The claims management regulator is to be asked to take on the regulation of third-party litigation funders, the Gazette can reveal.


A management group set up by the Civil Justice Council (CJC) is drafting proposals to introduce 'light-touch' regulation of funders and other measures to ensure the development of third-party funding.



The group is made up of representatives from the CJC, Law Society, Solicitors Regulation Authority (SRA) and Financial Services Authority, as well as leading costs barrister Jeremy Morgan QC and three funders: solicitor Susan Dunn of Harbour Litigation Funding, Brian Raincock of Commercial Litigation Funding, and Christian Steurwald, who heads the London office of German funder Allianz ProzessFinanz.



CJC chief executive Robert Musgrove said the group was looking at the main licensing requirements - relating to ethics, best practice and financial security - while the Law Society and SRA are considering possible changes to the Code of Conduct to ensure solicitors are not prohibited from working with funders.



However, Kevin Rousell, head of claims management regulation, indicated that the Ministry of Justice would take some convincing. 'All we have said is that the Compensation Act offers the potential for a regulatory regime should third-party funders start to manage cases, as well as simply providing the funding,' he said. 'However, if funders started to do this in personal injury cases, such as group actions, they would fall within the jurisdiction of the current regulatory system anyway. For any explicit extension of regulation, a robust case would need to be put forward. The first step for the industry must be a self-regulatory one.'



At the request of the Master of the Rolls, Sir Anthony Clarke, the CJC is also working on advice to the Civil Procedure Rule Committee that there should be a presumption that, where a party is funded by a commercial funder, the case-managing judge should direct under his existing powers that there be a security for costs hearing.



The proposals will be discussed at an industry summit in July, ahead of providing advice to the government. It will also examine the guidelines laid down by the Court of Appeal in Arkin v Borchard Lines [2005] EWCA Civ 655, which stated that a professional funder should be potentially liable for the costs of the opposing party only to the extent of the funding provided, rather than the entire costs.



Musgrove explained that stakeholders 'will test the utility of the Arkin principles'.



Neil Rose