The Solicitors Regulation Authority has sent a clear message to the litigation funding market in recent weeks. Its recent guidance on the use and arrangement of third-party litigation funding, coupled with its consultation on new safeguards for consumer claims, does not represent a revolution in professional regulation.
Rather, it particularises what solicitors have always been required to do. The duties of independence, loyalty and acting in the client’s best interests have not changed. What has changed is the SRA’s willingness to explain, in practical terms, what those duties require when litigation funding sits between solicitor and client.
Read together, these developments address two related concerns. The first is the financial resilience of firms that become dependent upon particular funders or funding models. The second and arguably more important is the preservation of the solicitor’s professional independence. The solicitor acts for the claimant, not the litigation funder, insurer or introducer. That distinction sounds obvious, but in practice it can become blurred precisely when a case begins to succeed.
Contrary to instinct, the greatest pressures do not necessarily arise when litigation is failing. They often emerge when liability has largely been established, a freezing injunction has taken effect or a settlement appears likely. At that point the claim has acquired substantial commercial value, the litigation risk has diminished, and incentives change.
The overwhelming majority of professional funders honour the bargain they struck at the outset and continue to support the case to its conclusion. A small minority, however, have been known to treat success as an opportunity to renegotiate. Additional concessions are sought after the commercial risk has largely passed, returns are revisited and greater control over the litigation is demanded. In the most troubling cases, pressure has not been directed solely at claimants but at their solicitors, with attempts to influence legal strategy or even persuade firms to cease acting for their own clients. Such examples are isolated, but they are acute, and one instance is one too many.
It is precisely this kind of conduct that the SRA’s guidance seeks to address. The guidance reminds firms that due diligence on litigation funders is not a box-ticking exercise but an ongoing professional obligation. Solicitors must understand who is providing capital, how funding decisions are made, whether conflicts of interest exist, whether confidential information is adequately protected and, above all, whether the funding arrangement continues to serve the client’s interests rather than the commercial objectives of the funder. Professional independence is not something that can be delegated or compromised simply because a third party is financing the litigation.
The accompanying consultation reinforces this direction of travel. The SRA proposes additional obligations for firms involved in funded consumer claims. Although these proposals are directed at consumer claims, they reveal a broader regulatory philosophy. The SRA expects firms not merely to rely upon contractual protections, but to understand, monitor and manage the risks created by funding relationships throughout the life of a case.
This should not be viewed as hostility towards litigation funding. Quite the opposite. Litigation funding remains one of the most important developments in modern civil justice, enabling claims that would otherwise never be pursued and improving access to justice for individuals and businesses alike. Reputable funders with adequate capital, transparent governance and respect for solicitor independence should welcome greater scrutiny. It helps distinguish professional providers from opportunistic participants whose conduct risks undermining confidence in this important market.
No responses yet