UK: Funding Litigation – The Good, The Bad And The Ugly

Last Updated: 1 August 2016
Article by Andrew Evans and Nicholas Thompsell

Following developments in the law surrounding the funding of litigation, litigation funding has started to emerge as a new asset class. However the centuries-old disapproval of the concept of making a market in litigation still resonates and care must be taken in structuring and managing such arrangements to avoid risks of unenforceable security or of becoming responsible for the costs of an opposing party.

Litigation funding's slow progress from criminality to virtual necessity

Historically English law refused to recognise and enforce arrangements under which third parties funded or 'maintained' litigation coming under the headings of 'maintenance' and 'champerty'. 'Maintenance' is the improper support of litigation in which the supporter has no legitimate concern without just cause or excuse. 'Champerty' is an aggravated form of maintenance and occurs when the maintaining party pays some or all of the costs of a party in return for a share of the proceeds of the action or suit. These common law rules against champerty and maintenance were based on public interest in protecting the purity of justice. Originally maintenance and champerty were both crimes as well as torts.

The Criminal Law Act 1967 (CLA) abolished the crimes and torts of maintenance and champerty, but section 14(2) of the CLA left intact the rule that a contract which breached the rule against maintenance and champerty would be contrary to public policy and therefore unenforceable.

Further modifications to the common law position were made by the Courts and Legal Services Act 1990 ('CLSA') (as amended by the Access to Justice Act 1999 and the Legal Aid and Sentencing and Punishment of Offenders Act 2012 (LAPSO 2012)). This legislation permits CFAs (i.e. an agreement with a person providing advocacy or litigation services which provides that his fees or expenses (or any part of them) are payable only in specified circumstances) provided they comply with the prescribed regulations (s.58 of the CLSA).

Subsequently legislation was introduced to permit DBAs (i.e. an agreement between a representative and a client providing that the client will make payment to the representative if the client obtains 'a specified financial benefit' (usually damages paid by the losing side). The Damages–Based Agreements Regulations 2013 define a representative as the person providing advocacy services, litigation services or management services to which the DBA relates.

Maintenance and champerty live-on

So the current position is that CFAs and DFAs are expressly permitted within a particular scope. However, outside the above statutory provisions, the common law continues to apply, although its scope is now more limited. Modern authority recognises that to amount to maintenance or champerty, a funding agreement must disclose an element of impropriety, such as "wanton or officious" meddling, disproportionate control or profit, or a clear tendency to corrupt justice (e.g. there is a temptation to inflame damages).

Similarly, an assignment of a chose in action will be valid and enforceable - if the assignee has a 'genuine commercial interest' in the assignment. If this is not the case, the assignment will be void and unenforceable as 'savouring of maintenance'.

Modern authorities give some guidance as to the factors that the court will take into account when assessing the validity of any agreement. These factors include:

  • the extent to which the funder controls the litigation. Examples of excessive control might include: taking or influencing strategic decisions, seeking to interfere on the solicitor/client relationship; or controlling or meddling in settlement negotiations
  • the level of communication between the funded party and the solicitor. Ideally, the solicitor should be independent of the funder, and alive to the possibility of conflict of interest
  • the extent to which the funded party is provided with information about, and is able to make informed decisions concerning, the litigation
  • the amount of profit the funder stands to make
  • whether or not there is a risk of inflaming damages. This is more of a risk in the case of contingency agreements
  • whether or not there is a risk of distorting evidence (e.g. it is unlikely that an agreement whereby expert witnesses were paid on a contingency basis could ever be upheld as valid)
  • whether or not the funder is regulated.

An agreement whereby a third party funds litigation is less unlikely to be struck down by the courts as offending rules against maintenance and champerty than before unless the funder attempts to exercise control over the litigation or stands to recover disproportionate sums in which case the courts can and will hold the agreement to be unenforceable.

Can a funder become liable for the defendant's costs?

The leading modern English authority on these arrangements is the Court of Appeal decision in Arkin. In this case the provision of expert evidence in support of the claimant's case was funded by a professional funder in return for 25% recovery up to £5 million, and 33% thereafter. The successful defendants appealed for orders making the funders liable for their costs. At first instance, Colman J found that the funders took no part in decisions regarding the management of the litigation and did not attempt to control it. The Court of Appeal concluded that the funder was nevertheless liable for costs up to the amount of its own contribution, but that to impose liability over this limit would represent too great a risk for third party funders.

Can a funder take security over a CFA or DBA?

Another issue to consider is whether a funder can obtain security from the solicitors over their rights under a CFA or DBA.

In principle, there is no reason why an arrangement by way of security cannot be taken in respect of CFAs and DBAs provided the law firm complies with the requirements of the SRA Code of Conduct. The Code includes the requirements that:

  • those providing legal services must only enter into fee arrangements with clients that are legal.
  • a law firm must not allow its independence to be compromised ( giving control over its practice to a third party which is beyond the regulatory reach of the SRA) and act in the best interests of the client
  • a law firm must keep the affairs of its clients confidential unless (amongst other things) the client consents
  • a law firm must avoid conflicts of interest and in particular a law firm must not act if there is an own interest conflict or a significant risk of an own interest conflict
  • a law firm must have systems and controls to assess whether financial interests prevent it acting in the best interests of the client on fee sharing
  • a law firm must ensure that its independence and professional judgement are not prejudiced by virtue of any arrangement with another person
  • a law firm must ensure that its clients' interests are protected regardless of the interests of an introducer or fee sharer
  • a law firm must ensure that clients are in a position to make informed decisions about how to pursue their matter
  • clients are informed of any fee sharing arrangement that is relevant to their matter.

In a recent case (Jones v Spire Healthcare Ltd (unreported)) 11 May 2016, a circuit judge (overturning a district judge's decision) ruled that a CFA for a claim was validly assigned from one firm of solicitors to the other and that both the benefit and the burden were assigned as they were inextricably linked. It followed that there was a retainer allowing for recovery of pre-delivery and post-delivery assignment costs of the litigation.

Code of Conduct for Litigation Funders

In 2011 the Civil Justice Council introduced a voluntary Code of Conduct for Litigation Funders which was updated in 2014. It applies to members of The Association of Litigation Funders of England and Wales in respect of funding the resolution of disputes within England and Wales. Briefly, the Code sets out certain conduct requirements of funders, including ensuring that the funded party receives independent legal advice on the terms of the funding agreement and requiring the funder not to influence the funded party or its legal counsel. It also imposes certain capital adequacy and auditing requirements on the funders and sets out certain requirements relating to the contents of funding agreements.

FCA Regulation

CFAs and DBAs are not regulated by the Financial Conduct Authority ("FCA") unless:

  • it is consumer credit - which it will not be so long as the borrower is not an individual or two-man partnership; or
  • if the agreement is not on its proper construction a loan agreement, but amounts to some form of contract for differences.


The issues for litigation funders to navigate can be summarised as:

  1. Avoiding the risk of the CFA or FSA being set aside on ground of maintenance or champerty. Avoid this by:
    1. not seeking to exercise control over the litigation;
    2. avoiding taking excessive profit from the outcome of the litigation; and
    3. avoiding the possibility of the evidence being distorted.
  2. Avoiding the risk of a costs order being made against the funder. This is not easy, because if the funded claimant loses, it is probable (under the Arkin principle) that the funder will be held liable up to the amount of its own contribution, even though it exercises no control over the litigation. If it did exercise control, the funder's liability could be unlimited. One way round the issue might be for the funder to take out after-the-event insurance to cover this potential risk and require the funded party to pay the premium.
  3. Given that there are no restrictions on a funder creating security on a CFA or DBA, a funder can obtain security over such agreements if it recognises that the solicitor will need to comply with the rules under the SRA's Code of Conduct (especially those relating to the law firm remaining independent and keeping to clients affairs confidential).
  4. If the funder is lending to an individual or two-man partnership, the funder will need to consider consumer credit legislation.

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions