Evaluating Common Criticisms of Litigation Funding
The growth of the global litigation finance industry and the success stories from market leaders continues to generate an equally prominent strain of harsh criticism. However, it is always useful to look past the bold statements and fierce condemnations to analyse whether the most frequently voiced critiques are based in reality. An article from UK law firm Shepherd and Wedderburn reviews some of the most common criticisms of third-party litigation funding, examining whether these arguments have real substance and whether critics of the industry are right to claim, ‘that litigation funding is a malign influence on litigation in this country, rather than an aid to access justice.’ The first criticism that the article addresses is the idea that litigation funding promotes meritless claims, with funders portrayed as a driving force behind frivolous lawsuits in pursuit of financial gain. The authors argue that the structure of the UK legal system provides serious disincentives to filing meritless claims, with the principles of ‘costs shifting and punitive damages’ making it a costly endeavour to back lawsuits that have little chance of success. The article acknowledges that whilst weak claims do still exist, funders have little reason to back them and cites the case of Excalibur Ventures v Texas Keystone, where the ‘funders were required to contribute over £20 million towards the defendants’ costs.’ The second argument against litigation funding that is analysed is the claim that ‘funders wrongfully gain control of the claim and that as such, the integrity of the proceedings will be threatened.’ The authors point out that although funders ‘hold the purse strings of litigation’, not only do they not have control over the litigation proceedings, it would also not even be in their interest to exert this level of control. They highlight that ‘control requires monitoring, and monitoring requires personnel’, meaning that there is little reason for funders to want to take on the burden of additional manpower and expenditure to do this, especially when the business model is based on generating solid returns on investments. Finally, the article deals with the critique that funders are profiteering off legitimate attempts to seek justice, pointing out that the scale of the funder’s return in the Post Office litigation caused many outside observers to question why the victims’ share of the award was so reduced. In response, the authors argue that ‘these figures must not be interpreted in isolation’ and must be considered in the context of the myriad of costs that funders cover during the duration of the case. Shepherd and Wedderburn’s article concludes by arguing that despite these common criticisms, ‘litigation funding can enable voices to be heard, articulated, and judged in a way that results in a monetary pay-out for their losses, but also vindication.’
