Third Party Litigations funds and the lawyer’s ethics
Third Party Litigation is on the rise. Seen as a desirable way for consumers and other individuals to forward legal claims in order to obtain redress when they do not have the financial means to do it, it may create unexpected ethical problems for lawyers.
Third Party Litigation is on the rise. Seen as a desirable way for consumers and other individuals to forward legal claims in order to obtain redress when they do not have the financial means to do so, it may create unexpected ethical problems for us lawyers. This entry would like to invite further attention and thought into these subjects by using as a practical example the VW ‘Diesel Gate’ GLO proceeding pending now (2018) in the UK.
The Ethical dilemma
A lawyer serves the best interests of his client, independently and without conflict of interest. These cornerstones of the legal profession are under siege in the context of Third Party Litigation Funding, where a funder (investor) meets the legal costs and disbursements of a litigant (usually a claimant). In return the funder receives those costs back as well as a fixed percentage of the amount recovered at the end of litigation, whether it be by court order or negotiated settlement. Following the IBA ´Principles on Conduct for the Legal Profession´, which are the foundation of many of the Ethical Codes of Conduct in many jurisdictions, almost all of the ten ethical principles listed are affected in one way or another by this situation. ‘Independence’, ‘Conflict of Interest’ and ‘Clients’ Interests’ seem the most strained of all.
The lawyer may not only find it difficult to prioritise his client’s interests (i.e., funder versus funded client) but additionally he may struggle in fact to identify who his client is. Whether the litigant, the funder or both, a lawyer’s independence may be significantly compromised and influenced, which automatically has a direct impact on his obligation to avoid conflicts of interest.
Given the existence of these three parties, the funder, the litigant and the lawyer, authors have begun to analyse this complex rapport based on the concept of tripartite relation (Oliver v Board of Governors, 779 SW 2d 212, 215 (Ky, 1989); Wayne Attrill, ‘Ethical Issues in Litigation Funding’ (2009) IMF). However, in the setting of legal ethics, this situation is not new. We can observe a similar scenario in insurance claims, where this intricate set of conflicting interests between insurance companies, the insured and insurance lawyers exist. However, this dilemma seems to be enhanced in litigation funding arrangements. Insurance companies pay low fees, lawyers do not bring the clients, and insurers do not want the claims (Leslie C Levin & Lynn Mather (ed) Lawyers in Practice: Ethical Decision Making in Context (The University of Chicago, 2012), Chapter 7 Betwixt and Between: the eternal triangle). Contrastingly, in the context of litigation funding, the lawyer ends up being the intermediary bringing funders and litigants together. Yet, without the litigant’s claims there is no business for none of the other two and without the funders’ money, there is no business for lawyers.
From theory to practice
We have all heard of the Volkswagen ‘Dieselgate’ scandal. In the UK they have recently begun facing one of the biggest Group Litigation Orders (GLOs). Under the English Civil Procedure Rules, these GLOs grant lawyers the possibility to represent many individual claims under a coordinated proceeding. In this particular case, firms, backed by important litigation funders, agreed upon which firm and lawyer would lead the way and be authorized by the Queen´s Court Division to represent all claims. In a turn of events, one of the firms decided to break its undertakings, thus leading to a long legal battle for representation which undeniably affected the claimants access to justice. One may wonder what was at the core of the battle: either concerns with regard to the protection of the interests of the car owners involved, the return of investment of the funders of the litigation or the professional standards of solicitors.
Lawyers in the funders code
The Association of Litigation Funders of England and Wales seemingly aims at putting the litigant’s interest at the fore. It released a Code of Conduct in 2011, In this code, a funder will (1) take reasonable steps to ensure that the funded have received independent advice on the terms of the Litigation Funding Agreement; (2) not take any steps that influence the funded party’s lawyer to act in breach of their professional duties, and; (3) not seek to influence the funded party’s lawyer to cede control or conduct of the dispute to the funder.
Does this approach suffice? There are three significant drawbacks to this method; first, the voluntary approach makes this topic rather ‘soft’ as compliance is not peremptory. This is clearly evidenced in the Dieselgate case, as one of the Litigation Funds is not part of the UK Association of Litigation Funders, nor is it party to the Code. Second, the Code relies heavily on the Litigation Funding Agreement between the parties, which requires advice from the plaintiff’s solicitors before entering into it. Third but not least, this Code is destined for the funder, but the legal practitioners are not bound by it.
We miss specific attention for disclosure of the lawyer´s position, especially in the context of class actions, where lawyer’s independence will be affected as clients are diluted into a sea of other similar people, while the funder will keep a privileged and strong position while also paying the lawyers’ hourly rates.
Arguably, there should be clearer and tailor-made ethical provisions for lawyers directed at solving this specific conundrum (Levin and Mather, Epilogue). An answer which will grant clients certainty that their interests will indeed take priority and not only be considered as a chip for lawyers and funders to access substantial business opportunities. Such a transparent context will help enshrine the virtues of litigation funding and set back detractors that remain sceptical as to where this new way of tokenizing legal disputes may take the legal profession, especially in class action proceedings, such as the Dieselgate case (Duarte G. Henriques and Joana Albuquerque, The Third Party Litigation Funding Law Review 2017 at 116).