CILEX backs stronger regulation of third-party litigation funding

3 March 2024

Third-party funding (TPF) of litigation is vital in promoting access to justice and achieving equality of arms but it requires a comprehensive regulatory framework, CILEX says today.

Proper regulation – rather than the current self-regulatory regime – would both protect claimants from under-settlements and ensure the justice system is not viewed simply as a business venture.

CILEX’s response to the Civil Justice Council’s review of TPF does not specify what form regulation should take, but observes that mandating a strengthened version of the Association of Litigation Funders’ existing code of conduct would be easier than, for example, amending the Civil Procedure Rules. This would also be more flexible.

Furthermore, CILEX believes it should be for the judiciary to establish whether funders are exercising excessive control over litigation proceedings, supported by mandating the disclosure of funding agreements.

It recommends the process used in family proceedings, where the judge has to seal agreed orders created by the legal representatives for settlement, as more time-efficient than something akin to infant settlement hearings.

The response stresses the need to prevent funders financing high-risk claims with lower merits and instead support the broader interests of justice. There may be a case also for incentivising public interest litigation via tax benefits for funders.

The risk of under-settlement is currently managed by the regulation of lawyers, but CILEX says “this is not a guaranteed protection, especially where vulnerable claimants are facing financial pressures and fear losing the funding for their claim”. There needs to be “clear and consistent regulation on settlement provisions for funders” to avoid this.

CILEX believes that formally regulating funding practices would reduce litigation costs. “As an example, mandating transparency and accountability in funding agreements through disclosure would provide clearer understanding of the total financial costs associated with the type of dispute or litigation. This helps create better informed decisions surrounding the overall costs and the risks associated with litigation.”

The underlying principles of regulation should be transparency, independence, conflict of interest management, prioritising the best interests of the funded party, and keeping costs reasonable, proportionate and fair.

This would also support making the costs associated with litigation funding recoverable with other litigation costs for successful parties.

On other issues raised in the consultation:

• Before-the-event insurance could be reformed to offer broader and more comprehensive coverage, including more choice of legal representative (e.g., by setting out criteria rather than mandating a particular firm)
• CILEX opposes a mandatory legal expenses insurance scheme. This would be a huge task when the priority should be on regulating current forms of litigation funding effectively.
• Crowdfunding for litigation should be subject to regulatory standards, like the Association of Litigation Funders’ code of conduct.

CILEX Director of Policy & Public Affairs, Simon Garrod says: “Third-party funding was introduced to England and Wales to improve access to justice and it has achieved that in many cases, most famously the Post Office litigation. However, it touches so directly on the justice system that a more robust regulatory regime is needed to protect the interests of clients over those of funders and others who benefit from their money.

“Ultimately, it will be for the government to act on the final report and we will be encouraging ministers to do just that.”

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ENDS

For further information, please contact:

Kerry Jack, Black Letter Communications on 07525 756 599 or email at [email protected]

Notes to editors:

CILEX (The Chartered Institute of Legal Executives) is one of the three main professional bodies covering the legal profession in England and Wales. The approximately 18,000 -strong membership is made up of CILEX Lawyers, Chartered Legal Executives, paralegals and other legal professionals.

CILEX pioneered the non-university route into law and recently launched the CILEX Professional Qualification (CPQ), a new approach to on-the-job training that marries legal knowledge with the practical skills, behaviours and commercial awareness needed by lawyers in the 2020s.

The CPQ is a progressive qualification framework that creates a workforce of specialist legal professionals, providing a career ladder from Paralegal through to Advanced Paralegal and ultimately full qualification as a CILEX Lawyer. CILEX Lawyers can become partners in law firms, coroners, judges or advocates in open court.

CILEX members come from more diverse backgrounds than other parts of the legal profession:

• 77% of its lawyers are women
• 16% are from ethnic minority backgrounds
  • 8% are Asian or Asian British
  • 5% are Black or Black British
  • 3% are from a mixed ethnic background
• 85% attended state schools
• 33% are the first generation in their family to attend university
• Only 3% of its members have a parent who is a lawyer.
• 85% attended state schools
• 33% are the first generation in their family to attend university
• Only 3% of its members have a parent who is a lawyer.

CILEX members are regulated through an independent body, CILEx Regulation. It is the only regulator covering paralegals.