Litigation Funding Agreements (Enforceability) Bill [HL]

Lord Thomas of Cwmgiedd Excerpts

2nd reading
Monday 15th April 2024 Lords Chamber

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I also welcome the Bill. It is an enormous achievement of the Lord Chancellor. We ought to be grateful that he has recognised there is a serious problem that needs to be addressed quickly and has brought forward the Bill. I am also particularly grateful to the Minister for the clear way in which he has explained it. It is important to concentrate on what this Bill does and then, subsequently, to look at some of the other issues.

In the last few years, litigation funding has become part of the way in which access to justice is obtained. In a moment, I will say a little more about this. It is important to realise that this is a worldwide market. Issues similar to ours have arisen in Australia and across the member states of the European Union. There is a massive growth in litigation about this form of funding in the United States. The scale of this industry can be seen. The current estimate of the revenue of litigation funders is approximately $17 billion.

I was surprised, I think like many, that the Supreme Court reached the decision that it did, because over the years people had realised there was a clear distinction between damages-based agreements and what litigation funding produced. So, although the Supreme Court by a majority, reversing the Court of Appeal, came to the view that the principles applicable to damages-based agreements should also apply to these, otherwise they were unlawful, it was following what has been perceived in some states, such as Alabama, North Carolina and Pennsylvania, as a degree of hostility to this industry.

Given that so many thought that this was an industry that produced access to justice, and many have acted in reliance on what they thought the law was, it is plainly right that the decision should be reversed with retrospective effect. If there are issues about that, they can no doubt be looked at subsequently, but it is plain that litigation funding does provide access to justice. One has only to look at the Horizon case, where the very complex proceedings before Mr Justice Fraser involved a lot of financing in relation to technical issues, at equal pay cases, or at some of the consumer actions that have been brought to see that litigation funding is essential.

I, like many, wish that we had legal aid. On many occasions I have spoken of the wish that HM Treasury would open its pockets or that we would devise some other scheme, but I am afraid I have been a wholly unsuccessful advocate and legal aid has declined. Therefore, when those who criticise this industry come to look at what should be done, they ought very much to bear in mind that we as a state, and most other states in the western world, are failing in providing access to justice because there is no legal aid, and this industry has come, to an extent, to the rescue.

I will come back to the social responsibilities of this industry in a moment, but it is not only about consumers. It is also very important that SMEs and other medium-sized companies, which were never within the scope of legal aid, also have access to litigation funding. I am sure that hardly anyone in this Chamber could possibly contemplate the risk of litigation. It is far too expensive. Access to justice is not something that is open to an individual in this country, unless he falls within the very narrow band of people who can get legal aid or whose wealth is to be measured in enormous terms, so it seems important to have a sense of realism that no real alternative has yet been devised to this form of providing access to justice, given the cost of litigation. However, I do not want to descend into the costs of litigation because that would be straying off the point of what the Bill seeks to do.

I have also been very grateful, when speaking on this issue on previous occasions, to His Majesty’s Opposition, the Liberal Democrats and my noble and learned friends on these Benches for the support they have given in getting this issue back and dealing with it speedily. But I wish to raise two points. As the Minister mentioned, the noble Lord, Lord Hodgson of Astley Abbotts, raised the question of regulation during the course of the debates. I too am delighted at what the Lord Chancellor has done in asking that this issue—the way in which these agreements operate—should be independently looked at.

The operation of litigation funding across many jurisdictions has been the subject of work by the European Law Institute. It established a working group and, by complete coincidence, Mrs Justice Cockerill, who at the time was the judge in charge of the commercial court, and Professor Susanne Augenhofer, were appointed as rapporteurs of this group. It is a project in which I am an assessor, so I have considerable knowledge of it, but to try to help progress this, the council of the European Law Institute has made available the core part of the report, which sets out the principles that have to be addressed, such as transparency, disclosure and whether there should be a cap. I am sure that this report, a copy of which I have provided to the Lord Chancellor and others, will give at least a head start.

This is not the time to go into the details of that. Although the noble Lord, Lord Mendelsohn, addressed many of the issues, those are really not the subject matter of this debate; however, it is essential that they be dealt with. If you look at what is happening in the United States of America and what has happened in Australia, it is plain that the issues that arise are real and need detailed consideration. I therefore very much hope that the work done by the European Law Institute, along with some of the papers written about the position in the United States, will give the group that is to consider this at least an understanding of the broad issues that have to be resolved and the principles and alternatives that should be put before Parliament for its consideration in due course.

It may be that regulation is one alternative. I personally think that regulation has not served us well in many areas. Self-regulation may be the better thing; or, simply agreeing some principles and leaving the courts to police what is effectively in front of them may be a way forward. However, this is not a matter for debate today. We need a proper report, and we will need legislation in the next Parliament to deal with this, because it is such an important issue. There is a huge amount of learning, and I think you will find that the work done by the European Law Institute in its report will be of great assistance.

Finally, I want to turn to one other issue that I think it right to mention. Many think that people make a lot of money out of litigation in one way or another. The proverbial jokes, the proverbial cartoons, do not have to be referred to—they are well in everyone’s minds. However, I want to point to the example of one of the litigation funders, which established a not-for-profit company that provided funds that could be used for litigation that would not be suitable for litigation funding but that raised broader important issues. As is mentioned in the register of interests, when the funds were provided, I gave some advice as to the many competing claims for this. But I do hope—and this is a plea to the litigation funding industry, and maybe to others who do very well out of litigation—that they look at what can be done by way of providing some assistance for small but very important cases that have wide implications, and that are not suitable for litigation funding, and whether some of the money that is made can be put into this kind of enterprise, which is so important not merely for the rule of law but for our society as a whole.

It is an illusion to think that people have access to justice in this country: most people simply do not. Those who do so well out of litigation ought maybe to put in the back of their minds doing something along these lines, for the greater good of our society. I firmly believe that others who are better advocates than me will find that HM Treasury is a very, very difficult place to go and ask for money for litigation.