Spotlight shines on third-party funding

30 May 2024
London International Disputes Week
Spotlight shines on third-party funding

Author: Andrew Mizner

Third-party finance is well represented across this year’s LIDW and while the market for litigation and arbitration funding continues to grow, that growth has brought with it a new level of scrutiny.

During the past 12 months alone, the role of funding in claims against the Post Office over the Horizon scandal has itself been a lightning rod for controversy, while a surprise Supreme Court ruling forced the industry to band together to seek political support.

In the US, the industry has faced attacks from politicians and industry groups, and could find itself subject to unfamiliar regulation, while mainstream headlines have raised awkward questions about the sources of its finance.

Maturation of an industry

Funding has grown in acceptance and use, in particular across North America, Europe and Australia, during the past 10-15 years. In that time, an initially wary relationship has become a close one. The proposition has evolved from straight-up, single-case funding, to more complex portfolio offerings, and even the taking of stakes in law firms where local regulations allow it.

With last summer’s PACCAR ruling, the UK Supreme Court instantly made litigation funding arrangements (LFAs) unenforceable and unusable for collective proceedings, by determining them to be damages-based agreements and thus subject to a different regulatory regime.

Funders sprang into action and garnered support due to political desire to support access to justice following the Post Office scandal. Parliament moved particularly quickly, and legislation was introduced in March this year to effectively reverse the ruling. When UK funders gathered for Brown Rudnick’s European Funding Conference in London in March, there was cautious optimism that the matter would be resolved by the summer, apart from in the unlikely event of an election being called before the legislation could pass.

Rishi Sunak’s announcement last week has, in one fell swoop, eliminated the Bill’s progress, and even if there is no change in policy towards the legislation, the new government will have to start again in July.

In the meantime, the campaign to overturn the ruling drew media attention, while a slightly unflattering portrayal of funding began to play out courtesy of the now-infamous TV drama of the postmasters’ fight for justice, in which the funders were seen to take most of the court winnings.

Neil Purslow of Therium, which funded the claim, was forced to go on the offensive in the Financial Times, pointing out the Post Office’s culpability in running up costs, and helpfully received backing from postmaster-turned-campaigner Alan Bates in The Guardian.

In the long run, UK funders will probably emerge from this situation with a more secure legislative position. But with a summer of political campaigning to come and more Post Office twists and turns likely, it may not be smooth sailing.

American antipathy

American funders would probably agree. On their side of the Atlantic, funding has also become something of a (differently shaped) political football.

This year alone, lawmakers in Florida have proposed a Bill requiring funding disclosure, and limiting both their returns and say in cases; Indiana has blocked foreign sources of funding; West Virginia has proposed restrictions; and other states seem set to follow. Meanwhile, a Minnesota court denied Burford’s attempt to substitute itself into a case in the place of a claimant.

Public damage was also done by a Bloomberg article in March, which alleged that sanctioned Russian oligarchs had been investing in US and UK litigation funding.

Perhaps as a result, US industry bodies have felt emboldened to speak out. In April the US Chamber of Commerce said the use of funding raised “significant concerns about the integrity of litigation and the justice system at large”, arguing it had the “potential to incentivise frivolous or non-meritorious litigation” and accusing funders of having “undue influence and control over strategic litigation decisions, including whether and when to settle a case”.

It was not all bad news for funders; the Florida Bill stalled, although legislators have promised to bring it back, and the New York City Bar Association proposed plans to explicitly permit funding. So is this just a storm to be weathered until the next political punching bag comes along? Maybe not, if President Trump regains the White House in the New Year and a more pro-business and American protectionist lobby takes over.

Either way, funders on both sides of the Atlantic will have to get used to being in the spotlight.

Andrew Mizner

Andrew Mizner is the editor of Commercial Dispute Resolution Magazine and editor-in-chief at Global Legal Group.