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Key Takeaways from LFJ’s Town Hall on How Litigation Funders Should Respond to the UK Supreme Court Ruling

August 11, 2023

Key Takeaways from LFJ’s Town Hall on How Litigation Funders Should Respond to the UK Supreme Court Ruling

Wednesday, August 9th, LFJ hosted a panel of UK-based litigation funding experts who discussed the recent UK Supreme Court decision, and the potential impacts on the funding industry. The expert panel included: Nick Rowles-Davies (NRD), Founder of Lexolent, Neil Johnstone (NJ), Barrister at King’s Bench Chambers, and Tets Ishikawa (TI), Managing Director at LionFish. The panel was moderated by Peter Petyt (PP), Founder and CEO of 4 Rivers Services. PP: How does this ruling impact the enforceability of LFAs in current, ongoing cases?  And what about LFAs from previously funded and concluded cases?   NRD:  It has a pretty big impact.  First of all, the existing arrangements between clients and litigation funders are going to come under scrutiny, because the lawyers acting for clients are going to have to review their positions. This is not a decision which is making new law, this is a statement of existing law as it has always been, so that review will have to be dealt in the light of the decision. The bigger impact is going to be on concluded cases. That may cause some difficulties. I’m already hearing that there are ongoing discussions on matters that have already concluded, where an agreement that provided for a percentage to be paid to the funder is now being discussed as to whether it should have been paid. That is going to be a distraction, it is going to be an ongoing issue, and I suspect that there will be opportunistic attempts on the part of defendants, in terms of challenging existing litigation funding agreements. So how that concludes, one can only guess, but the reality is, it’s a distraction and disruption, and will be an ongoing issue. PP: Tets, you’re running a fund. You’ve concluded agreements, you’ve got ongoing agreements. How are you proposing to deal with all of this?  TI: Ultimately we are in the business of funding litigation cases, so the world goes on. We can’t stop doing it just on the basis of what may be a speculative risk. What we’re trying to understand here, is the key risks we have. In terms of our book, we don’t have any percentage share of the awards, in relation to proceedings in the CAT. So we’re safe in that regard. But in terms of enforceability, there are some agreements that we’ve had to refute. But obviously, that’s a commercial conversation, and the reality is, people are generally appreciative that they’ve got funding, not ungrateful, so there’s a lot of cooperation. I agree with Nick that generally speaking, the ongoing cases and cases going forward are more manageable. The big distraction will be the concluded cases. My position is slightly more nuanced than Nick’s, in that I think it is a distraction, but I think it’s going to be far less of a risk, partly because the reality is that a lot of funding agreements are entered into in the first place with the purpose of helping claimants that are impecunious. If the claimants have got damages out of it, they are certainly very grateful. Granted, there are some who may not have gotten as much as they wanted because of funding arrangements. But there is the fact that they’ve gone through a very long litigation process. If it was all about money, then some might very well pursue that course of action. But the reality is, most will think twice about going after a funder, and if they do, the chances are that they’ll probably need funding anyway. So if they have to go back to funders, only funders with no interest or claims or willingness to back the industry in the UK would fund those claims. So I think it’s more of a distraction than a real risk. PP: Do you see any consolidation or direct impacts on the consolidation piece, from this judgement?  NJ: I suspect there will be anyway. This comes at a time that is difficult for all funders given the larger macro-environment. This comes at unfortunate timing. However, the hardest knives are forged in the hottest fires. I do think you will see not just consolidation within the industry, but funders looking at where they can best add value, such as portfolio funding or other strategies, so they have a proper niche within the market. Overall, it’s not terminal for the industry by any stretch. It is a bump in the road that is inherent in any growing industry. But I do think that regulatory clarity would help the industry a lot. There is a lot of useful ammunition for ILFA in Lady Rose’s dissenting judgement and in previous judicial comments making well-worded judicial criticism of the legislative patchwork we have in the UK. And I think there could be a very good argument to put forth to a government that I hope could be sympathetic to wishing this industry continues. London is a legal and financial capital of the world, and this industry sits at that nexus. So long term, there is nothing to particularly worry about. To listen to the full panel discussion, please click here.

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Op-Ed Frames Third-Party Litigation Funding as a Cost-of-Living Issue

A new opinion piece argues that legal system abuse, including the rapid expansion of third-party litigation funding, is an overlooked driver of household costs, and calls for federal transparency measures targeting outside investors in litigation.

As reported by the Washington Reporter, Jenn Pellegrino, founder of Defend Forgotten America Action, writes that staged crashes, billboard advertising that omits how attorneys' fees, litigation funders and medical liens consume settlements, and unnecessary medical treatment combine to push costs onto businesses, insurers and ultimately consumers through higher prices and suppressed wages. She argues small businesses absorb the effects most acutely.

Pellegrino singles out third-party litigation funding as "one particularly troubling trend," pointing to the involvement of outside investors, including foreign governments and sovereign wealth funds, and the limited visibility courts and defendants have into who is financing a suit, what influence investors hold, and how recoveries are divided. The civil justice system, she writes, "should not become another financial marketplace where investors place bets on the outcome of lawsuits."

The piece points to state-level disclosure reforms already enacted and to two federal proposals. The Protecting Our Courts from Foreign Manipulation Act would require disclosure of foreign litigation funding and bar foreign governments and sovereign wealth funds from investing in U.S. litigation. The Tackling Predatory Litigation Funding Act would impose a higher tax rate on profits earned by outside investors in litigation.

The op-ed reflects a broader effort by funding critics to recast disclosure legislation as consumer economics rather than a narrow procedural debate.

Commercial

India’s Litigation Funding Market Draws Institutional Investors Despite Regulatory Vacuum

Third-party litigation funding in India remains small but is attracting institutional capital, with domestic and foreign funders building portfolios in a market that still has no central statute, regulator or disclosure requirement.

As reported by Business Standard, active participants include Five Rivers, LegalPay and Singapore-based ELF Partners, while the government examines whether litigation funding can be deployed for insolvency-related claims. The economics are familiar: a claimant with a ₹100 crore claim that would cost ₹5 crore to pursue can transfer that cost to a funder on a non-recourse basis, repaying only from recoveries.

The legal foundation rests on case law rather than legislation. Sameer Jain, managing partner at PSL Advocates & Solicitors, noted that the Supreme Court's 2018 ruling in Bar Council of India v A.K. Balaji held that lawyers cannot fund their own clients but did not bar anyone else, while Maharashtra, Gujarat and Uttar Pradesh amended the Code of Civil Procedure to recognise financiers. In Tomorrow Sales Agency v SBS Holdings, the Delhi High Court declined to treat a funder as a party to arbitration and held that an award could not be enforced against a non-party funder, while stressing that funding should be transparent and not exploitative.

The Ministry of Corporate Affairs' Insolvency Law Committee likewise found no legal bar. Neeha Nagpal, founding partner at NM Law Chambers, described the market as unregulated by statute but governed by contract and precedent, and pointed to voluntary self-regulation through industry bodies as an interim step toward a balanced regime.

Commercial

Four in 10 UK Law Firms Now Open to External Capital, NatWest Report Finds

The share of UK law firms willing to consider outside investment has climbed sharply, according to NatWest's annual legal sector report, with 40% now saying they would actively explore some form of third-party capital.

As reported by Legal Futures, the report analysed 112 law firms with turnover between £1 million and £250 million and a median of £23 million. The 40% figure is up from 29% two years ago. Firms cited growth plans most often, followed by succession management, technology investment and what the report described as opportunistic windfall realisation.

Competition from private equity-backed firms is a growing pressure point. A third of respondents named competition for talent as the most significant challenge posed by PE-backed rivals, while 24% pointed to increased business investment costs. The report, authored by Andrew Allen, partner and head of PKF Francis Clark's national legal sector team, found firms are "pushed to accelerate investment in infrastructure… to compete with externally funded firms which often have the budgets to invest quickly and boldly," while externally funded firms "are seeking to rapidly gain market share which in turn places pressures on work pricing."

Interest on client money has become a meaningful earnings line, at a median 3.7% of earned income and 14% of profit per equity partner, down from 5.6% and 21% respectively. On Ministry of Justice proposals to divert that interest, 29% predicted legal price inflation and 11% forecast firm failures. Allen warned removal would drive significant fee inflation and "most probably the demise of notable volumes of law firms."