A prominent think tank has urged regulatory oversight by the Financial Conduct Authority (FCA) on third-party litigation funding (TPLF), likening its supervision to that of other investment products.
The Adam Smith Institute has advocated for comprehensive transparency in TPLF-backed class actions, citing concerns about the expanding class action landscape and its implications for the UK legal system. The Institute’s report, “Judge Dread: How lawfare undermines business confidence in the UK,” suggests that the current legal environment prioritises the interests of litigation funders and claimant law firms over the consumers ostensibly protected by these actions. This situation, according to the report, erodes trust in the UK’s legal framework among businesses and individuals.
The report highlights selective evidence usage, such as the example of the Bates Post Office litigation funder taking 80% of the damages, though it omits Sir Alan Bates’s positive endorsement of the arrangement. Politically, the discussion on TPLF stirs debate, with large corporations, notably the Fair Civil Justice campaign supported by the US Chamber of Commerce, aiming to restrict its growth.
However, not all viewpoints align with the Institute. Former Conservative Lord Chancellor, Alex Chalk KC, writing in The Times, defended TPLF as beneficial for backing significant claims, including equal pay cases for over 100,000 women and actions against corporate malpractices by utility providers. Chalk criticised the Labour party for not reviving a bill to regulate litigation funding agreements, which faltered before an election.
The growing prevalence of class actions, spurred by the Consumer Rights Act 2015, contributes to broader business liabilities, as court openness to mass claims rises. Consequently, the Institute calls for immediate measures to mitigate the proliferation of class action suits and TPLF, to shield UK companies from excessive legal challenges.
The report also notes the symbiotic yet profitable partnerships between claimant firms and funders that the procedural shifts since 2015 have cultivated. Despite the potential risks related to funding disclosure and foreign influence through significant national or government-associated shareholdings, the report argues for banning such stakes to prevent undue international leverage on the UK legal system.
Moreover, concerns about regulatory oversight are salient. The absence of mandatory fund disclosure creates an arena for potentially frivolous claims, posing minimal risks for claimants and firms unless cases are unsuccessful. The lack of comprehensive regulation demands that courts scrutinise funding agreements more deeply, accompanied by obligatory disclosure.
The report concludes with recommendations for the prohibition of funders directing litigation strategies and restricting law firm employees from holding directorial positions in TPLF entities. Lastly, it suggests expanding legal aid as a preferable alternative to TPLF, although recognising the current financial strains on criminal defence law firms which make such a prospect challenging.
The call for the FCA to regulate third-party litigation funding highlights significant concerns regarding transparency and influence within the UK’s legal system. The debate continues as stakeholders weigh the benefits of TPLF against potential risks to business confidence and consumer protection.
