Law Firm Litigation Funding Units: Commercial Sense or Conflict of Interest?

October 5, 2021

Category:

2 min read

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What's going on here?

A growing number of UK law firms are partnering with litigation financers to fund cases.

What does this mean?

Litigation funding is a $39bn global industry and UK law firms are now beginning to see the benefit of using litigation financing solutions. As litigation can be costly and risky, litigation funders have made a business out of backing the cost of the dispute in the hope that if the claim is successful, they will get a share of the winnings. This shifts the risk away from clients and can also increase access to justice. Law firms such as Rosenblatt and DLA Piper have entered into the market either by setting up their own units or partnering with existing litigation funders. 

The prospect of lawyers taking a share of clients’ winnings as payment only became possible in the UK in 2013. Legal recourse aside, law firms are businesses themselves. Law firms are bound to profit commercially from these litigation funding partnerships. The amount that can be borrowed through litigation funding is almost unlimited, which makes incorporating litigation funding units into law firms extremely attractive given the potential pay out.

What's the big picture effect?

These partnerships raise questions concerning whether the reality of blurring the lines between third party funding and law firms funding cases lead to an ethically complicated situation. City firm Mishcon de Reya, well known for its strength in litigation, has recently announced a deal creating a £150m litigation funding unit in partnership with a third-party funder, Harbour Litigation Funding. In anticipation of these concerns, Mischon’s executive chair Kevin Gold has highlighted the importance of the venture with access to justice at its forefront. He highlights this as a move to “support the developing needs of our growing client base”. 

However, lawyers have a duty to act in the best interests of their clients, yet are in partnership with those funding the litigation to potentially profit from the outcome. Funders could pressure firms for a pipeline of cases, indicating an imbalance of power in the three way relationship and a lack of independence on the part of the law firm.

Do the ends really justify the means? There are important factors to consider in the lead up to the coveted result, one being the self-regulation of the sector even with calls for greater transparency. The Financial Conduct Authority endorses some funders but does not police litigation funding. 

This criticism seemingly has not been off-putting, as we can see the trend growing. Nonetheless, funders highlight that courts and competition law agencies could act as competent avenues to act as a check and balance on abusive conduct instead of introducing greater regulation in this area. Yet with courts and agencies overwhelmed with work, can we be sure that there would be enough oversight?

This really brings you to consider whether with litigation funding, law firms are working towards their clients’ goals or toward a return on their investment; or are they one in the same?

Report written by Kerianne Pinney

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