Commercial Litigation Funding and a New Legal Costs Landscape


Although you would be forgiven for being misled by its title,the new Legal Aid, Sentencing and Punishment of Offenders Bill marks the government’s adoption of Lord Justice Jackson’s costs reform proposals. This article takes a look at these changes with a particular focus on the growing commercial litigation funding market in the UK, boosted by supportive decisions in the courts and also endorsed by Lord Justice Jackson.

Historical context

Until recently, commercial litigation funding had been held back by the legal issues of champerty and maintenance. A person is guilty of maintenance if he or she supports litigation in which they have no legitimate concern without just cause or excuse. Champerty occurs when the person maintaining another asks for a share of the proceeds of the action or suit. These common law doctrines had been developed as a matter of public policy to prevent what was termed “trafficking in litigation”. Although the Criminal Law Act 1967 decriminalised these acts, contracts amounting to maintenance or champerty remained unlawful.

The Courts

In the last decade, the courts have addressed the issues of champerty and maintenance in respect of third party funders.

Hamilton v Al-Fayed (Costs) [2002] demonstrated the beginning of a more liberal stance of the courts towards third party funding. Here, the Court of Appeal rejected an attempt by Al Fayed to make Hamilton’s financial backers liable for costs of Hamilton’s failed libel action. The court decided that the unfunded party’s ability to recover his costs had to give way to the funded party’s right of access to the courts in order to bring litigation in the first place.

The Court of Appeal gave further judicial steer in Arkin v Borchard Lines Ltd and Others [2005]. This case differed on its facts to Hamilton v Al Fayed as it involved a commercial litigation funder who had financed part of a claimant’s costs of litigation. The court considered it unjust that a funder, who purchases a stake in an action for a commercial motive, should be protected from all liability for the costs of the opposing party if the funded party loses.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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