'Case not yet made' for formal regulation of third party litigation funding, says UK government

Lord Keen of Elie was responding to a written parliamentary question in the House of Lords from Conservative peer Lord Hodgson of Astley Abbots.

In his response, Lord Keen said that the UK market for third party litigation funding "remains at a relatively early stage in its development". For this reason, the government has not yet formally assessed the growing industry's voluntary code of conduct or funders membership of the Association of Litigation Funders of England and Wales, he said.

"The last government gave parliament an assurance that it will keep third party litigation funding under review and this government is ready to investigate matters further should the need arise," he said.

Legal costs expert Keith Levene of Pinsent Masons, the law firm behind Out-Law.com, said that it was no surprise that the "niche issue" of compulsory regulation of third party funders had been deferred.

"It is of no surprise having regard to Brexit and the availability of parliamentary time, that the 'niche issue' of the compulsory regulation of third party funders has been deferred until some point in the future," he said. "It is noted that the 'government is ready to investigate matters further should the need arise'."

"On the basis that third party funding is becoming more common, being used in many types of claims, and is now being actively considered and used by parties with substantial funds but who wish to move litigation cost risk to a third party, as opposed to historically being in the main for impecunious parties, I think this issue and the need to move from voluntary regulation will return for further consideration - although probably not until after the next general election," he said.

Third party funding is the funding of legal proceedings by an entity that is not involved in the dispute, typically in return for a share of the damages received or the settlement sum. A Code of Conduct for Litigation Funders was first published in November 2011 and, although voluntary, is mandatory for funders seeking membership of the Association of Litigation Funders of England and Wales.

The code of conduct was developed by the Civil Justice Council's working group on third party funding, which was set up in response to leading judge Lord Justice Jackson's comprehensive review of civil litigation costs in 2010. Amongst other requirements, Funders that agree to abide by the code are prevented from attempting to influence the litigation, and must agree to pay all debts when they become "due and payable". They must also ensure that they have enough capital to cover all the arrangements on their books for a minimum period of 36 months.