In a significant development, the European Law Institute (ELI) has advised against immediate regulation of third-party litigation funding (TPLF), recommending instead the adoption of guiding principles to ensure clarity and fairness.
The recent report, led by Dame Sara Cockerill, a notable High Court judge, and Professor Susanne Augenhofer, a respected Austrian legal academic, suggests that regulation should only be considered if there is a clearly identifiable issue within the market or a failure that necessitates intervention. The ELI’s stance counters the prevailing calls for stricter control over TPLF, opting instead for a framework that ensures transparency and understanding of contractual terms for the funded party.
The report is particularly timely, as it anticipates the interim findings of the Civil Justice Council’s review on TPLF, commissioned by the government. The review, initially scheduled for release in the summer, seeks to assess the need for changes in the sector’s regulatory landscape. Notable figures such as Lord Thomas, former Lord Chief Justice, and Susan Dunn, founder of Harbour Litigation Funding, contributed as assessors and advisors to the project.
According to the ELI, while self-regulation through best practice statements has been effective to some extent, it often presumes familiarity and sophistication that not all users possess. There is a growing advocacy for a comprehensive regulatory framework; however, such regulation can significantly alter the financial dynamics for funders and potentially hinder their willingness to participate in regulated territories, thereby impacting access to justice.
The report underlines that increased regulation leads to higher capital and funding costs, advocating instead for a set of 12 key principles. These principles are designed to create a balanced environment where both funders and funded parties can thrive without the constraints of overly rigid legal stipulations. They address contentious issues such as the transparency of funding sources, funders’ financial stability, fee structures, and the extent of funders’ influence over legal proceedings.
The ELI suggests that these principles could be integrated into legislation or applied as ‘light-touch’ guidelines to facilitate enforcement. This approach aims to protect involved parties while maintaining TPLF as a vital contributor to access to justice. It recognises the heterogeneous nature of legal funding needs across various jurisdictions and sectors, cautioning against a ‘one-size-fits-all’ mentality.
In their joint statement, Dame Sara Cockerill and Professor Augenhofer highlighted the dual nature of TPLF as both a beacon for access to justice and a source of complex challenges. They stressed the importance of the project’s guidance in promoting objective consideration across the European Union and other jurisdictions, aiming to safeguard the positive aspects of funding without stifling its benefits.
The ELI’s report advocates for principled guidance over prescriptive regulation in the third-party litigation funding sector, emphasising the need for transparency and fairness over stringent legal constraints.
