The Civil Justice Council is due to draft a voluntary code of conduct for third party litigation funders by the end of October
The Council has been grappling with what to include in its draft code for 18 months although its current working party, which is chaired by Irwin Mitchell partner Michael Napier, launched in May and met for the first time in July.
Third party funding was endorsed by Lord Justice Jackson in his review of litigation costs, and is a growing market.
Nick Rowles-Davies, consultant at litigation funder Vannin Capital, which launched in June, said: “There are two issues that the code needs to deal with: capital adequacy and the circumstances in which funds can be withdrawn.
“It needs to enable the client to be content and satisfied that the contractor won’t run out of cash halfway through the case. It should provide for a referral clause to an independent third party so that, if there is a misrepresentation, or something goes wrong, then the funder can get out of the transaction—this dispute resolution mechanism gives the client protection, and protects the funder from the risk of bad publicity.
“However we should be careful not to have too much regulation. We should be able to contract freely. Not every case is the same. I wouldn’t like to see too much regulation from a consumer perspective because we tend to deal with the commercial side of litigation.”
According to Rowles-Davies, the market in third party funding is expanding. He wants to see more transparency, which allows clients to compare their circumstances and in turn encourages market growth.
The current market comprises about ten funders who can invest at short notice in good cases, plus about the same amount of brokers and case-by-case funders who first offer to fund cases and then set about raising finance on the back of the case being a good investment. The problem, says Rowles-Davies, is that the latter tend to leave clients “hanging around” while they source funding.
Third party funding is best suited to large commercial cases since funders need a return on their investment. However, Rowles-Davies says there is scope for it to be used to fund parts of smaller cases—for example, experts’ fees or other disbursements—alongside conditional fee agreements. He estimates it could be used for most cases with a value of more than £300,000, and partially in other cases.
He says: “It can take some of the risk away, and is a good way for lawyers to improve their cashflow.”
.tmb-mov69x69.jpg?sfvrsn=2c3eca9_1)
