The obligation for solicitors to address litigation funding options with their clients at the outset and during the course of a case, is becoming ever more compelling with the exponential growth of the litigation funding market in recent years.

The Growth of Third Party Litigation Funding

The obligation for solicitors to address litigation funding options with their clients at the outset and during the course of a case, is becoming ever more compelling with the exponential growth of the litigation funding market in recent years.

No longer is third party funding simply a matter of conditional fee arrangements for specific and limited contexts, but rather an emerging market ripe for profit where many bespoke funding options are now acceptable and readily available. As a consequence, the obligation to advise clients fully about litigation funding has become more onerous.

History of Third Party Litigation Funding

Historically third parties were prohibited from funding another party’s litigation under the doctrines of maintenance and champerty, the purpose of which was to prevent abuses of justice by corrupt officials centuries ago. More recently, third party litigation funding was prohibited on public policy grounds to protect the purity of justice. An emphasis on encouraging access to justice in recent years has seen the softening of these rules, causing the growth of the third party litigation funding market.

Solicitor’s Obligation to Advise on Funding Options

Inadequate advice about litigation funding will not only be a breach of the SRA Code of Professional Conduct, but also grounds for a claim in professional negligence. Clients must be provided with the information they need to make informed decisions about financing their litigation. In addition, once a funding agreement is entered into, its implications must be explained, and the litigating party must be made aware where there is a risk of paying another party’s legal fees. Whilst the client is free to decline the advice and not to proceed with litigation funding options, the solicitor is obligated to advise fully on them.

Potential Grounds for Claim in Professional Negligence

Typical claims in negligence arise where solicitors did not explain to their clients the need for litigation funding and the benefits it brings to funding litigation. Reasons for this may have been that the solicitors considered that the strength of the case was good or they might have been unaware generally that there were insurance products available to cover the risks, offering deferred (end of case) payment.

There is a possible claim in negligence for failure to provide sufficient advice on litigation funding, if the claimant can show:

  1. that they had a reasonable prospect of succeeding on the initial action (more than 51%);
  2. that they can evidence that the solicitor did not discuss litigation funding or refer them to another firm which may have discussed other products; and
  3. that they were left with an adverse costs order when their claim was unsuccessful, which they have paid or will have to pay

Loss of a Chance

If the claimant lost their chance of pursuing that claim due to the failure of the solicitor to advise about the options, they may have a claim against the solicitors if the statutory limitation is passed.

Professional Negligence Specialists

There is so much scope for new professional negligence claims in this area that some specialist law firms actively market to draw in new clients who have complaints against their former solicitors for failing to advise on litigation funding options. Ironically, such professional negligence claims are increasingly being funded by third-party litigation funding arrangements.

Cover your existing Caseload

All lawyers should consider their existing caseload, regardless of what stage the case is at procedurally, to determine whether they have given appropriate advice about potential insurance options, including the ability to insure a client’s own legal fees, disbursements as well as any adverse costs. It may still be possible to insure fees and costs retrospectively, as well as the legal costs risk for the future.

About the author

Gemma Carson Partner

Gemma specialises in commercial litigation including commercial contract disputes and arbitration proceedings. She also advises on professional negligence claims.