As a relatively new but fast-expanding industry, third party litigation funding has not always been regarded as the most ethical of legal-financial activities. A nine hundred year legacy of being illegal, because of champerty and maintenance constraints on third parties financing others’ litigation, is not easy to shed. Even after the Jackson Report of 2010 gave the green light to litigation funding and his recommendations became law in the LASPO Act of 2012, many continued to see funders as little more than loan sharks, willing to fund even frivolous legal claims, in order to make a quick return. The need for a Code of Conduct was a necessary response to this dubious start.
Those pioneer litigation companies, anxious to establish credibility and a bench mark of ethical standards, formed themselves into The Association of Litigation Funders of England and Wales in 2011 and put forward a binding Code of Conduct. This Code needed to offer reassurances that its members would act honourably and transparently. Thus the basic tenets of the Code cover capital adequacy, termination of funding agreements, resolution of funding disputes and safeguards against funders unduly interfering with and/or controlling the running of cases.
The worst case scenario for a funded case would be if the funder ran out of money before a case settled. Thus the Code requires funders to ensure funding for at least 36 months and to be able to guarantee capital of at least £2 million, following full and annual auditing. Clients are given full protection before they enter into funding agreements with the guidance of their lawyers and all funding agreements are contractually binding. The Code has a clear set of procedures to be followed for how to terminate funding agreements and resolve disputes. The Code is clearly designed to protect clients and to offer confidence to lawyers when they are advising their clients on funding options. That the S.R.A. ‘s own code makes it a requirement that solicitors offer full advise on all funding options in itself means that they welcome the Code and the moves to fuller transparency from the funders. To date, of twenty one listed funders, only ten are members of The Association of Litigation Funders and therefore bound by the Code of Conduct. Clearly a prudent lawyer would direct his clients only to member funders.
The Association of Litigation Funders has been credited for acting quickly in setting up a stringent and clear Code of Conduct. However, such self-regulation is itself controversial. Is it enough that it is self-policing? There are those who believe that full credibility will only be possible if the litigation funding industry is placed under statutory regulation. This will be a decision for the future; suffice for the moment that self-regulation is working. The Code of Conduct can only continue to a have a positive impact if it continues to inspire confidence and trust in its members. It is these member funders who are the ones establishing a sound reputation for litigation funding. As the industry grows the Code must evolve: at least it is has been rooted.
This article was written by Anne Evans, a legal consultant for Vannin Capital, one of the UK’s largest funders of litigation. Find out more from them on their website.