Litigation Funding in England and Wales – Funder’s Control and Champerty

Lucas Arnold

In 2016, the Court of Appeal in Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144 (“Excalibur”) said: “litigation funding is an accepted and judicially sanctioned activity perceived to be in the public interest”. Despite litigation funding now being an established part of civil litigation in England, claimants, their advisers and funders may still be concerned that a defendant will either challenge the funding arrangements as champertous or seek access to the funding agreement. Satellite litigation in relation to funding arrangements is not uncommon.

In this context, the recent decision in Akhmedova v Akhmedov  [2020] EWHC 1526 (Fam) is a reminder that, where a bona fide claim is pursued with litigation funding advanced in accordance with the Code of Conduct for litigation funders, there is very little scope for the defendant to complain or obtain access to the details of the funding arrangements.

Background facts

The case arose out of long-running divorce proceedings between Tatiana Akhmedova (the Wife”) and Farkhad Akhmedov (the Husband”). In the substantive family law proceedings concluded in 2016, the Husband was ordered to pay the Wife £453,576,152. Enforcement to date has only realised about £5 million.

As part of the enforcement proceedings, the Wife instituted claims against a number of third parties, seeking to unwind allegedly improper transfers of property by the Husband prior to trial in the divorce proceedings. One of the third parties was her son, Temur Akhmedov (the Son”). The Wife had obtained litigation funding to pursue the enforcement proceedings.

As with most litigation funding arrangements, the Wife’s funding agreement with the funder, Burford Capital (“Burford”), had not been disclosed to the defendants. However, one document had been disclosed which showed that the Wife retained sole control over the litigation unless and until she defaulted in paying Burford. Evidence from the Wife’s solicitor confirmed that the Wife rather than Burford gave instructions to him, albeit Burford was consulted in its role as funder.

Challenging the Wife’s funding arrangement

In resisting the enforcement proceedings against him, the Son sought an injunction prohibiting the Wife from instructing any lawyers using litigation funding on the grounds that such funding arrangement was contrary to public policy against champerty (part of this argument turned on the use of third party funding in family proceedings which is beyond the scope of this blogpost).  He also sought disclosure of funding documentation and communications between the Wife, her solicitors and Burford.

The Son focused much of his arguments on the fact that, under the funding arrangement, Burford was required to consent to any settlement of the enforcement proceedings, meaning that Burford improperly retained significant control over those proceedings.

The Wife then applied to strike out the Son’s injunction application.  In seeking to strike out the Son’s application, the Wife argued that:

  • the Son had no standing to seek injunctive relief as to her funding arrangement; and
  • he had no grounds in fact or law for asserting that the funding arrangement was unlawful or contrary to public policy.

The law of champerty, maintenance and litigation funding in England and Wales

The Judge commenced her analysis by providing a succinct summary of the relevant law and principles in relation to champerty and maintenance. Whilst the torts and crimes of champerty and maintenance had been abolished by the Criminal Law Act 1967, that Act also provided that such abolition “shall not affect any rule of law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal”.

Reviewing more recent case law, the Judge noted that public policy is not fixed in time, and that the law of champerty and maintenance has narrowed in scope over time, with modern cases finding such rules to be potentially harmful to access to justice principles.  The Judge also referred to the observations in Davey v Money [2019] EWHC 997 (Ch) that the critical concern about the potential for the process of justice to be corrupted lies in the third party funder having “excessive control or influence over the conduct of the proceedings in such a way as, for example, to suppress evidence, influence witnesses, or procure an improper settlement”.

As part of her review of the state of the law, amongst other things the Judge made reference to a Code of Conduct governing litigation funding that has existed in England and Wales since 2011. It is administered on a self-regulated basis by the Association of Litigation Funders (“ALF”) (of which Burford is a member).  The Code of Conduct specifically governs the control which can be exercised by a funder. For example, the Code forbids the funder from seeking to influence the client’s solicitor or barrister to cede control or conduct of the dispute to the funder and it also provides for an independent QC to resolve any dispute between a funder and client about settlement.

The Judge concluded her overview by stating “[i]t is thus difficult to envisage how litigation funding conducted by a responsible funder adhering to the Code of Conduct could be construed to be illegal and offensive of champerty or might be held to corrupt justice.”

Did the Son have standing to challenge the Wife’s funding arrangement?

The Son had not pleaded any defence to the Wife’s claims arising from the Wife’s funding arrangement, nor had he sought a stay of proceedings. Instead, the Son argued that his application was protecting “the integrity of public civil justice”. Whilst acknowledging there may be a theoretical jurisdiction to grant injunctive relief, the Judge refused to do so in this case. In finding that the Son did not have standing to seek any relief in relation to how the Wife was funding the proceedings, the Judge stressed the “much more restricted role played by the doctrines of champerty and maintenance” in modern litigation, and that a court would not necessarily stay a bona fide action even if it were to be supported by a champertous funding agreement as between the funder and the funded.

Was the Wife’s funding arrangement contrary to the public policy against champerty?

By focusing on the requirement for Burford’s consent before the Wife could settle the enforcement proceedings, the Son argued that the funding arrangement had the consequence of the Wife ceding significant control of the litigation to Burford.

The Judge disagreed. In finding that that did not amount to champerty, Knowles J held, applying Excalibur, that Burford’s “mere control” was not sufficient to engage the law of champerty. This was because the requirement to obtain the funder’s consent before settling proceedings did not amount to the ceding of a level of control likely to corrupt the process of justice, and in reality was a “perfectly proper protection for [Burford] as funder”.

In upholding the Wife’s strike-out application, the Court held (at [73]):

“Litigation funding practised by a funder adhering to the Code of Conduct has been endorsed by the senior courts in robust terms. Funding is being provided post-judgment to enable the Wife to secure the recovery of sums already awarded to her in the face of the Husband’s contumelious conduct (assisted by others) in evading and frustrating the enforcement of the judgment debt. Without such funding, the Wife would lose access to justice and the chance of recovering the monies awarded to her in December 2016.

Having so ruled, it was not necessary for the Judge to consider the Son’s application for access to the funding agreement and communications in relation to the funding arrangement (although the Son had already abandoned the application insofar as it related to communications and agreements between the Wife’s solicitors and Burford, given they were not parties to the proceedings).

Comment

At a time when clients are increasingly looking at ways to reduce the high costs of litigation, and where solicitors have professional duties to advise clients of the availability of funding options, this judgment provides a useful illustration of the English courts’ attitude to litigation funding. It also highlights the utility of litigation funding in enforcement/recovery phases of litigation when a judgment has already been delivered.

It is noteworthy that the Wife’s claim was considered to be bona fide. Potentially, there may be greater scope to argue that a funding arrangement was champertous if proceedings were being pursued for an ulterior motive.  In such instances, an argument that funding was not in accordance with the ALF Code of Conduct would also likely have greater merit.

The judgment also highlights the importance of following the ALF Code of Conduct. The Code of Conduct is mandatory for litigation funders who are registered with the ALF.  However, membership of the ALF itself is voluntary. Litigants in England would be wise to engage funders (whether or not members of the ALF) who follow the provisions of the Code of Conduct as closely as possible and only depart from them in exceptional circumstances which could be explained to the court, if necessary.  The more objectively reasonable the explanation for the departure from the ALF Code of Conduct, the better the claimant will be able to fend off any challenge to the funding in the future.

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