Are concerns about tie-ups between law firms and funders justified?

Recent years have seen a succession of tie-ups between law firms and funders, including DLA Piper’s £150m litigation funding pool with Litigation Capital Management, and Mishcon de Reya’s venture with Harbour.

The implications of this growing trend for tie-ups were discussed during a recent panel session hosted by AlixPartners, which brought together senior executives from Hausfeld, Willkie Farr and Harbour.

Panellists were in agreement that there are significant benefits to these arrangements. From a law firm’s perspective, having access to a pool of funding can make them significantly more marketable to potential clients, who in turn may be able to bring litigation that might otherwise be considered too risky.

Such arrangements can play an important role in improving access to justice by expanding the range of cases that can be brought to court. For example, the recent successful civil claim brought against the Post Office by a group of sub-postmasters in relation to the Horizon IT scandal would not have made it to court without third-party funding.

Fast access to funding

The panel agreed that a key concern of many clients is having quick access to funding and certainty over the terms – and this is an area where tie-ups come into their own.

Lesley Hannah, Partner at specialist litigation practice Hausfeld, said: “Having access to funding on pre-agreed terms that are often better than those that could be agreed elsewhere is a fantastic deal for the client.”

Nonetheless, tie-ups have led to a range of concerns around independence, conflicts of interest and a potential restriction of choice for those seeking funding.

There was much discussion during the session about whether it was time to rethink the Medieval common law rules around champerty and maintenance, which restrict the involvement of disinterested third parties in a lawsuit. While these rules have been modified many times over the years, notably as a result of the introduction of legal aid after the Second World War, there are still some constraints on the involvement of third-party funders.

Peter Burrell, Partner at Willkie Farr, argued: “The market has significantly matured, and maybe there’s something to be said for looking at the rules around champerty and maintenance and either watering them down or getting rid of them altogether. However, for as long as the rules are there, there will be the perception that independence could be compromised. In other words, the larger the proportion of your business that is dependent on litigation funding from a specific funder, the greater the risk you are exposed to.”

The panel concluded that many of the perceived drawbacks of tie-ups do not tally with the reality. For example, contrary to some perceptions, when it comes to funding arrangements, funders do not insist on exclusivity and law firms are free to approach the market to seek a better deal. As Susan Dunn, founder of Harbour, one of the world’s largest litigation funders, explains: “As a funder, we never insist on exclusivity in these relationships because we absolutely want people to do what they think is the right thing to do and not every solution works for every case.”