After years of legal wrangling and decades of injustice, the criminal convictions of 39 British sub-postmasters were cleared in April 2021. Accused of theft, fraud, and false accounting due to a faulty IT system, the result at London’s Criminal Court of Appeal freed the sub-postmasters from the horrors of one of the biggest miscarriages of justice in recent history - writes Dr Cyril Widdeshoven
The result was extraordinary, but it easily could have gone the other way.
Without the support of third-party litigation finance, justice may have remained out of reach, with many of the sub-postmasters unable to meet the exorbitant costs of a lengthy court battle. It is in cases such as this that the merits of private litigation funding are difficult to dispute.
What is third-party litigation funding?
Litigation finance works by raising money from investors to cover the upfront costs of barristers and solicitors on behalf of the litigants. If the case is successful and the litigant is awarded financial recovery, the proceeds are split between the litigant and the funders.
The practice has been credited with widening access to justice, enabling more people to have their day in court. Nonetheless, serious questions around the practice remain.
For one, Lord Faulks QC has described litigation finance as ‘an almost unregulated phenomenon that is in danger of undermining the integrity of our much-admired legal system.’ Referring to the practice as ‘parasitic’, Lord Faulks’ damning indictment reflects concerns that litigation finance creates an environment where the drive behind litigation is not always the desire to redress grievances but to make profits.
Meanwhile, Lord Thomas of Gresford has deplored the ‘insidious advance’ of litigation finance into the UK, describing the practice as ‘essentially an American concept.’ And in a similar vein, Christopher Hancock QC has raised concerns that third-party litigation funding can create potential conflicts of interest if a solicitor or barrister has a financial interest in the trial outcome.
Distrust of third-party litigation funding is not just a modern phenomenon. Indeed, traditionally, the UK has taken a dim view of the practice. Common law dating back to medieval times banned ‘champerty’ – the practice of sharing the proceeds of litigation with unrelated parties. Similarly, medieval courts upheld this doctrine to prevent excessive litigation and protect the purity of justice.
Despite historic suspicion of the practice, a major review of the commercial litigation framework by Lord Justice Jackson in 2013 endorsed litigation funding as an option and recommended that the industry pursues self-regulation through membership of the likes of the Association of Litigation Funders (ALF). This body represents professional funding companies and requires members to sign up to a code of conduct, which prevents member firms from exercising control over litigation that they fund or cause their litigant’s lawyers to breach their professional duties. Importantly, this regulatory framework keeps the litigation in the control of the litigant.
Do litigation funders operate outside this framework?
While third-party litigation funding is endorsed by the judiciary, the nature of self-regulation means that this code of conduct is voluntary. There is nothing to prevent companies from acting outside this framework, leaving it up to judges in individual cases to consider whether funders exercise inappropriate control.
This leeway provides ample room for abuse – an allegation which has been levelled in the ongoing case between the Federal Republic of Nigeria (FRN) and Process & Industrial Developments (P&ID) over a failed gas contract.
As a shell company based in the British Virgin Islands, the ownership of P&ID is cloaked in secrecy. From the little that is known, 75 per cent of the business is owned by Lismore Capital, an opaque Cayman-based entity that is headed by P&ID’s former arbitration lawyer, Seamus Andrew.
Lismore Capital bought their stake in P&ID in October 2017, just months after the arbitral tribunal ruled in P&ID’s favour. This meant Seamus Andrew’s company came to own not just 75 per cent of the business, but 75 per cent of the potential US$10 billion arbitral award. Owning the company that will benefit from the award while also running the claim is highly unusual, and may raise questions around potential conflicts of interest.
Nonetheless, in 2020 a London Court granted the FRN permission to challenge the arbitration award, finding a strong prima facie case that the underlying contract for the gas project was pursued through bribery. The trial is set for early 2023.
With it now looking less clear cut that P&ID will recover the US$10 billion arbitral award – a sum equivalent to roughly one-fifth of Nigeria’s foreign reserves – it appears Seamus Andrew’s luck may be running out. Indeed, despite his position as both the legal representative of P&ID and the potential benefactor of the award, Seamus Andrew may soon be walking away from the case empty-handed.
Looking towards the future
Regardless of the concerns around third-party litigation funding, it is clear the practice is here to stay, with a study by Reynolds Porter Chamberlain finding that the size of the UK litigation funding market has doubled over the past three years, with the pipeline of court cases and cash held by litigation funders in the country now in excess of £2 billion.
To address concerns, it is perhaps time that companies operating outside of the Association of Litigation Funders are brought into the fold. This will enable the practice to continue in line with its intended purpose – to afford justice to those who would otherwise lack the resources to pursue it.
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