102. A person is guilty of maintenance if he supports litigation in which he has no legitimate interest without just cause or excuse: see Hill v Archbold [1968] 1 QB 686 and Trendtex Trading Corp v Credit Suisse [1980] 1 QB 629. Champerty has been described as "an aggravated form of maintenance" and occurs when the person maintaining another stipulates for a share of the proceeds of the action: see Giles v Thompson [1994] 1 AC 142. What these principles seek to avoid is 'the wanton and officious intermeddling' with the disputes of others in which the inter-meddler has no interest whatsoever and where the assistance that he renders to the other party is without justification or excuse. In commercial cases, the courts have recognised that a sufficient interest does not have to be proprietary in character; in Trendtex, Oliver LJ concluded that maintenance would be justified "wherever the maintainer has a genuine pre-existing financial interest in maintaining the solvency of the person whose action he maintains".
103. Many of the relevant authorities in this area of the law have been helpfully summarised by Underhill J in Mansell v Robinson [2007] EWHC 101 (QB). He concluded that:
a) the mere fact that litigation services have been provided in return for a promise in the share of the proceeds is not by itself sufficient to justify that promise being held to be unenforceable: see R (Factortame) Ltd v Secretary of State for Transport (No.8) [2003] QB 381;
b) in considering whether an agreement is unlawful on grounds of maintenance or champerty, the question is whether the agreement has a tendency to corrupt public justice and that such a question requires the closest attention to the nature and surrounding circumstance of a particular agreement: see Giles v Thompson;
c) the modern authorities demonstrated a flexible approach where courts have generally declined to hold that an agreement under which a party provided assistance with litigation in return for a share of the proceeds was unenforceable: see, for example, Papera Traders Co Ltd v Hyundai (Merchant) Marine Co Ltd (No.2) [2002] 2 Lloyd's Rep 692 ;
d) the rules against champerty, so far as they have survived, are primarily concerned with the protection of the integrity of the litigation process in this jurisdiction: see Papera.
In addition to this case, the Court has given approval to Third Party Funding (TPF) and considered that the funder's liability for adverse costs should be capped to the extent of the funding provided (Arkin v Borchard Lines Ltd v Ors [2005]). However the Court subsequently found that Third Party Funders (TPFs) could be liable for the full extent of any costs liability (Merchantbridge & Co Ltd and another v Safron General Partner 1 Ltd [2011].
Despite these developments, TPF was not a popular choice due to the availability of ATE, which was much more widely available and involved much less stringent requirements. Due to the recoverability of ATE premiums from the opponent, it also meant that the funded party was able to recover 100% of the damages awarded, whereas TPF’s terms require a return on their investment and, consequently, it is necessary to settle this from the total damages recovered.
LASPO
Life as we know it changed with the Introduction of the Legal Aid Sentencing and Punishment of Offenders Act 2012. I am sure we will never forget the date of 1 April 2013 when the recovery of success fees and ATE premiums were abolished (aside from some very limited exceptions) - particularly if you, like me, were rushing to get as many suitable cases on cover as possible over that long Easter weekend! The changes mean that unsuccessful Defendants are no longer liable for extensive additional liabilities and, in personal injury cases, this has been counterbalanced by the introduction of Qualified One Way Costs Shifting.
With ATE premiums and success fee uplifts being no longer recoverable from the paying party, successful Claimants are now expected to pay the premiums and the uplifts from their damages. This is of course a less attractive option and, in some cases, can mean that pursuit of the claim is not viable due to the modest level of damages. Additionally in some cases where the level of quantum is not known due to the requirement for causation reports, it can be difficult to undertake a costs to benefit ratio assessment at the outset of the claim. Naturally, these challenges have catalysed a need for alternative methods of funding litigation.
More recent developments
JEB Recoveries LLP v Binstock [2015] held that litigation funding does not offend public policy and Excalibur Ventures LLC v Texas Keystone Inc and others [2016] confirmed that a costs order may be made not only against the funder named in the funding agreement but also against a third party who provided the funds and stood to receive a benefit. Wall v the Royal Bank of Scotland PLC [2016] considered whether it would be a breach of Article 8 of the Human Rights Act to disclose details of the TPF; it was confirmed that, on the facts of the case, it was appropriate to disclose these details in order for the Defendant to consider a security for costs application.
Essar Oilfields Services Ltd v Norscot Rig Management Pvt [2016] provides an interesting development in arbitration proceedings; the costs of funding were awarded to the successful party on the basis that they constituted the 'legal or other costs of the parties' under the Arbitration Act 1996. Therefore, despite funding costs being unrecoverable in all other types of proceedings, the Court may award these to the successful party under its discretionary powers in arbitration proceedings.
Regulation
There is currently no mandatory regulatory body for TPFs however the Association of Litigation Funders (ALF) provides a form of voluntary regulation. The ALF was set up by a group of funders in 2011 (with the approval of Jackson LJ) and recommends that anyone considering litigation funding should chose a provider who is a member of the ALF. Membership of the ALF requires compliance with a Code of Conduct; this focuses on maintenance of adequate financial resources, fair requirements for termination and prevention of funders taking control in the litigation. There are currently no plans to implement a statutory requirement for membership however, if this method of funding continues to grow, this would be a very sensible approach to take.
Access to justice?
The burning question is “does Third Party Funding provide greater access to justice?” In my view, the answer to this question will depend on who you ask; TPF is very attractive to a commercial client with a claim that is high in value however the same does not apply to an impecunious Claimant who has suffered personal injuries. The reason for this is that TPFs are naturally looking for a big return on their investment, meaning that only higher value claims will be attractive, or even eligible. This therefore does advantage the occasional individual Claimant with a significantly high value claim however, the most commonly funded parties will be corporate clients who may already have significant capital but would prefer to dilute the risk by involving a third party investor.
Attitudes of other jurisdictions
One further interesting case of note is the Irish case of Persona Digital Telephony Limited & Sigma Wireless Networks Limited v The Minister for Public Enterprise, Ireland and the Attorney General [2017] IESC 27. This matter involved mobile telephone licensing and, among other things, unlawful interference by the Minister in competition of such licensing. There are long standing rules in Ireland which prohibit TPF however, in 2015, the Plaintiffs entered a funding arrangement with Harbour Litigation Funding and sought a High Court declaration that the arrangement was not in contravention with these rules. The High Court found that the agreement was indeed captured by the prohibition on TPF and this decision was subsequently upheld by the Supreme Court. Therefore, whilst this decision does not have any bearing on UK law, it is interesting to note that a similar jurisdiction does not take the same approach towards litigation funding and additionally, is a clearly an indication that there are contrasting views as to whether TPF is indeed permitted.
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