UK: Litigation Funding: A Growth Industry

Last Updated: 18 June 2007
Article by Francis Kean and Roderic McLauchlan

Originally published in BLG's Directors' and Officers' Liability Review, Summer 2007

Litigation funding is a growth industry both in the UK and beyond these shores. Company directors (especially those who benefit from D&O insurance) will be among those in the firing line as tempting targets for such claims.

Other obvious targets include professional advisers. For example, the accountancy firm Moore Stephens has recently found itself on the receiving end of a £90 million negligence claim by the liquidator of Stone & Rolls over its role as auditor of that company. The claim against Moore Stephens is being funded by IM Litigation Funding, a UK company. To date, it is the largest claim in the UK involving independent litigation funders.

It is true that litigation funding is not new. Forms of funding have been available in the context of insolvency for many years. Liquidators, for example, can sell the claims of insolvent companies in return for a promise by the purchaser to pay the company a proportion of any proceeds recovered. That said, the prohibitions against "champerty" and "maintenance" (the promotion and pursuance of claims by non-parties for their own interests) used to carry criminal sanctions. Whilst the criminal offences were abolished under the Criminal Law Act 1967, a civil law rule was retained to the effect that champertous agreements were invalid and unenforceable. However, the effective abolition of legal aid together with the introduction in the mid-1990s of conditional fee arrangements has seen a steady erosion of the English courts' reluctance to enforce litigation funding arrangements.

An important landmark along the way was the decision of the Court of Appeal in Arkin v Borchard Lines Ltd & Ors (2005). Here, the Court of Appeal gave qualified support to third party funders. In that case, however, the Court ruled that if the funder does not simply fund the proceedings but substantially controls or benefits from them, it should potentially be liable for the opposing party's costs up to the extent of the funding provided.

More recently, the Privy Council decision in Massai Aviation Services v Attorney General of the Bahamas (2007) involved the validity of the assignment of litigious rights under Bahamian law. It held that the assignment was valid where there was a 'genuine commercial interest' in the assignment of the cause of action. Noting that the position under English law is effectively the same as the Bahamas, Baroness Hale recalled that a contract involving maintenance or champerty is unenforceable and void. However, Baroness Hale suggested that the need for these rules was receding in modern times and that the sale of rights of action has become commonplace.

Developments in Australia

If Australia is anything to go by, litigation funding is set to become an even faster growth industry here in the UK. In Australia, the principles of maintenance and champerty were abolished through a combination of common law developments and legislation introduced in 1993. The largest of the Australian litigation funders is IMF, which has funded over 70 cases worth a total of £400 million. It takes on average 30 per cent of the recoveries - 60 per cent of the cases settle out of court. Its claimed success rate of court cases is approximately 65 per cent.

The Australian litigation funding industry has received further encouragement in the recent case of Campbell's Cash & Carry Pty Ltd v Fostif Pty Ltd (2006). In Fostif, the Australian High Court was asked to consider whether the actions of litigation funders amounted to an abuse of process in the context of proceedings commenced against various wholesalers by tobacco retailers seeking to recover the fees that they had paid to the wholesalers. Representative proceedings were financed by the litigation funding company. Addressing the question of whether litigation funding was an abuse of process, the High Court observed that fears about adverse effects on the processes of litigation as a result of these sorts of arrangement were not enough to establish a rule of public policy to prohibit representative actions financed by litigation funders. This landmark decision appears to clear the way for litigation funders to control class action litigation with the purpose of profiting from it.

What the future holds

The growth of litigation funding is not a development likely to be welcomed by those organisations (typically insurers) responsible for funding the defence of such claims. Insurers are also keeping close track of signs of growth under a different litigation funding mechanism. This is the system under which law firms themselves assume a degree of risk in the outcome of litigation. The concept of a "plaintiffs' bar" is firmly entrenched in the US system of justice. It allows lawyers to share with their clients in the proceeds of litigation. Whilst such arrangements are not yet permissible in the UK, there has been significant growth in litigation funded by conditional fee arrangements - i.e. arrangements in which lawyers accept a share of the risk in the outcome of the litigation in exchange for an uplift on the fees they would otherwise recover in the event of a successful outcome. A number of US plaintiff law firms have recently set up branch offices in the UK and elsewhere in Europe or have expressed an interest in doing so. The growth of so-called "after the event" insurance which provides an alternative funding mechanism for such litigation has also been significant.

It would be easy to conclude that growth in litigation funding, whether by lawyers and/or by speculative investors, is inevitable. This is not necessarily so. The scope for getting one's fingers seriously burned is ever present. This was the fate of the claimants in the ill-starred Railtrack litigation. A few years earlier, this had also been the fate risked by the lawyers who faced potential costs in relation to proceedings brought by over 227 individual claimants in a well publicised tobacco-related class action claim. The "loser pays" principle is alive and well in the UK. Courts also have wide discretionary powers to award costs including in certain instances against non-parties to litigation. Claimants need to choose their battles with care.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.