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Litigation Crowdfunding

Civil litigation can be expensive, sometimes prohibitively so. It is becoming harder all the time for ordinary people to access the civil courts, and the main reason for that is funding – particularly if the other side has the deeper pockets.

This has become even more of an issue with recent cuts to legal aid and massive increases in civil court fees.  As a result, some litigants are turning to an alternative source of litigation funding known as crowdfunding.

Crowdfunding was originally a way for start-up companies and charities to obtain funds, but has now expanded into a realistic source of litigation funding.

Third party litigation funding is already a well-established method of financing legal proceedings, so it was only a matter of time before an attempt was made to crowdfund litigation.

There are already various litigation-specific crowdfunding platforms in the US and the UK, such as for example LexShares in the US, which enables investors to purchase shares of equity ownership in commercial disputes in return for a share of the eventual proceeds.

Now the first official UK internet-based litigation crowdfunder, CrowdJustice, has been established.  CrowdJustice selects public interest cases, publicises them on its website and invites the public to make donations towards funding them.  Its website states “CrowdJustice helps you raise funds, gather support and increase public awareness of your legal case”.

While it may be hard to imagine members of the public parting with their hard-earned cash to assist in litigating other people’s disputes, it would seem many are willing to do just that.  One case on CrowdJustice’s website relates to a junior doctor who is seeking funds to take a case to the Court of Appeal in order to secure full whistleblowing protection for junior doctors.  His appeal for funds has so far raised £100,116 based on a target of £100,000. In another case a charity seeks funds to pay for a judicial review application to the High Court to challenge proposed increases to Immigration Tribunal fees.

Historically, English law refused to recognise arrangements where litigation was funded by third parties, where causes of action were assigned to third parties or where “champertous” agreements were put in place (under which a third party paid some or all of the costs of litigation in return for a share of the proceeds of the claim). This refusal was based on the public interest in protecting the “purity of justice”, and avoiding the risk that third parties with a monetary interest in a case might be tempted to abuse the process, for example by interfering with witness evidence.

More recently, the need to ensure access to justice in the wake of public funding cuts has made parliament more receptive to litigation funding arrangements. The courts are also increasingly willing to accept the validity of third party funding agreements.

The rules against champerty do still exist, however, and can render third party funding agreements void and unenforceable.  It is therefore important that the terms of such funding agreements are carefully drawn and comply with the rules.

Donors need to be mindful of their own personal liability to pay the other side’s costs should the litigation ultimately be unsuccessful.  The Terms of Use on CrowdJustice’s website state that “In our view UK case law indicates that pure funders – backers who don’t have a personal interest in the case, don’t stand to benefit from it and don’t control the course of the case – will not typically have any liability beyond their initial pledge”.  However this requires caution on the part of prospective donors.

Solicitors who become involved with a crowdfunded case must ensure that their professional duties to their clients and to the court are not compromised.

For more information about crowdfunding or any aspect of litigation please contact David Ellis in the Dispute Resolution Department at QualitySolicitors Parkinson Wright.

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