Yesterday evening at the Royal Courts of Justice, the Civil Justice Council launched a new Code of Conduct for Litigation Funders.
Litigation funders, also known as third party funders, provide funding for the litigation costs of parties with which they have no other connection, in return for a share in the proceeds should the litigation succeed. The voluntary Code sets out standards of practice and behaviour for litigation funders. A new Association of Litigation Funders of England & Wales has also been formed, whose members will agree to abide by the Code.
Lord Justice Jackson in his Review of Civil Litigation Costs: Final Report had recommended such voluntary regulation of third party funders, although he had expressed doubts in that Report about the adequacy of the draft Code that was in circulation at that stage. His concerns were:
- that there should be proper provision for capital adequacy - he felt the provision that the funder should be able to meet its liabilities under its funding agreements for the next three months was plainly inadequate;
- that the funder should not be entitled to terminate the funding agreement mid-litigation without good reason - he felt that the original draft code appeared to permit this; and
- that the extent of the funder's ability to influence the litigation and any settlement negotiations should be properly restricted and defined with clarity.
At the launch of the new Code yesterday, Lord Justice Jackson gave his sixth lecture in the Civil Litigation Costs Review Implementation Programme, in which he confirmed that his concerns as set out above had been met with the new Code. He noted in particular that:
- the funder was now required to meet its liabilities under its funding agreements for the next 3 years rather than 3 months;
- funders were only now able to terminate the funding agreement for good reason, namely if the funder either reasonably ceases to be satisfied about the merits of the dispute, reasonably believes that the dispute is no longer commercially viable, or reasonably believes that there has been a material breach of the funding agreement by the litigant; and
- the ability of the funder to influence the litigation and any settlement negotiations had now been properly restricted and defined.