In this article, Senior Director of Legal Finance Stephen O’Dowd looks at what constitutes funder control.
When firms first consider litigation funding, the question of how much control the funder does or doesn’t have over the case inevitably comes up quickly. Often even before pricing, especially for institutional clients.
Having worked in litigation funding for around 15 years, I’ve found the query usually takes one of two forms
- Do you control the cases that you fund?
- If you fund my case, will you instruct my legal team and decide whether or not I settle my case?
The answer to those two questions is, simply, no.
The reassuring news here for law firms is that the dividing line between legitimate oversight and improper control is well-established. In fact, done properly involvement from the funder will add value to the case.
What the law prohibits and what’s expected
English law does not prohibit a funder from being involved in a case it funds.
What is actually prohibited is improper control, sometimes referred to by the term “champerty”. In plain English, that means a funder cannot undermine the independence of the litigant or the integrity of the justice system.
Funders are entitled to understand how their investment is progressing. They are also entitled to draw on their experience and express views.
The courts have addressed this point directly.
In Excalibur Ventures LLC v Texas Keystone Inc, the Court of Appeal made clear a funder’s role does not end once the funding is agreed. Indeed, the funder’s responsibility to review the merits of the case is ongoing. As Lord Justice Tomlinson said:
“By funding, the funder takes a risk, a risk as to the nature of which he has the opportunity to inform himself both before offering funding and during the course of the litigation which he funds….When conducted responsibly…there is no danger of such review being characterised as champertous”.
The courts have been equally clear on who remains in control of the litigation.
In Valetta Trust, the Jersey court upheld a litigation funding agreement and noted that:“The control of the proceedings remains with the plaintiffs … and the defendants are protected in respect of costs if the claim fails.”
Similarly, in Factortame, the court warned against overstating concerns around control where a funded party is receiving independent advice from experienced and reputable lawyers.
What does this mean in practical terms?
It means the boundary between oversight and improper control is, thankfully, well defined. Specifically –
- The funded party instructs its lawyers
- The client makes strategic decisions, advised by its legal team, as well as settlement decisions
- The funder may ask questions, express views and share experience, but does not dictate outcomes
When those conditions are met, there’s no issue of control.
Settlement and funder involvement
Settlement is often raised as the point where control is thought to shift. In reality, the position remains straightforward.
Under most litigation funding agreements, the funder is entitled to be informed of, and consulted about, settlement proposals. That shouldn’t be surprising or controversial. After all, settlement directly affects the funder’s investment and funded party’s recovery.
Where there’s a disagreement about accepting a settlement, which are rare, funding agreements typically provide for referral to an independent KC for a legally binding decision.
The courts have already endorsed that mechanism: preserving client autonomy while ensuring that disagreements are resolved objectively and without pressure.
In practice, funders will work with the client and the legal team to assess the commercial implications of settlement. Drawing on experience from other funded cases, including where offers were rejected and later regretted, is part of that process and doesn’t amount to decision making.
Where a funder adds value
It’s my experience that there are instances where funder involvement materially improves outcomes.
One such example involved a negligence case about one of the world’s largest oil spills where the team needed to sign-up a group of claimants, some of whom lived in very remote and difficult-to-reach areas in Indonesia. The legal team advised this would limit claimant sign-up.
Working alongside the lawyers, we developed and funded a proportionate strategy to reach those communities, including practical local engagement measures. Ultimately this meant additional claimants joined our group and the case settled for just over AUD$192million.
Key takeaways
Taken together, both the case law and experience point to a clear and workable position:
- A funder’s involvement does not end once funding is agreed. Ongoing questions and case review are expected. This is oversight, not control.
- The courts have clarified that it’s a funder’s responsibility to monitor a funded case. Things don’t stop at initial due diligence.
- Expressing a view, including on settlement offers, isn’t the same as making a decision whether or not to accept it.
- What a funder can’t do is instruct lawyers or decide whether a case settles. Those decisions remain firmly with the funded party and its legal team.
In short, litigation funding doesn’t transfer control of a case. It introduces an additional layer of oversight, commercial discipline and experience.
The courts recognise this and clients and legal teams who regularly operate in this environment rely on it. The issue isn’t really control, it’s about having clarity about where decisions sit. And that line is, reassuringly, already well drawn.
