Litigation Funding 2024

Litigation Funding: A Global Overview

Litigation funding is the provision of capital by a third party where the returns on that capital are linked to the outcome of a legal dispute. Legal services have traditionally been billed hourly or – in some jurisdictions and for some types of claim – by way of contingency fee, where a lawyer is paid a share of its client’s recoveries but charges nothing if no recovery is made. Litigation funding is a hybrid that allows those with good claims to bring them without having to foot the bill if the claim is unsuccessful and without requiring lawyers to reach into their own pockets to absorb all the costs of running the claim to conclusion.

Litigation funding has existed in its modern form for less than three decades.  In that short time, it has grown from a recherche cottage industry into a highly sophisticated market, reflecting its pivotal role in providing access to justice and altering the power balance in legal disputes. In the earliest days, the overwhelming majority of users were impecunious; now multinational corporations and law firms embrace the use of funding to unlock hidden assets and improve their bottom line. The amount of capital available to deploy on claims is now estimated at USD13 billion and is projected to exceed USD50 billion by 2035. Portfolio funding and, in some jurisdictions, third-party investment in law firms were unheard of two decades ago but are now routine. And in its early years, the industry was seriously active in only two jurisdictions whereas now funding is available for claims in the vast majority of stable legal systems and arbitration centres globally.

The past 12 months will be remembered as a period of great change in the litigation funding industry. In the UK, the Supreme Court held that, where a litigation funding agreement calculates the funder’s return by reference to the level of damages in a claim, the agreement is subject to the same strict regulations as legal fee agreements. One consequence has been a wholesale shift in the pricing of funding agreements in UK claims where funders are now offering pricing based principally on a multiple of their invested capital. The television show “Mr Bates v The Post Office” raised the profile of litigation funding and led to assurances from a number of politicians that Parliament will reverse the Supreme Court decision, but it is unclear whether the government will have sufficient legislative time to implement meaningful change in an election year.

Across the Channel, the European Parliament recommended that the Commission draft legislation to regulate third-party funding, including capping returns to funders at 40% of any damages. No legislation has yet been introduced as the Commission has indicated it will first conduct a mapping study of the current funding landscape across member states. On the other hand, the EU Directive on Representative Actions required member states, by June 2023, to have in place at least one procedural mechanism to allow consumers to seek collective redress in certain cases. Though implementation remains a work in progress in many member states, almost all those jurisdictions that have implemented some form of redress have recognised the centrality of funding to mass consumer claims of this sort. The Netherlands continues to burnish its reputation as a key European centre for mass claims, with the first “opt out” class actions having been certified under the WAMCA legislation. Ireland, where funding remains prohibited, is something of an outlier but even there the Irish Law Reform Commission in December concluded a consultation on litigation funding that is widely expected to recommend legal and policy changes to permit funding at least in certain cases. 

In the United States, the role of regulation is mostly debated state-by-state. 2023 has seen a continued focus on whether plaintiffs can be required to disclose their funding arrangements. While there remains no general obligation to disclose funding arrangements in federal court, some district courts have required disclosure in certain circumstances. The State of Montana signed a statute into law requiring plaintiffs to provide disclosure of any funding relationship in civil cases before the Montana courts and Florida appears poised to pass similar legislation. But other states have considered but rejected (or indefinitely postponed) similar legislation. Undoubtedly there will be further development in this area in 2024 and beyond.

The US also remains the principal jurisdiction where attorneys are able to work on contingency fee arrangements, which ought to lend itself to innovative use of capital from funders. However, strict prohibitions on fee sharing with non-lawyers have constrained funders from offering to US attorneys some of the products and pricing structures that are widespread elsewhere. The removal of the prohibition on third-party ownership of law firms in isolated states may be a sign that the fee-sharing prohibition will be loosened more broadly, but it is highly unlikely that we will see major change in the near future.

As the industry has matured and the range of jurisdictions where funding is available has widened, different legislative approaches have proliferated. Different jurisdictions may take radically different approaches to fundamental legal, regulatory and ethical issues including the management of funded claims, disclosure, adverse costs, security, consumer protection, fee-sharing and taxation. As a result, the need for robust, reliable guidance on the framework within which funding may be provided has become essential. This guide provides that guidance in a pithy, authoritative format for most major jurisdictions in which funding is used. It will be a vade mecum for all responsible funders, legal practitioners and scholars.