First code of conduct for third-party litigation funders published

The new Code of Conduct for Litigation Funders (3-page / 27KB PDF) will be voluntary, however compliance will be mandatory for funders seeking to join the newly-formed Association of Litigation Funders of England and Wales.

Membership of this new Association will be open to bodies which are funding or have previously funded disputes in England and Wales, and which can demonstrate their compliance with the Code, on payment of an application fee. The Association will promote best practice in litigation funding, and will regulate compliance with the Code by its members.

The Code was developed by the Civil Justice Council (CJC) 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.

Presenting the new Code to a gathering of litigation funders last week, Lord Justice Jackson said in a lecture that he suspected solicitors would advise their clients only to enter into funding agreements with funders who signed up to the Code and agreed to comply with its provisions.

"Today's publication of the Code will mark the satisfactory implementation of [my recommendations], provided that all reputable litigation funders are willing to join the Association of Litigation Funders and sign up to the Code. My understanding is that they are so willing," he said.

Third party funding, or litigation funding, is where a person or business who has no other connection with a case agrees to fund the costs of a party's case in return for a share in the proceeds if that party is successful.

Funders who agree to abide by the code will have to agree to "pay all debts when they become due and payable", and must ensure they have enough capital to cover all the arrangements on their books for a minimum period of 36 months.

They must also agree not to terminate a funding agreement "without good reason".

The Code also contains express provisions preventing the funder from attempting to control the litigation, and ensuring the party to the dispute "receives independent advice" on the terms of the funding agreement, usually from that party's solicitor.

Keith Levene, a litigation costs expert with Pinsent Masons, the law firm behind Out-Law.com, welcomed the new Code of Conduct but said that it would be preferable if the Code applied to all litigation funders on a mandatory basis.

"This code of conduct is vitally important for third party funders. However I would prefer to see mandatory standards adopted, in line with other regulatory regimes - bearing in mind that these funders are dealing with substantial sums of money that quite often run into the millions of pounds," he said.

"Third party funding should be considered as just one of a range of funding options that transfer the risk of heavy litigation costs and so improve access to justice, along with others such as conditional fee agreements and litigation costs insurance," he said.

CJC chair Lord Neuberger of Abbotsbury said the Code would "help to foster standards of best practice" and "promote greater transparency" among litigation funding providers, for the benefit of the parties to court proceedings who use those services.

"It is now for the litigation funders themselves to make the Code, and their new Association, a success – I wish them well," he said.