The launch of the new voluntary code of conduct for litigation funders at the Royal Courts of Justice last night was described as a ‘watershed moment’ by Leslie Perrin of funder Calunius Capital, who will chair the new Association set up to police the code.
Another founder member, Susan Dunn of Harbour Litigation Funding, said the sector had finally ‘emerged from the shadows’.
But the mood at the launch party was slightly dampened by the knowledge that four Liberal Democrat peers have just tabled an amendment to the Legal Aid, Sentencing and Punishment of Offenders Bill, which seeks statutory - rather than voluntary - regulation of the sector.
The peers (Lords Thomas, Macdonald, Phillips and Carlile) want regulation of the sector by government. As Lord Thomas said during the Lords’ debate on the legal aid bill on Monday, ‘I shall table amendments to continue [the] fight against the creeping advance of third-party litigation funding, which used to be called maintenance and champerty, to introduce regulation into a completely unregulated field.’
The fear among funders is that heavyweight government regulation may prevent third-party funding, which is still relatively young with very few players having entered the market, from growing.
As Michael Napier, the eminent solicitor who brokered the deal on the wording of the code - which went through 12 drafts in the past 6 months alone - questioned last night: ‘Do we really need statutory regulation for such a small and nascent market? That is for others to decide.'
Some of those present last night felt that the amendment has little chance of success; even if it were passed in the Lords, it would be unlikely to succeed in the Commons. There seems to be little appetite from government to regulate the sector, and it has greater priorities at present.
As for the voluntary code, it received a crucial stamp of approval from Lord Justice Jackson last night. The Court of Appeal judge, who has recommended self-regulation by the industry but had been unimpressed by previous versions of the code, said he was satisfied with the beefed up provisions aimed at ensuring that funders have enough capital to cover all their liabilities, and that there are fair rules in place to govern when they may withdraw funding.
While it appears to have proved difficult to reach agreement on the wording of the code among funders, with amendments being made right up until the day it was made public, the prospect of a launch event at which the code would be endorsed by both Jackson LJ and the Master of the Rolls, with all the positive publicity that would entail for the litigation funding sector, clearly concentrated minds.
In his review of civil litigation, Jackson suggested that third-party funding - which is still in its infancy and, if allowed to grow, has the potential to provide a valuable resource for access to justice in the light of other civil justice reforms - should be allowed to regulate itself, with statutory regulation a possibility for later down the line, if the market expands.
That must surely be the right approach. In this new code of conduct, litigation funders now have a clear set of rules by which they must abide if they want credibility. Government should see how this develops before swooping in with statutory regulation that risks smothering this potentially valuable source of funding before it has really got off the ground.
See the next issue of Litigation Funding magazine for an analysis of the new code of conduct.
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