Each morning, I look out of my window, and see the landscape of England, my England, and feel glad. I am glad to know this land is a sovereign country once again, freed from the yoke of European vassalage by the gallant efforts of Mr Johnson, and Mr Farage, who broke our European chains, and have led this country into a new Jerusalem.
One of the particularly onerous chains, was of course, European Union law drawing its influence from diverse continental legal systems, now thankfully receding in the rear view mirror, as a mere historical irrelevance. Or is it? Irrespective of Brexit or other political shifts, legal systems tend these days to be interconnected: porous, and ideas leak from one to the other.
So I have been reading with interest the last of the three reports on litigation funding from last year: ELI_Principles_Governing_the_Third_Party_Funding_of_Litigation, a report published by the European Law Institute, of whom I was interested to see the Master of the Rolls is a Vice President, and one of the reports authors is a certain Sara Cockerill, better known as Mrs Justice Cockerill and part of the Civil Justice Council Review into litigation funding.
The more things seem to change, the more they seem to stay the same.
The European Law Institute (ELI) is an independent non-profit organisation dedicated to improving the quality of European law. Its mission is to facilitate better law-making across Europe through research and recommendations. ELI takes a comparative approach to legal issues, integrating insights from different European legal traditions.
In 2024, ELI published a report on Principles Governing the Third Party Funding of Litigation. This report was developed in response to the increasing role of litigation funding in access to justice, as well as concerns about fairness, transparency, and regulation in the sector. The principles outlined in the report aim to provide a balanced framework that preserves the benefits of litigation funding while addressing potential risks.
The ELI report identifies several concerns regarding third-party litigation funding. Funders may have interests that do not align with those of claimants, potentially leading to decisions that prioritise financial returns over justice. Many funding agreements are not disclosed to courts or opposing parties, raising concerns about fairness and informed decision-making.
There is a risk that funders could exert excessive influence over litigation strategies, including decisions to settle or continue proceedings. Some funders charge high fees that significantly reduce the amount ultimately recovered by successful claimants. The involvement of funders may create ethical dilemmas for lawyers, particularly regarding duties to clients versus obligations to funders.
The report advocates as a solution for these issues, a light-touch regulatory approach, balancing the need for oversight with maintaining the attractiveness of the funding market. Encouraging funders to adhere to self-regulation through industry codes that set standards for transparency, fairness, and ethical behaviour is a key recommendation.
It suggests ensuring that courts and opposing parties are informed about the existence of funding agreements, without requiring disclosure of sensitive financial terms. Allowing courts to review funding agreements in cases where there are concerns about fairness or conflicts of interest is seen as a necessary safeguard. Ensuring that a competitive market for litigation funding helps keep costs reasonable and funding accessible to a broad range of claimants is also highlighted as an important factor.
The ELI report sets out twelve key principles designed to create a fair and effective framework for litigation funding. These principles cover the subject matter and purpose of litigation funding, clarifying the types of litigation and funding arrangements covered, and ensuring common understanding of key terms.
They require funders to provide accurate and non-misleading information in their promotional materials and set minimum disclosure requirements for funding agreements. Managing and disclosing potential conflicts of interest is another critical aspect, alongside ensuring that funders have sufficient financial resources to meet commitments.
Funders’ fees are regulated to prevent unfair financial arrangements, and confidentiality protections are outlined to safeguard sensitive information shared with funders. The principles also address the prevention of undue influence over litigation strategy by funders, fair terms for ending funding agreements, and mechanisms for resolving disputes between funders and claimants.
The issue of funders’ fees is one of the most contentious aspects of litigation funding. The ELI report stresses that claimants must understand the fees they will incur before entering into a funding agreement. Funders should clearly explain their fee structures, including whether fees are charged as a percentage of recoveries, a fixed sum, or a multiple of costs.
Courts and regulators should be wary of excessive fees that significantly erode claimants’ recoveries. A one-size-fits-all approach is problematic because litigation costs and risks vary widely between cases. The report discusses why setting a fixed percentage cap on funders’ fees is not advisable. Different cases carry different levels of risk, and a rigid cap could discourage investment in high-risk litigation. Caps could reduce competition and innovation within the funding industry. Jurisdictions take different approaches, with some allowing high fees in complex commercial cases. Determining a reasonable cap is difficult, as funding arrangements depend on numerous factors, including case duration and expected recovery.
The appendix to the report outlines the minimum content that should be included in third-party funding agreements to ensure fairness and transparency. These provisions include defining what costs are covered, clearly stating how fees are calculated, outlining the role of the funder in litigation strategy, specifying when and how the agreement can be ended, and establishing mechanisms for resolving disagreements. This framework aims to protect claimants while providing funders with clear contractual guidelines.
The Civil Justice Review is currently examining litigation funding in England and Wales, with a particular focus on transparency, fairness, and regulation. The ELI principles could influence future regulatory decisions in the UK. Possible areas of impact include increased transparency requirements for litigation funding agreements, judicial oversight of funders’ fees in certain cases, and stronger consumer protections for individuals using litigation funding in collective actions.
The ELI’s report on litigation funding represents a significant step towards establishing clear, fair, and effective principles for third-party funding. While recognising the benefits of litigation funding in expanding access to justice, the report also highlights key risks that require oversight. The rejection of a rigid percentage cap on funders’ fees reflects a pragmatic approach, balancing regulation with market flexibility.
Another important consideration is the intersection of litigation funding with collective redress mechanisms. The European Union has been pushing for broader access to collective redress, allowing consumers to pursue claims more effectively against large corporations. This development means that litigation funding is likely to play an even greater role in consumer class actions.
Without adequate regulation, there is a risk that funders could take advantage of vulnerable consumers by charging excessive fees or exercising undue influence over legal proceedings. The ELI report acknowledges this concern and proposes a balanced approach that ensures consumers benefit from funding while being protected from exploitative practices.
Transparency remains a crucial aspect of the debate around litigation funding. Many argue that courts, regulators, and opposing parties should be aware when a claim is backed by a third-party funder. This knowledge could influence judicial decisions regarding costs, security for costs orders, and settlement negotiations.
However, there is a counterargument that excessive disclosure requirements could deter funders from operating in certain jurisdictions. The ELI’s principles seek to strike a middle ground by advocating for transparency without imposing overly burdensome disclosure obligations.
As litigation funding continues to grow, both in volume and complexity, its regulatory framework will need to evolve accordingly. The ELI report provides a potential foundation for this evolution, offering principles that can guide policymakers, courts, and industry stakeholders, not least in this green and pleasant land we call England (and Wales).