Litigation Funding: what is it good for? Apparently something

Litigation is expensive, but access to justice remains a vital pillar of our legal system. The UK government has attempted different approaches over the years, with litigation funding remaining a presently shaky but overall solid solution.  

25 January 2024

Lawyers with paperwork and calculator

The government struggling with access to justice is nothing new. Access to justice may be a vital pillar of the rule of law but it is expensive, both directly and indirectly.

The quality of the legal advice to which a disputant has access still influences the outcome of a dispute, despite how much effort has been invested into simplifying dispute processes. Ensuring equality of arms therefore remains a core component of delivering access to justice, but lawyers have a pesky insistence on being paid, and paid well.

For years, the UK government has gradually restricted its direct costs: it still needs to pay its own lawyers, but by constantly eroding legal aid it doesn’t pay as many lawyers for other people, and when it does it’s not paying as much.

However, in a country where costs shifting is the norm, the government has struggled to contain its indirect costs. Take for example the government’s recent announcement of a costs cap in low damages clinical negligence claims. The press release openly cites the government’s rising liability for adverse costs as its motivation:

During the past 16 years claimants’ legal costs have risen four-fold for claims of up to £25,000. The amount spent by NHS England on clinical negligence claims has also risen from £0.6 billion to £2.6 billion despite the number of claims remaining stable.

This has created a situation where the claimant’s legal costs are disproportionate and on average double what the claimant themselves receives.”

In 1995 Conditional Fee Agreements, the government’s first attempt to find a replacement for legal aid, were introduced but proved disastrous in reducing its overall legal cost. The spiralling costs prompted the Jackson reforms in 2009, which removed the recoverability of success fees and After The Event (ATE) insurance premiums in most types of litigation. Lord Justice Jackson identified litigation funding as one of the methods that should be used to rebalance the restriction of access to justice caused by the change.

Since then, it has been possible to see two concurrent, though somewhat inconsistent, trains of thought developing about litigation funding. The first is that litigation funding can only be accessed by, and therefore only benefits, the rich, which means that it does nothing to promote access to justice. The second is that litigation funding promotes the wrong kind of access to justice: claims devised and promoted by litigation funders principally for their own benefit. If the majority of the Supreme Court were influenced, consciously or not, by a concern about litigation funding in reaching their decision in PACCAR, the latter is likely the core of their concern.

We’ve worked in the litigation funding market for well over a decade now, and there is undoubtedly something to the first suggestion. For every potentially actionable enquiry we receive about litigation funding, we turn away many, many more where the economics of the claim could not conceivably work. Those economics mean that, to date, litigation funding has made relatively small inroads into large areas of the disputes market.

Innovation and maturation of the litigation funding market will likely lead to gradual change in this current reality. But in the meantime, The Post Office Group Litigation stood as a poster child for litigation funding, showing that, in the right circumstances, it absolutely could deliver access to justice for those otherwise struggling to secure it.

Mr Bates, the lead claimant in the group proceedings (and a growing celebrity in his own right, given the success of ITV’s dramatisation Mr Bates vs the Post Office), recently acknowledged the necessity of litigation funding in an interview with the Financial Times. His words doubtless will be welcomed (and encouraged) by a litigation funding industry struggling with the aftermath of the Supreme Court’s decision in PACCAR (which found the most common form of Litigation Funding Agreement in the market at that date to be unenforceable).

Whilst Mr Bates’ words undoubtedly support the litigation funding cause (and counteract the impact of the first suggestion), his actions have more ambiguous implications when it comes to the second suggestion.

Alongside other similarly affected sub-postmasters, Mr Bates is actively seeking to re-open the financial terms of the settlement in The Post Office Group Litigation. The claimants settled for £57.75 million, but now feel that this sum was too small. There are undoubtedly many reasons for this, but one of them must be due to the proportion of the settlement sum ultimately paid to Therium, the claimants’ litigation funders.

Mr Bates does not appear to be complaining about this fact. After all, as he acknowledges, without the benefit of the litigation funding in the first place, it seems unlikely that the claimants would have managed to secure anything from the Post Office. A proportion of something is better than all of nothing.

The presence of litigation funding has likely had a significant influence in the timing of the settlement. Given the scorched earth approach to the proceedings that the Post Office adopted, the claimants continuing to fight in the hopes of a larger settlement was probably not commercially sensible. They would have needed more funding from Therium, which likely would have negated the benefits of a better settlement or judgment.

But what is the solution? In arbitration, there is precedent for a claimant to receive legal cost reimbursement as a part of their recoverable costs. There is no such equivalent in litigation. If he was ever asked (which I do not believe he was), Mr Justice Fraser could not have required the Post Office to pay Therium’s costs.

Introducing the ability for judges to award the costs of litigation funding as part of recoverable costs would, in a way, be perverse, because litigation funding is but one of a number of non-recourse ways that claimants can fund litigation. It is also, normally, the most expensive. Alternative means include Conditional Fee Agreements and ATE insurance. The courts have tried adding success fees and premiums onto those funding such arrangements recoverable as legal costs, and it was a disaster.

They say hard cases make bad law. The Post Office Group litigation may be just that: a hard case that has the potential to make bad law. That is not to say that more should not be done to help the victims of the scandal. Just that perhaps we should not evaluate the economics of the civil justice system based on its consequences. Hopefully, scandals like it will remain a rarity.


If you have queries regarding litigation funding and how we can help, please contact us through our enquiry form or reach out to Partner Ben Pilbrow directly.