A recent call by a right-wing think tank urges the Financial Conduct Authority (FCA) to regulate third-party litigation funding (TPLF).
- The Adam Smith Institute demands transparency in TPLF-backed class actions to protect consumers.
- Concerns raised over class action lawsuits allegedly benefiting funders and law firms over consumers.
- The report suggests increased regulation could restore trust and business confidence in the UK’s legal system.
- Critics argue the current legal environment encourages ‘lawfare’ and discourages investment in the UK.
The Adam Smith Institute has issued a report advocating for the Financial Conduct Authority to impose regulatory measures on third-party litigation funding, likening it to other investment products. The report insists on a ‘blanket requirement of transparency’ for TPLF-backed class actions, suggesting that this step is vital for maintaining trust in consumer protection cases, which seem to favour litigation funders and claimant law firms over the consumers they purport to serve.
One particular case that drew attention was the Bates Post Office litigation, where the funder claimed 80% of the damages. Although Sir Alan Bates acknowledged the arrangement’s success from a claimant’s perspective, the report highlights this as a troubling indicator of the underlying issues in TPLF arrangements. This selective representation in the report has been subject to scrutiny, inviting further debate on the matter.
There is an emerging political debate around TPLF, driven by significant lobbying efforts from large businesses, notably the US Chamber of Commerce-backed Fair Civil Justice campaign, which aims to limit the rise of such funding mechanisms. On the other hand, figures like Alex Chalk KC, a former Conservative Lord Chancellor, advocate for TPLF as a ‘force for good’, underscoring its role in supporting equal pay claims for a substantial number of women and holding corporations accountable for consumer overcharging.
The report also criticises recent legislative decisions, such as the failure to reintroduce the Litigation Funding Agreements (Enforceability) Bill before the recent election. The government is currently postponing changes until the Civil Justice Council completes its review, though delays in the interim report have already occurred.
The think tank’s suggestions include prohibiting large foreign ownership in TPLF and enhancing anti-money laundering policies to prevent foreign influence within the UK’s legal system. It argues this is essential to safeguard against the uncontested advancement of non-meritorious claims, which could pressure defendants into undesired settlements. The lack of regulatory oversight is identified as the most critical concern, urging the FCA to apply consistent regulations across sectors with similar characteristics.
The institute further suggests that courts should play a more prominent role in scrutinising litigation funding agreements, facilitated by mandatory basic disclosures. It additionally proposes that litigation funders should be restricted from dictating litigation strategies, and law firm staff should not serve as TPLF directors to prevent conflicts of interest.
Furthermore, the report poses legal aid as a more favourable alternative to TPLF for class action cases, despite the challenges faced by criminal defence law firms threatening to withdraw from legal aid due to inadequate funding.
In summary, the report calls for stringent regulation of third-party litigation funding to restore trust and business confidence, amidst a contentious backdrop of political debate and economic implications.
