Litigation Defeat - What To Do When You Lose A Third Party Litigation Funder?

Referring to the outcome in the High Court as a “rare adverse decision” in a trading update, shares in the investment firm fell immediately by 15%, with their share price falling by 214p. As a result, Manolete Partners plc say they will now take a “more prudent view” of their 280 ongoing litigation case investments in light of the headwinds being experienced by the UK economy. 
While the investment firm in this case is facing considerable losses amounting to millions of pounds due to a decision in the High Court, such outcomes also leave law firms and their clients reliant on litigation funding from third parties with considerable uncertainty. 

So what can a law firm do if they lose a litigation funder if they drop out mid-case, or in the case of an unexpected defeat?

Step 1) Check if the litigation funder has breached the Association of Litigation Funders code of conduct

In 2011, the Association of Litigation Funders (ALF) published a formal code of conduct (the Code) which aimed to deal with some of the ethical concerns and gave greater legitimacy to an emerging sector. The Code has been revised over the years with the latest version drafted in 2018. 

The 2018 Association of Litigation Funders Code of Conduct, among other provisions, makes it clear that litigation funders “should not be entitled to terminate the funding agreement mid-litigation without good reason”. As such, much will depend on the specific provisions within the Litigation Funding Agreement (LFA), as discussed below. 

If you believe that your litigation funder has breached the Code (assuming they are a member of ALF), you can complain to ALF using their complaints procedure.  

Step 2) Review your Litigation Funding Agreement (LFA)

The litigation funding agreement should clearly outline the circumstances under which it is possible to seek early termination and how the litigant can challenge a funder's decision to withdraw funding. When it comes to the management of champerty, an LFA should not permit a litigation funder to withdraw unreasonably as this may breach the legal and public policy ethical constraints imposed. Under paragraph 11.2 of the 2018 ALF Code of Conduct, the LFA is supposed to make it clear whether (and if so how) the Funder or Funder’s Subsidiary or Associated Entity can terminate the agreement in the event that the Funder or Funder’s Subsidiary or Associated Entity:

“11.2.1 reasonably ceases to be satisfied about the merits of the dispute;
11.2.2 reasonably believes that the dispute is no longer commercially viable; or
11.2.3 reasonably believes that there has been a material breach of the LFA by the Funded Party”. 
Paragraph 12 also states, “The LFA shall not establish a discretionary right for a Funder or Funder’s Subsidiary or Associated Entity to terminate a LFA in the absence of the circumstances described in clause 11.2”.

Step 3) Check whether you are covered by insurance

Depending on the circumstances, you may have ATE insurance in place which can be used to recover some or all of your lawyer's fees, any disbursements, barrister's fees, and tribunal or court fees. ATE insurance is typically paid for by the client rather than the funder. To keep up to date with the latest insurance litigation news, check out our news section.

Step 4) Engage a specialist in commercial dispute resolution

Given the often complex interplay of the ALF Code of Conduct, the LFA, and any insurance policies, it can often be difficult to know how best to proceed if your litigation funder is planning to terminate their arrangement with you early. For this reason we recommend engaging the services of a commercial dispute resolution specialist with expertise in the field of litigation funding for law firms. 

For more litigation news, take a look at our news section where you can find a wide range of topics, including commercial litigation news, practical tips and more.
Guillaumes LLP Solicitors is a full-service law firm based in Weybridge, Surrey. We have a highly experienced team of dispute Solicitors who can assist you with any business dispute, personal dispute, or property dispute. To make an appointment, please call us on 01932 840 111 or get in touch with us online.