2 February 2016Print This Post

Jackson calls on profession to create not-for-profit third-party funder

Jackson: fund could flourish

Jackson: fund could flourish

The legal profession should create a not-for-profit third-party litigation funder to back both regular litigation and “deserving” cases which would otherwise not be attractive because of the level of damages sought, Lord Justice Jackson said today.

Seed funding could come from the government, the National Lottery or ‘quasi-debentures’ bought by individual lawyers and/or institutions.

Returning to a funding option he first looked on favourably during his review of civil litigation costs – but which has never gained traction in the 40 years since it was first proposed – Sir Rupert said a contingent legal aid fund (CLAF) could finally “flourish” in a market where for-profit third-party funders were now established.

Speaking at IBC’s Solicitors Costs Conference this morning, he called on the Law Society, Bar Council and Chartered Institute of Legal Executives to work together to promote the establishment of a CLAF.

“Unlike other funders, the CLAF would not have owners or shareholders creaming off the profits,” he said. “Instead it would plough all profits back into building up reserves and future litigation funding. The CLAF would be an independent body established by the legal profession in the public interest. Its function would be to promote access to justice.”

Seed funding has always been an issue for a CLAF, but Sir Rupert said that “if the governments and professions in other jurisdictions have managed to find seed-corn funding, surely England and Wales can do the same?”.

Possible sources included the National Lottery or charitable foundations, the government, or capital raised by means of ‘fixed interest coupons’ or quasi-debentures.

He explained: “Quasi-debentures would offer a more than average return on a bond but would expose the bond-holder to the risks of the CLAF being unprofitable, thereby sharing both risk and reward on the seed capital. I understand that such an arrangement would not prejudice the not-for-profit status of the fund.”

As to who would invest in a CLAF, the judge identified two possibilities. “Individual barristers, solicitors or other professionals may be willing to buy bonds of, say, £10,000 if they have confidence in the management of the scheme.

“They would note that investors in certain third-party funders have done well and the CLAF does not have any shareholders clamouring for dividends. In this way, the lawyers would be contributing to a much-needed scheme, while receiving a reasonable return for only a modest risk.”

Second, he said a bank or similar institution might assemble a ‘partnership’ of institutional type investors, such as pension funds.

“Each would put in money, buying a bond with a fixed lifetime and decent percentage annual return, in the expectation that after, say, 10 years the original capital would be returned because the fund would then be in a position to do so. Thus £50m could be raised by persuading 10 investors each to put up £5m.”

As to how the CLAF would work, cases could be chosen by experienced lawyers employed by the fund – or even by revived committees of solicitors and barristers who used to determine applications for legal aid – and importantly there would be no entitlement to support as of right.

Jackson LJ said whether the CLAF should be liable for adverse costs, or protected like the Legal Aid Agency, was a policy decision for others.

He noted that liability for adverse costs on normal principles would be an additional incentive “for the CLAF to choose cases wisely” – although there would have to be an agreement between the CLAF and the claimant as to what costs risk each was accepting – while giving it protection would require consultation and probably legislation, delaying the creation of the CLAF.

To protect itself from an adverse costs risk, he continued, the CLAF might take out block or case-by-case after-the-event insurance; alternatively it could self-insure “up to a point”.

Sir Rupert said costs management would make it “much easier” for the CLAF to assess the adverse costs risk, as would the adoption of his proposal last week for fixed costs for all civil cases up to £250,000.

He concluded: “The time for setting up a CLAF has come and I invite the Bar Council, Law Society and CILEx to consider taking forward this proposal.”

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