Up to scratch

The law lords recently handed down their long-awaited judgment in Moore Stephens v Stone & Rolls, a £70m professional negligence claim against the firm of City auditors. While the judgment '“ in favour of Moore Stephens '“ is important, what is also notable is that the case was said to be the largest third party funded claim to be brought to date. It is testament to the growth of third party funding and after the event insurance (ATE) in the commercial litigation field '“ no longer is it the preserve of personal injury lawyers '“ and to the change in commercial firms' attitude toward litigation funding.

Only two or three years ago litigation funding was a relatively new concept for many solicitors and most would have taken the approach that funding options were something that would be mentioned to clients, but as nothing more than a 'tick the box' exercise. In a short space of time, solicitors' attitudes to litigation funding have changed dramatically. A range of factors have contributed, but it is predominantly down to the recession '“ with more clients looking for ways to fund litigation and solicitors keener to help.

It is of course solicitors' duty to inform the client of their funding options, as set out in Rule 2 (2.02 and 2.03) of the Solicitors Code of Conduct. It is a solicitor's duty to appraise clients of the litigation funding options available to them. Whereas previously there may have been a reluctance to address this key issue with clients either because of ethical concerns, ignorance of the range of options or an unwillingness to take on a perceived 'salesperson' for someone else's product. This is no longer the case. Of course, it is not the solicitor's role to sell funding products but a client has a right to be made aware of the options available to them by their solicitor.

Rule 2 falls under the heading of 'Client care' in the Code of Conduct which states that clients are to be given the necessary information to enable them to make appropriate decisions about their case '“ and that includes how they are funded. Given this context, it is clear that a solicitor's duty extends beyond simply mentioning litigation funding. The practitioner must be abreast of all the funding options and product developments so that they can adequately and accurately impart this information to the client.

The sheer scale of products available and the speed at which the market is evolving makes keeping up with the available options a huge challenge. Furthermore, because of the size of the matters they handle, commercial litigators have fewer occasions to explore the market. As a result, they find it more difficult to understand what insurers and funders are looking for and how their business model works. Equally, some insurers and funders lack experience in commercial litigation, and, if they do not fully understand a claim, they will not support it.

Educating future solicitors

Some providers of litigation funding and ATE insurance say that it is this continual innovation in funding that plays a key role in protecting London's position as a world centre for dispute resolution.

'The transparency of our legal system is the envy of the world together with the enforceability of our judgments in other jurisdictions, says Bob Gordon, CEO of 1st Class Legal. 'However, the sheer cost of litigating here makes London a less attractive option than it otherwise would be. The development of the ATE market is going some way to rectifying this, and further innovations in this area are to come.'

To help solicitor stay abreast of developments in the litigation funding market, Gordon's company is even planning an internship scheme with the specific aim of educating future solicitors so they have the information they need to help their clients make an informed choice as to their funding options.

It is now generally accepted that litigation funding is something that is working for the benefit of claimants in litigation '“ indeed Lord Justice Jackson in the preliminary report of his review of civil litigation costs acknowledged the key role of ATE and third party funders, stating: 'It is now recognised that many claimants cannot afford to pursue valid claims without third party funding; that it is better for such claimants to forfeit a percentage of their damages than to recover nothing at all; and that third party funding has a part to play in promoting access to justice...' In fact, most claimants would be better off with at least deferred premium ATE insurance, even if they can afford to litigate without it.

All initiatives to improve understanding between solicitors, insurers and funders are to be welcomed and more litigation funding organisations should work with lawyers so that both are fully informed of the range of options. The new challenge is to make it easier to find insurance and funding for commercial litigation and to reduce the current cost and delay.