REGULATION OF THIRD PARTY LITIGATION FUNDING

Wednesday 15 February 2017

The Government has announced it has no current plans to move away from the current method of voluntary regulation of third party litigation funding.

 

In responding this January to written parliamentary questions asked by Lord Hodgson of Astley Abbotts, the justice minister Lord Keen of Elie stated “The Government does not believe that the case has been made out for moving away from voluntary regulation, as agreed by Parliament during the passage of the Legal Aid, Sentencing and Punishment of Offenders Act 2012”.

 

Lord Hodgson posed a number of questions, and in addition to asking whether the Government planned to introduce regulations, he also asked what assessment the Government had made of the effectiveness of the voluntary code of conduct drafted by the Association of Litigation Funders.

 

The Government’s response addressed this point by noting that “The market for third party litigation funding remains at a relatively early stage in its development in this jurisdiction, and we are not aware of specific concerns about the activities of litigation funders.

 

The Government has not therefore undertaken a formal assessment of the effectiveness of the voluntary code of conduct or the membership of the Association of Litigation Funders.

 

The last Government gave Parliament an assurance that it will keep third party litigation funding under review and this Government is ready to investigate matters further should the need arise”.

 

The Government has not therefore ruled out regulatory intervention in the future, but remains cautious in this respect.

 

Lord Hodgson, commenting on the website conservativehome.com last June, said that litigation funding is “notoriously secretive”, and that he believes there is a strong argument for a full parliamentary review of the extent of third party litigation funding.

 

At this stage, it appears that the Government disagrees.

 

Maxima’s view, as a broker in the third party litigation funding market, is that having an unregulated industry means that there is no regular assessment, audit or public record of any complaints made to the Association of Litigation Funders (“ALF”) and thus it is more of a club than a complaints body.

 

The ALF’s Code of Conduct, which forms the basis of the industry’s currently self-regulation, contains some important rules, but there is no public record of how many complaints have been made to the ALF, what stage they proceeded to and what redress if any was made to the complainant where a member was found to be in breach. Furthermore the investigator is not independent, being appointed by the ALF, and it would be more balanced if the complainant could appoint their own investigator to review the complaints process or work in conjunction with the ALF investigator.

 

At the very minimum, and for transparency, all complaints should be logged, and details provided of date of entry, time to resolution, outcome, what redress if any was sanctioned, any appeals lodged and outcome disclosed on their website.

 

It is also disproportionate in our view that if a minimum capital adequacy of £5million is required to become a member of the ALF, then the complaints levy fine be limited to £500. Fines imposed should be significant enough to properly discourage non-compliance with the Code, and a £500 fine seems insignificant in terms of a deterrent. Whilst they need not be Draconian, the ALF should at least have scope to levy a higher fine for more serious transgressions. Sanctions should also cover any losses suffered by the complainant, as well as costs incurred in determining the complaint.

 

This would, we believe, fully reflect the intent of the ALF members to provide key protections to those who seek funding.