Former justice minister calls for regulation of third-party funding

Faulks: regulatory safeguards

Third-party litigation funding is “in danger of undermining the integrity of our much-admired legal system” and it is time for statutory regulation, the former justice minister Lord Faulks QC has claimed.

While access to justice was “extremely important”, the 1 Chancery Lane barrister argued that “the state of the market means that there are real risks of abuse and disproportionally large sums are flowing into the coffers of litigation funders”.

Writing in The Times today, he said: “What can drive litigation is not the desire to redress grievances but to make profits. There are always challenging ethical issues for lawyers conducting litigation in a conventional way. These become much more challenging in third-party-funded cases. To whom is the duty owed? What if there is a conflict?”

He added: “We should not lose sight of the public policy considerations which outlawed maintenance and champerty for so long.”

Lord Faulks, who left office when Theresa May became prime minister, expressed himself unimpressed by the voluntary code of conduct promulgated by the Association of Litigation Funders. “Only seven of more than 20 litigation funders known to be active in the UK have actually signed up.

“In any event, a breach of the code is hardly an incentive to ethical behaviour. A penalty of £500 can be imposed, which pales into insignificance compared with, say, the £40m which a litigation funder is pouring into a collective case against Mastercard. Even if a litigation funder is evicted from the association overseeing the code, it can still continue unhindered.”

It was time, he said, for the government to “get a grip” on the market, noting Lord Justice Jackson’s recommendation that if the use of third party funding expanded, then “full statutory regulation may well be required”.

The silk put forward some “regulatory safeguards”, such as that “the fiduciary duty of a lawyer towards a client should not be overtaken by an outside commercial interest. This means funder control should be prohibited or restricted”.

Lord Faulks continued: “Second, litigation funding should not distort the legal process by creating an external financial pressure. There should be transparency about the provisions of a funding agreement for the judge and the defendant.

“Third, funders should be subject to licensing through a government agency. It is anomalous that qualified lawyers are subject to strict regulation but not funders.

“Finally, the licensing agency should be able to impose meaningful, enforceable sanctions for violations of its rules.”

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