Litigation Funding Agreements (Enforceability) Bill [HL] Debate

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Department: Scotland Office
Lord Meston Portrait Lord Meston (CB)
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My Lords, this Bill, and the Supreme Court decision which prompted it, have shone light on the somewhat arcane topic of third-party litigation funding. It is an area with which many legal practitioners frankly have little real familiarity, and with which most of the judiciary only have to deal from time to time. As stated in the Explanatory Notes to the Bill, third-party litigation funding is a niche market which typically operates in high-value claims. That is correct: it is less to do with individual smaller claims and little to do with filling gaps left by the loss of legal aid—on which I join my noble friend Lord Carlile in resisting the temptation to go down memory lane.

A rather cynical friend suggested to me that the speed with which this Bill has been produced shows how much money is at stake. However, in the shorter term, there is a need to limit the adverse consequences of the Supreme Court decision, hopefully including the need to avoid satellite litigation seeking to rectify or sever existing arrangements or to test out new arrangements trying to get round the effects of the Supreme Court decision. That is best achieved, as the Bill proposes, by stating the law to be what many people, including the losing party in the Supreme Court, said it was.

Additionally, there are clearly wider considerations and a need to preserve and improve established benefits of properly managed funding arrangements. If there are any significant concerns about commercial litigation funding, as suggested in a briefing paper that I received only today, they surely must predate the Supreme Court decision and are unlikely to be cured or made worse by this Bill.

Although the Long Title to the Bill will limit the extent of any permissible amendment, the passage of the Bill, distinguishing litigation funding agreements from damages-based agreements, should provide some opportunity to consider both types of arrangement.

Dealing specifically with damages-based agreements, these are governed by regulations made in 2013, about which, in a case in 2021, a member of the Court of Appeal said that nobody could pretend that those regulations represented the draftsman’s “finest hour”.

In a case in which I was recently involved, concerning only matrimonial property and finance, I was particularly concerned, and rather surprised, to see that the legal representative of the former wife had got her to sign what was called a damages-based agreement. The use and the terminology of such an agreement seemed quite out of place and inappropriate in matrimonial proceedings, particularly when there was no question of damages being awarded, but only allocation of the proceeds of sale of the modest family home.

However, in general, I understand that respectable practitioners favour damages-based agreements, which have advantages for both lawyer and client in sharing the litigation risks, with each doing only as well or badly as the other. In 2019, revised draft DBA regulations were produced and were, as I understand it, well received. If so, why have they been left in limbo and what is going to happen to those draft regulations now?

As to third-party funding arrangements, in an article in 2014, Professor Mulheron described the framework governing such arrangements as consisting of the 2014 code of conduct for litigation funders, its supervision by the Association of Litigation Funders, and sporadic judicial oversight of litigation funding agreements, with some unenacted legislation in the background for good measure. The experience of the subsequent 10 years does not indicate to a detached observer any consensus about whether, how and to what extent improvements can best be made.

During the Digital Markets, Competition and Consumers Bill in this House, an amendment proposing a requirement for the Government to review the litigation funding market and its regulation was not accepted by the Government. The Minister then explained that they were not blind to some of the challenges and opportunities to reform and improve the funding system. On that basis, the review by the Civil Justice Council has been commissioned. The Minister has answered the questions that I was going to ask today about the progress and scope of the review being undertaken. I am sure that it will be informed and assisted by the valuable work being done and the formulation of principles undertaken by the European Law Institute. In that context, it would also be instructive to learn what is happening in Scotland.

More generally, I suggest that what will be required will be clarity without overregulation: in particular, with the benefit of hindsight, regulation that does not give rise to the sorts of problems that needed resolution by the Supreme Court and then amending legislation, as we have with this Bill. Importantly, also, it should be regulation that does not hamper or restrict the funding market.

I assume there is no reliable statistical or other information to show how much British litigation is commercially funded by those who are not members of the Association of Litigation Funders. If regulation is to remain with no more than a light touch, it is all the more important that sufficient safeguards exist and are understood to protect the consumer—and important that, wherever possible, those who seek or who recommend funding arrangements are firmly guided towards members of the ALF and funders who adhere to their code of conduct.

In the area of law with which I am most familiar, statute provides that family proceedings cannot be subject to enforceable conditional fee agreements. That, together with the demise of legal aid and also the limited costs jurisdiction, makes the availability of bespoke third-party funding all the more important in financial remedy proceedings. It is not only in the wealthier family cases that funding options have to be explored. Sometimes, a bank loan or a loan from a relative or friend will suffice; but these can give rise to distracting arguments between the litigating parties about whether or not they are so-called “soft loans”.

I need hardly say how depressing it is for the judge at or near the final hearing to be told that the funding has dried up, so that one or other party will have to continue without representation. Typically, but not invariably, it is the wife in matrimonial proceedings, with only limited or illiquid funds, who most needs help, against a spouse with deeper pockets and with the means and motives to conceal assets and to frustrate disclosure and enforcement.

The family judiciary has welcomed the availability of funding arrangements to those who need or choose to use them. I therefore suggest that, in addition to referring the matter of litigation funding to the Civil Justice Council, it could be helpful to invite the views of the Family Justice Council, if only to confirm that no problems exist or are foreseen.

Finally, to return to the contents of the Bill before the House, in his recent article in the New Law Journal Professor Dominic Regan strongly welcomed the introduction of the Bill here and its succinct drafting. Indeed, he wrote:

“I will never again hear a bad word said about those old duffers in the other House”.

As none participating in this debate would admit to anything more than early late middle age, I suggest we return the compliment and should give the Bill a Second Reading.