In a fair society, access to legal advice and justice should be available to everyone, regardless of their personal circumstances or income. However, this is not always the case, as unmet legal needs continue to be a problem, as shown by the Legal Services Board’s (LSB) own research.
When justice takes the form of litigation, third-party funding by financial institutions can cover the legal costs of a case in exchange for a share of any awarded damages or settlements. However, the growth of this industry is becoming detrimental to consumers, as some funders and lawyers prioritise their profits over claimants’ interests.
There is a concerted effort to make litigation synonymous with access to justice. As well as a concerning trend of pushing for litigation even when consumers have not suffered significant harm, leading to court congestion and diverting resources away from other important matters such as job creation and innovation. In some class actions, consumers may be unaware that they are even part of the lawsuit, as they are party to the case unless they opt out. Growth of these claims has been very rapid, with over 230 million members of competition class actions in the UK compared to 46 million in 2017.
With lawyers’ fees and funders’ being deducted from sums that would otherwise go to consumers, the class members face the risk of receiving only a small portion of their compensation. In the UK’s Post Office Horizon scandal, for example, postmasters only received 20% of the £58 million settlement, leading the government to create an additional taxpayer-funded compensation scheme.
Though the UK was home to the majority of the class actions in Europe between 2016 and 2020, legislators elsewhere are taking action to regulate litigation funding and protect consumers. The European Parliament recently voted by an overwhelming margin to adopt a resolution that recommended a series of safeguards for private funding of litigation. These include a licencing regime and regulatory oversight, a fiduciary duty on funders towards claimants, disclosure requirements for funding agreements, a guaranteed reasonable share of the compensation for claimants and a duty that they are paid ahead of any funders.
Litigation funding has the potential to support consumers in accessing justice, but the two are not directly equivalent and litigation is an expensive and inefficient process with costs ultimately borne by consumers . Litigation funding is a relatively young and unregulated industry. Only 14 funders have signed up to the Association of Litigation Funders, which has powers to fine members £500 or expel them if they violate the voluntary code of conduct.
Fair Civil Justice (FCJ) has been working to protect access to justice by raising awareness of the growth of a litigious culture in the UK and how this is impacting British courts, consumers and businesses. We do not seek to ban litigation funding but wish to ensure that claimants are protected and receive adequate compensation.
FCJ supports a licensing regime, oversight and adequate capital requirements similar to banks and insurers. Funding agreements should be disclosed to at least the judge so he/she can establish if there is a conflict of interest and ensure claimants will receive a reasonable share of the settlement or award. In the present unregulated environment, consumers don’t know if their interests are prioritised – in other words, it’s not clear if the case will promote access to justice for claimants or rather will deliver access to profit for funders and lawyers.
This article originally appeared on the Legal Service Board’s Reshaping Legal Services website, here.
