Introduction
Third-party funding (TPF) in litigation refers to arrangements where an external party, unrelated to the litigants, provides financial support for legal proceedings in exchange for a share of any successful award or settlement. This practice has gained prominence in the UK legal system, particularly following reforms aimed at improving access to justice, such as those recommended in the Jackson Review (Jackson, 2010). However, TPF raises significant ethical concerns, including potential conflicts of interest, the risk of champerty and maintenance, and issues surrounding transparency and control over litigation. This essay, written from the perspective of a law student exploring civil procedure and legal ethics, examines these ethical issues. It begins by outlining the benefits and drawbacks of TPF, then delves into key ethical challenges, supported by academic analysis and examples from UK case law. The discussion highlights how TPF can enhance access to justice while posing risks to the integrity of the legal process. Ultimately, the essay argues that while TPF is ethically justifiable in principle, robust regulation is essential to mitigate its downsides.
The Role of Third-Party Funding in Access to Justice
One of the primary ethical justifications for TPF is its potential to promote access to justice, a cornerstone of the UK legal system as enshrined in the Civil Procedure Rules (CPR). Indeed, for claimants lacking financial resources, TPF can level the playing field against well-funded defendants, such as large corporations. For instance, in high-stakes cases like group litigation orders (GLOs), funders enable collective actions that might otherwise be unfeasible due to costs (Hodges, Vogenauer and Tulibacka, 2010). This aligns with ethical principles in legal practice, where solicitors are duty-bound under the Solicitors Regulation Authority (SRA) Code of Conduct to ensure clients can pursue meritorious claims without undue financial barriers.
However, this benefit is not without ethical tension. Critics argue that TPF introduces a profit-driven motive into litigation, potentially commodifying justice. Funders, often investment firms, prioritise cases with high return potential, which may exclude socially important but low-value claims. As Kalajdzic (2014) notes, this selectivity could exacerbate inequalities, favouring commercial disputes over, say, environmental or human rights cases. Furthermore, the ethical dilemma arises when funders influence case selection, arguably undermining the lawyer’s independence. In the UK context, the case of Arkin v Borchard Lines Ltd [2005] EWCA Civ 655 illustrated this, where the court capped a funder’s liability to encourage TPF, yet highlighted concerns over funders escaping full accountability. Thus, while TPF arguably enhances access, it risks transforming litigation into a financial gamble, raising questions about whether justice should be contingent on commercial viability.
Conflicts of Interest and Control Over Litigation
A central ethical issue in TPF is the potential for conflicts of interest, particularly regarding who controls the litigation strategy. Typically, funders require a degree of oversight to protect their investment, such as veto rights on settlements. This can clash with the solicitor’s duty to act in the client’s best interests, as outlined in the SRA Principles (Solicitors Regulation Authority, 2019). For example, a funder might push for an early settlement to secure quick returns, even if the client prefers to pursue a trial for vindication or higher damages. Such scenarios pose ethical risks, as they may compromise the lawyer’s professional judgment.
Evidence from academic sources underscores this concern. Bogart (2013) argues that TPF can create agency problems, where the funder’s interests diverge from the claimant’s, leading to suboptimal outcomes. In the UK, the Association of Litigation Funders (ALF) Code of Conduct attempts to address this by mandating that funders do not take control of the litigation (Association of Litigation Funders, 2018). However, enforcement is voluntary, and breaches could undermine public trust in the legal system. A notable example is the Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144 case, where the court criticised funders for excessive involvement, resulting in adverse costs orders. This demonstrates how unchecked control can lead to ethical lapses, such as encouraging speculative claims that clog the courts. Therefore, while TPF funders provide necessary capital, their influence necessitates ethical safeguards to preserve the integrity of legal representation.
Champerty, Maintenance, and the Evolution of Legal Doctrines
Historically, TPF was prohibited under the doctrines of champerty and maintenance, which deemed it unethical to fund litigation for profit without a legitimate interest. Champerty involves sharing in the proceeds, while maintenance refers to supporting a lawsuit without cause. These doctrines, rooted in common law, aimed to prevent frivolous suits and protect the administration of justice (Legg, 2011). In the UK, statutes like the Criminal Law Act 1967 abolished criminal penalties for these practices, paving the way for modern TPF. Nonetheless, ethical residues persist, with courts retaining discretion to deem arrangements champertous if they corrupt the judicial process.
Contemporary ethical debates question whether TPF revives these archaic concerns in a modern guise. For instance, if a funder finances a weak claim solely for profit, it could encourage ‘fishing expeditions’, wasting judicial resources and pressuring defendants into settlements. Mulheron (2015) evaluates this in the context of class actions, suggesting that while TPF facilitates collective redress, it risks ethical abuse if funders exploit asymmetric information. The UK Supreme Court’s decision in Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm) upheld a funding arrangement, indicating judicial acceptance, but emphasised that ethical boundaries must prevent undue influence. Arguably, this evolution reflects a pragmatic shift, yet it underscores the need for ongoing ethical scrutiny to ensure TPF does not revert to the abuses champerty sought to curb.
Transparency and Disclosure Requirements
Transparency is another ethical imperative in TPF, as undisclosed funding can distort the litigation process and raise fairness concerns. Ethically, parties should know if an opponent is backed by a funder, as this might affect strategy, such as assessing the risk of costs awards. In the UK, there is no statutory requirement for mandatory disclosure, unlike in some jurisdictions like Hong Kong. This lack can lead to ethical issues, including hidden conflicts or unequal bargaining power during negotiations.
Scholarly analysis highlights the implications. Steinitz (2011) advocates for disclosure to mitigate information asymmetries, arguing it upholds procedural justice. The ALF Code encourages voluntary disclosure, but compliance varies (Association of Litigation Funders, 2018). In practice, courts may order disclosure in specific cases, as seen in Wall v Royal Bank of Scotland [2017] EWHC 100 (Comm), where funding details were revealed to assess liability. However, without universal rules, ethical risks persist, such as funders anonymising their involvement to avoid reputational damage. Generally, enhancing transparency could resolve these issues, fostering trust and ensuring TPF aligns with ethical standards of openness in litigation.
Conclusion
In summary, third-party funding presents a double-edged sword in the UK legal landscape, offering enhanced access to justice while engendering ethical challenges such as conflicts of interest, remnants of champerty, and transparency deficits. As discussed, cases like Arkin and Excalibur illustrate both the potential and pitfalls, supported by analyses from scholars like Hodges and Mulheron. The ethical implications suggest that while TPF can democratise litigation, it requires stringent regulation—perhaps through mandatory disclosure and stricter ALF oversight—to safeguard the legal system’s integrity. For law students and practitioners, understanding these issues is crucial, as they highlight the tension between commercial innovation and ethical purity. Ultimately, balanced reforms could ensure TPF serves justice without compromising its foundational principles, promoting a more equitable but ethically sound framework for civil litigation.
References
- Association of Litigation Funders (2018) Code of Conduct for Litigation Funders. Association of Litigation Funders.
- Bogart, C. (2013) ‘Third-Party Financing of Class Action Litigation’, in D. Hensler (ed.) Class Action Dilemmas. RAND Corporation.
- Hodges, C., Vogenauer, S. and Tulibacka, M. (eds.) (2010) The Costs and Funding of Civil Litigation: A Comparative Perspective. Hart Publishing.
- Jackson, R. (2010) Review of Civil Litigation Costs: Final Report. The Stationery Office.
- Kalajdzic, J. (2014) ‘Third-Party Litigation Funding Reform: A Canadian Perspective’, Alberta Law Review, 52(2), pp. 295-320.
- Legg, M. (2011) ‘Reconciling Litigation Funding and the Opt Out Group Definition in Federal Court of Australia Class Actions’, University of New South Wales Law Journal, 34(3), pp. 895-918.
- Mulheron, R. (2015) ‘England’s Unique Approach to the Self-Regulation of Third Party Funding: A Critical Analysis of Recent Developments’, Cambridge Law Journal, 74(3), pp. 570-597.
- Solicitors Regulation Authority (2019) SRA Principles. Solicitors Regulation Authority.
- Steinitz, M. (2011) ‘Whose Claim Is This Anyway? Third-Party Litigation Funding’, Minnesota Law Review, 95(4), pp. 1268-1338.
