The ALF Code of Conduct

The ALF Code of Conduct

15 September 2013

 

The regulatory backdrop for third party litigation funders in the UK has been a little unclear for some time, which may have counted against the sector in the minds of some claimants and investors.  We’ve known that the FSA doesn’t see a problem that needs to be addressed or, therefore, a need for it to regulate funding.  We’ve also known that Lord Justice Jackson recommended a voluntary regime in his final report on litigation costs.  What has been unclear, until now, is the form that the voluntary regulation might take. 

 

There is an Association of Litigation Funders and a Code of Conduct for Litigation Funders.  The Code has been prepared by a Civil Justice Council working party, chaired by Michael Napier CBE, QC (Hon).  It has been designed to foster standards of best practice and to promote greater transparency in the provision of litigation funding services and gives effect to the Jackson Report. 

 

In particular the Code: 

 

Defines what a funder is

Confines the Code’s territorial scope to England (and Wales)

Creates a duty of confidentiality on the part of a funder, subject to any express confidentiality agreement between the parties

Obliges funders:

 

  • To encourage claimants to take independent legal advice
  • Not to put the claimant’s lawyers in breach of their professional duties
  • Not to take control or conduct of the claim from the claimant’s lawyers
  • To maintain adequate financial resources to meet their funding obligations

Encourages clarity in litigation funding agreements in relation to financial liabilities, including liabilities for:

 

  • Adverse costs
  • Insurance premiums
  • Security for costs
  • Specifies that litigation funding agreements will state if and how the funder may:

Provide input regarding settlement decisions by the claimant

Terminate the agreement if the funder reasonably:

 

  • stops being satisfied about the merits of the claim;
  • believes that the claim is no longer commercially viable; or
  • believes that the claimant is in material breach

Provides that, if the funder can terminate as above, its obligations continue until the date of termination (unless termination is due to the claimant’s breach). 

Disputes about settlement or termination are resolved by a binding opinion from a QC (Queen’s Counsel) jointly instructed by the parties (or nominated by the Chairman of the Bar Council)

 

The Code is concise but nevertheless touches on the key aspects of the relationship between the claimant, its lawyers and the funder.  In particular, the funder may not run the litigation, it should not enter into financial commitments that it cannot honour and it should not withdraw funding arbitrarily.  Some claimants may have a different ‘shopping list’.  Conversely, investors in claims can be nervous about not having control and only restricted rights to turn off the funding tap.  The Code tries to steer a course between the two.  For claimants it provides a useful framework for their dealings with funders.  For investors it’s very hard to make a commitment if they don’t know the rules of the game – the Code may not be everything investors wish for but at the very least it provides welcome clarity. 

 

Code of Conduct for Litigation Funders