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The 6th edition of The Third Party Litigation Funding Law Review, featuring a variety of global litigation funding jurisdictions and edited by Simon Latham, is now available to read.

The Third Party Litigation Funding Law Review is an annual guide to the law and practice of third party funding in jurisdictions where it is reasonably well-established.

With a focus on significant recent cases and developments, it examines the key features of the legal and regulatory regimes governing funding agreements, as well as practical considerations when structuring these agreements.

Read the United Kingdom – England & Wales entry (Simon Latham & Glyn Rees) below:


Market overview

The third party funding (TPF) industry in England and Wales has now grown to become the second-largest TPF market in the world, allowing market participants to deploy more capital. According to research undertaken by law firm Reynolds Porter Chamberlain in June 2022, UK litigation funders’ assets hit a record £2.2 billion last year, an 11 per cent increase on the previous year. This means that UK litigation funders’ assets have increased by more than 10-fold in value over the past decade (from £198 million recorded in 2011/12).

Without TPF a number of high-profile claims that have attracted a great deal of publicity from the general press may not have been pursued. By way of example, the benefits of TPF were highlighted by a funder backing the 39 sub-postmasters whose criminal convictions were quashed last year. This has now resulted in the government setting up a compensation scheme for those individuals who were wronged. In the Competition Appeal Tribunal (CAT), TPF continues to be instrumental in facilitating the pursuit of both opt-in and opt-out representative actions – ushering in a new era for class actions in the jurisdiction.

As detailed below, however, the adverse costs regime in this jurisdiction presents a significant risk to claimants and funders alike, as was illustrated by the much-cited Excalibur case, where inexperienced funders were found jointly and severally liable for adverse indemnity costs to the tune of £32 million. The Arkin cap was applied, but included in this calculation was the £17 million provided to Excalibur to enable it to provide security for costs, which the judge decided was an investment in the claim, akin to the money provided to pay the claimant’s costs. Clarity has also been provided by the court regarding applications for security for costs, against a claimant who is receiving TPF.

Legal and regulatory framework

i The Association of Litigation Funders
The market in England and Wales is largely dominated by the Association of Litigation Funders’ (ALF) members – Augusta Ventures, Asertis, Balance Legal Capital, Burford Capital, Harbour, Innsworth, Omni Bridgeway, Orchard Global Asset Management, Redress Solutions, Therium, Vannin Capital (now assimilated into the Fortress Investment Group) and Woodsford Litigation Funding. Outside the ALF, other well-known names in the market include Bench Walk Advisors, Litigation Capital Management and Manolete. Additionally, certain family offices and global private equity firms and hedge funds have TPF divisions.

It should be noted that a number of the judgments that have taken issue with a funder’s approach or the litigation funding agreement have concerned non-ALF members.

ii A historical perspective
Historically, TPF was not allowed on the public policy ground that third party involvement could discredit the purity of justice on the basis that the third party, tempted by potential personal gain, could manipulate or manufacture evidence or inflate damages. TPF in England and Wales has developed against the backdrop of the modernisation of the common law principles of maintenance and champerty, the scope of which is now limited through statutory amendment and case law. For a funding arrangement to now amount to maintenance or champerty, it would have to contain a degree of impropriety such as ‘wanton and officious’ meddling, disproportionate control or profit, or a clear tendency to corrupt justice. Various Court of Appeal decisions from 2002 and 2005 have made it clear that properly provided TPF would not offend maintenance and champerty rules, which, followed by Lord Jackson’s influential costs review, cemented the position.

iii Regulation in England and Wales
The ALF is the independent body appointed by the Ministry of Justice to deliver self-regulation of litigation funding in England and Wales. The ALF’s stated aim is to ensure best practice and ethical behaviour among litigation funders, working to improve the use and application of litigation funding as part of the rational management of financial risk in dispute resolution and actively shaping the law and regulation of TPF.

The current English legal framework consists of the Code of Conduct for Litigation Funders (ALF Code), its supervision by the ALF and periodic judicial oversight of funding arrangements and agreements, all of which are considered below. Copies of the ALF Code and the ALF’s independent complaints procedure can be found on its website.

iv The ALF code
The Code of Conduct for Litigation Funders in England and Wales was first published by the Civil Justice Council (an agency of the UK’s Ministry of Justice) in November 2011 to address the concerns around what was then a new industry. The Code delivered on the Jackson reports’ recommendation for self-regulation of TPF and a desire to see a fair balance between the interests of funder and funded client. The Code has subsequently been revised and updated.

The ALF Code provides various protections to litigants who contract with the ALF’s funder members and it has received judicial endorsement, most recently in the CAT. The ALF Code requires funders to:

a. maintain adequate financial resources to meet their funding obligations. ALF funder members must have a minimum of £5 million of capital and be verified by a third party as able to cover their liabilities for 36 months;
b. take reasonable steps to ensure that the funded party shall have received independent advice on the terms of the litigation funding agreement (LFA);
not take any steps that cause or are likely to cause the funded party’s lawyers to act in breach of their professional duties;
c. not seek to influence the funded party’s lawyers to cede control or conduct of the dispute to the funder;
d. not include in any LFA a right to terminate the LFA at the pure discretion of the funder (as this is seen as a potential shortcut to control of the claim);
e. behave reasonably in exercising rights to terminate for material breach of the LFA by the funded party or because the claim is no longer viable, if such rights are included in the LFA. This is achieved through a mechanism in the LFA, referring such a decision to an independent KC for a binding opinion; and
f. in relation to approval of settlements, the LFA must state whether (and if so, how) the funder may provide input to the funded party’s decisions in relation to settlements. Funders will include a right to be consulted about any settlement opportunities that may arise during a funded case to ensure the claim is being conducted in an economically rational manner. In the event of a dispute about settlement, an independent KC may give a binding opinion.

Structuring the agreement

i The litigation funding agreement
The essence of most LFAs is the funder’s promise to pay the claimant’s legal costs in exchange for a share in the proceeds, should the claimant win. Conditions to the funding will be set out in the LFA, including obtaining an insurance policy to cover adverse costs and obtaining the necessary corporate authorisations from the claimant. Both parties give undertakings to the other; in the claimant’s case that it has obtained independent advice on the funding documents and as to the veracity of information it has provided on applying for funding. The claimant also undertakes to devote the necessary time and resources in pursuing the claim in good faith. The funder agrees to pay the claimant’s legal costs in accordance with the agreed budget (ordinarily in the form of a Precedent H appended to the LFA).

An LFA will set out the order of payments (also known as the waterfall) on a successful outcome between the funder, claimant and, depending on the circumstances of the case, the after-the-event (ATE) insurer and lawyers instructed on a contingent fee agreement. The waterfall can also be set out in a priorities deed.

There may be a need for further collateral documents. The circumstances of some funding transactions may require a creditors’ and shareholders’ standstill agreement or, if the funded party is a corporate, the funder may wish to take security over the proceeds of the claim, bearing in mind that the transaction is non-recourse other than to the proceeds. This type of security has come to particular prominence in the wake of covid-19 and the ensuing financial turbulence that corporates face (beyond the litigation) during the lifetime of their claim.

ii Representative actions
Beyond the considerations in a ‘typical’ LFA, a growing body of jurisprudence on third party funding issues is emerging from the collective actions (class actions) regime in the CAT, especially in the context of opt-out claims. These issues have come to the fore as defendants have attacked LFAs in an attempt to undermine the class certification process. These attempts have largely been unfruitful, in part because funders have been allowed to amend the LFA following guidance from the CAT in response to arguments brought by defendants. Nonetheless, the jurisprudence highlights specific areas that may influence both the terms and conditions a funder includes in its LFA, as well as potentially the corporate structure through which a funder provides the funds. More fundamentally, the jurisprudence on these issues underlines the role that the CAT plays in determining what are appropriate funding terms and structures, regardless of what a funder may have agreed with a prospective class representative. In particular, the CAT has considered issues such as the priority of payments (in relation to the funder and the underlying class members), the adequacy of a funder’s funds, as well as terms that might give rise to a conflict of interest between a class representative’s contractual obligations to the funder and its primary obligations to the underlying class.

With respect to the priority of payments, the CAT has ruled on where a funder’s return on investment should sit in the waterfall of payments upon success. While cash waterfalls in collective action claims can still be agreed between the funder and other parties who may be entitled to some contingent fee (e.g., lawyers and ATE insurers), this cannot be to the detriment of class members. Funders must take care to not impose obligations on the class representative to pay a share of the proceeds to the funder before distribution to interested class members has taken place. A similar principle has been adopted in the EU’s Collective Redress Directive for consumers. A potential exception to the rule was considered by the Court of Appeal in Le Patourel, in circumstances where it may be appropriate for an unsuccessful defendant to directly distribute damages to the class members, rather than distribution being conducted by the successful class representative. The Court decided that in such circumstances, the CAT could defray a class representative’s costs (which include the funder’s success fees) from an award prior to distribution.

In the Trucks litigation, the CAT endorsed both the ALF and the ALF Code; in particular, as an objective basis for ALF-member funders to demonstrate their ability to meet their financial commitments under an LFA (although the different corporate structures utilised by the two funders in that case (Therium and Calunius) raised different considerations for the CAT on this point). It is understood that in subsequent opt-out claims funded by non-ALF members, the funders have nonetheless agreed to comply with the ALF Code in their LFAs.

More recently, the CAT has considered LFA terms that create potential areas for conflict such as settlement and termination provisions. Typically, LFAs include an alternate dispute resolution mechanism – such as an independent KC opinion – as a means of resolving disagreement between a claimant and a funder in respect of settlement. In the CAT’s further judgment (collective proceedings order (CPO) application) in Merricks v. Mastercard, the CAT stated that it was ‘satisfactory’ to have a QC opinion (as it then was) on the basis that it would not be binding on the class representative. The CAT also considered the suitability of termination provisions in the same case, concluding that it would be acceptable for the funder to have the right to terminate in specific circumstances – provided that any decision to terminate was based on independent legal and expert advice.

Another consideration for a funder is the proactive use of redactions and applications for confidentiality rings, to keep aspects of the LFA confidential. In contrast to LFAs used outside the CAT’s collective action regime, where disclosure of the LFA terms is limited (as discussed below), a class representative in a proposed collective action needs to file a copy of the LFA at the CAT as part of the application for a collective proceedings order. Several LFAs in collective proceedings to date have been heavily redacted, of which the CAT has been critical.

In respect of adverse costs, considerations must be taken by a funder as to any exclusions that an ATE policy may include to assess whether an anti-avoidance endorsement (AAE) on the policy will be necessary. Alongside this, consideration must be given to the standing and reputation of the proposed class representative, which may determine how likely the class representative is to fall foul of any exclusions on the policy. This issue arose in Consumers’ Association v. Qualcomm where the CAT determined an AAE was unnecessary.


Inevitably a funder’s assessment of a claim involves significant disclosure of documents to the funder by the instructed legal team, including documents covered by legal advice or litigation privilege. The cloak of privilege enables a party to withhold potentially sensitive and commercial material from its opponent and the court. For all parties, it is essential to ensure that disclosure to a funder does not cause the loss of the protection afforded by any privileged status.

There are principles established in this area, which assure lawyers and claimants that privilege is preserved. If documents are shared on an expressly confidential basis, this will either preserve privilege entirely or will be construed as a strictly limited waiver for the specific purpose of securing funding. Alternatively, a claimant can most likely rely on common interest privilege to preserve rights of this kind. Common interest privilege arises where a person confidentially discloses a document to a third party in recognition of an interest they share in its subject matter or in litigation in connection with which the document was produced.

While there are robust authorities confirming the principle that where a party shares a privileged document with a third party in confidence that party does not lose privilege, sharing of documents with a funder is done under a non-disclosure agreement, as well as pursuant to confidentiality provisions in the LFA.

The fact of the existence of an LFA and the identity of the funder will never in themselves be privileged information, although, subject to what was said earlier about the effect of the Rules of the Competition Appeals Tribunal 2015 (CAT Rules 2015) on these issues, the detailed terms of the LFA will almost certainly include much content that would conventionally be regarded as privileged.

There is no clear requirement under the Civil Procedure Rules, nor any statutory requirement to notify other parties of the fact that a claimant is funded. It may occasionally be possible for an opponent to seek an order for the disclosure of the identity of the funder if the opponent can satisfy the court that the claimant is funded and there is an arguable application for a non-party costs order, which would be made but for the uncertainty of the target. In practice, disclosure of the funder may also be granted when a security for costs application is being considered, irrespective of whether there is a pre-existing costs order in the proceedings, and despite the nature and extent of the adverse costs liability of the funder strictly only being applicable when costs are ordered to be paid.

In arbitration, party appointment of arbitrators can give rise to potential conflicts of interest where an arbitrator has a relationship with a funder involved in the case, which has led to some debate about the disclosure of the existence of funding therein. In arbitration proceedings, the funder has to navigate the particular disclosure requirements of the existing rules of the given institution, be it the ICC, LCIA, SCC, ICSID, UNICITRAL, and so on.


i The funder’s liability for adverse costs
In England and Wales, under Section 51 of the Senior Courts Act 1981, the court has full power to determine by whom and to what extent costs are to be paid. This enables a court to order costs against a provider of TPF where that provider has funded litigation on behalf of the losing party, irrespective of what has been agreed pursuant to the LFA. The early authorities established that the ultimate question is whether in all the circumstances it is just to make a non-party costs order. The Arkin cap, which effectively kick-started litigation funding in 2005, was the principle that commercial funders should only be liable to pay the costs of opposing parties to the extent of the funding that they had provided (that is, unless the agreement was champertous). The Court of Appeal considered access to justice would not be achieved if funders were deterred by the prospect of unlimited costs liability, but that it would not be fair to successful defendants if costs did not follow the event. The Arkin cap has since been the subject of considerable debate, with some considering the solution overgenerous to commercial funders.

As mentioned above in Excalibur, Lord Justice Tomlinson ruled that payments to the claimants towards their security for costs liability were a relevant expense when considering the extent of a non-party costs order. He declined, however, to rule on whether the adverse costs consequences of any funder’s insurance arrangements for security for costs should be measured by their value (e.g., the limit of indemnity under an ATE policy) or by their costs (the premium paid). The Court of Appeal judgment also established that a funder will be required to contribute to the winning defendant’s costs on the same basis as the claimant, be it standard or indemnity; and a non-party costs order could extend to a party unnamed in the LFA, provided that party stood to benefit in the event of success.

In Davey, the High Court disapplied the cap and provided useful commentary. When the claimant was ordered and unable to pay adverse costs on an indemnity basis of £7.5 million, the Court made a non-party costs order against the funder. The funder sought to rely on the Arkin cap to reduce its liability to its investment (£1.3 million). In refusing to do so, Justice Snowden exercised his general discretion as to costs under Section 51 of the Senior Courts Act 1981, with several considerations for TPFs:

a. The funder’s involvement was as a self-interested commercial investor. During the course of proceedings, it had halved its investment but maintained the same share of the proceeds. The Court looked at not only how much the funder had invested, but also how much it stood to gain.
b. The funder was aware the claimant could not meet an adverse costs award of that order, which was to be far in excess of the funder’s investment.
c. The judge refused to hold the funder responsible for costs incurred before the funding agreement was in place.

On appeal by the funder, the decision at first instance was upheld and the decision not to apply the Arkin cap was confirmed. Davey emphasised the need for adequate adverse costs protection for both claimants and funders, as if sufficient ATE insurance is in place to cover the adverse costs risks, defendants do not need to seek to recover their costs from the funder.

In Laser Trust v. CFL Finance Ltd, the High Court also exercised its discretion to grant a third-party costs order against the funder. While the Court stated that the discretion to order a non-party to pay costs will generally not be exercised against a pure funder (and any decision to award one would be subject to the specific facts of each case) it held that as the funding agreement gave the funder a considerable degree of control over the litigation and sought to benefit substantially from the proceedings, it was appropriate to make a costs order in those circumstances with the Arkin cap also not applying. This decision suggests that the courts will take a robust approach to funder liability going forward.

In arbitration, it is generally taken that an arbitral tribunal lacks jurisdiction to issue a costs order against a funder of the arbitration. This is because only the parties to the dispute being arbitrated are within the jurisdiction of the tribunal, by virtue of the contract or through the terms of a treaty. This leads many respondents to arbitration to make applications for security for costs.

ii The question of security for costs
In the High Court, payment into court or provision of a bond or guarantee or an insurance policy can be ordered against a claimant as security for an opponent’s legal costs. An order will be made if the Court determines that in the circumstances it is just to make such an order, the claimant is resident out of the jurisdiction or there is any other reason to believe that the claimant, wherever situated, will be unable to pay the defendant’s costs if so ordered.

In the case of an impecunious or insolvent claimant, an adverse costs insurance policy with a sufficient level of indemnity is often advanced in defence. Whether this is adequate is a developing area of the law. The governing principle taken from Premier Motorauctions v. PwC and another is that resolution of these issues is fact-sensitive. The extent of the insurer’s right to avoid or otherwise terminate the policy is a focus of these developments, which has led to a requirement for suitable anti-avoidance endorsements from insurers or a stand-alone deed of indemnity from the insurer to the defendant, or both of these.

These principles are subjected to an interesting practical analysis by the President of the CAT at paragraphs 79–109 in his judgment in the Trucks cartel case referred to above.

The Court can also make an order for security for costs against a litigation funder pursuant to CPR 25.14 and Section 51 of the Senior Courts Act 1981. In order to do so the applicant needs to demonstrate to the Court that in all the circumstances it is just to make such an order and that the person against whom the order is sought has contributed (or agreed to contribute) to the claimant’s costs in return for a share of any money or property that the claimant may recover in the proceedings.

In this regard, a security for costs application against a TPF provider was successful against Hunnewell BVI in RBS Rights Issue Litigation. Here the judge listed the factors to be taken into account when deciding whether security for costs should be ordered against a TPF provider. These included whether there was a real risk of non-payment by the funder (as was the case here, on account of one of the funders’ perceived ‘deliberate reticence’), or whether the motivations were commercial or altruistic. In this case, the judge also considered whether the defendants ought to give a cross-undertaking to pay the claimants’ costs of posting security, which it was determined should not be considered exceptional.

The circumstances in which TPF providers may be ordered to provide security for costs was explored further in the Ingenius litigation, which were claims brought by several hundred claimants against various defendants to recover investment losses. The defendants made an application for security for costs against the funder in respect of both claimants it was funding and those it was not. Unsurprisingly, the application did not get much traction insofar as the self-funded claimants were concerned. Given the nature and seriousness of the wide-ranging allegations of fraud in the case, when assessing the level of security to be awarded, the judge factored in the increased prospect of costs being awarded on an indemnity basis. No financial information about the funder was put in evidence and it was understood that the funder would have to call on its investor to contribute. That there were some wealthy claimants among the group did not mitigate the risk of the defendants failing to get paid. As well as having four ATE policies in place, the funder had also provided a contractual indemnity to a set of claimants. The argument that a combination of the wealthy claimants’ resources and the ATE cover would have covered the claimants’ potential cost liability did not stick, as the ATE policies were not designed as security for costs and there were concerns they would not respond. In addition, the ATE policy contained a provision whereby equivalent proceeds from the policy were to be held on trust by the claimants for the funder if the funder was required to give security. As such, in circumstances where the court has ordered the funder to cover any ATE shortfall, this could be recovered from the claimants’ ATE proceeds, thereby reducing the overall cover available for the defendants’ costs.

The judge resolved to attribute percentage values of the relevant policies as security and also allowed the full value of the funder’s indemnity, with the outcome being that the funder was ordered to provide approximately £4 million of security. Also of note to TPFs was the court’s decision not to order a cross-undertaking from the defendants for any loss the claimants would suffer on a successful outcome as a result of the increase in committed funds because of the security for costs order against the funder. The judge took the view that it was simply a matter of reallocation of the proceeds under the LFA – between the claimants and funder.

Issues regarding whether the applicant for security for costs must provide a cross-undertaking were appealed in Rowe and others v. Ingenious Media Holdings plc and others. The Court of Appeal held that only in ‘rare and exceptional’ cases should the court order the applicant to give a cross-undertaking in damages in the claimant’s favour, particularly where the claimants have TPF. The Court stated that previous authorities where cross-undertakings were required should no longer be followed. In his ruling, Lord Justice Popplewell stated:

“Litigation funders ought to be properly capitalised, in order to be able to meet an adverse costs order if the claim fails. They should therefore be in a position to defeat any application for an order that security be provided by demonstrating an ability to meet an adverse costs order. . . . It follows that a properly run commercial funder should rarely if ever need to be ordered to put up security.”

In arbitration, applications for security for costs are generally decided on the basis of the party’s impecuniosity or its inability to pay if costs were to be awarded against it at the conclusion of the proceedings. The claimant can then produce evidence of its funding arrangement and the tribunal will focus on the funder’s right to terminate under the LFA and its obligation to cover adverse costs, with disclosure orders generally limited to those provisions.

If the tribunal decides security for costs should be granted, this can be done by way of a funder indemnity, ATE policy or occasionally a bank guarantee. The defendant will normally be required to pay the costs incurred by the funded claimant in complying with the security, if the claimant eventually wins.

The year in review

The continual rise of TPF in England and Wales means that there have been a number of judgments in recent times directly dealing with funding issues.

Although the law with respect to financing collective actions in the CAT is becoming fairly settled, the role of TPF in this arena has continued to provide further opportunity for judicial scrutiny and commentary. A very detailed examination of the funding agreements (and proposed adverse costs cover) was undertaken in the fiercely contested carriage dispute in the FX Litigation. Despite the CAT’s scepticism of the role of the funders in those claims, the general trend has been for the courts to demonstrate flexibility to the benefit of the greater good that representative actions seek to achieve. The Court of Appeal’s comments in Le Patourel and the CAT’s judgment in Qualcomm, both being examples of this line of thinking.

Conclusions and outlook

The TPF market in England and Wales continues to expand and evolve, with no shortage of well-resourced investors enticed by the increasingly convincing record of good returns for those who are willing to play the longer game and risk the losses.

The range and sophistication of funding products, structures and cases continues to broaden and the increased awareness and use of TPF have brought (and will continue to bring) greater judicial and public scrutiny of funding arrangements. Litigation funding is no longer solely about single case funding, but its ambit is far more wide-reaching, with portfolio funding and the funding of law firms as well as case assignments or monetisation.

Issues on the horizon to keep an eye out for include the Supreme Court’s consideration of whether an LFA is in fact a DBA (in the Trucks litigation), as well as a number of pending CPO applications in the CAT that (based on the information available to date) appear to give rise to some novel funding issues.

For a discussion with Simon and Glyn about this year’s review, please contact them directly.

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