Posted by Nicola Radcliffe, Senior Associate
Is crowdfunding the future of financing litigation?
In recent years, the popularity of crowdfunding has continued to skyrocket, proving itself to be an attractive funding model that allows individuals, businesses and communities to collaboratively raise finance to fund projects. Let’s explore the potential pitfalls of an emerging trend.
The model works by asking a large number of people for a small amount of money and offering something in return, ranging from shares in the business, exclusive offers on products or even tickets to events. Crowdfunding typically takes place via online platforms and acts as a fresh take on the more traditional approach of asking a small number of people to invest large sums of money.
Success stories include Bath City Football Club, with fans this year successfully pledging over £300,000 in order to turn the club into a community-owned asset, a scheme allowing supporters to buy shares in the club.
Whilst crowdfunding has typically been the domain of the community project and corporate worlds, there is an increasing appetite for alternative means of raising funds within the legal sector in order to fund litigation. As a result, online platforms have emerged which allow individuals to raise funds, gather support and increase public awareness for their claims; these platforms allow individuals to ask the public to finance their legal fees, often where other funding (such as legal aid) would not otherwise be available.
Most recently, Grahame Pigney, a retired IT consultant, raised over £170,000 on a legal crowdfunding site in order to assist in funding the ‘Brexit Case’ reaching the Supreme Court. This month £70,000 was raised in under 48 hours to fund a fresh legal challenge to the process of Britain leaving the European Union, which will make its way through the Irish courts. Similarly, £26,000 has been pledged to fund Judicial Review of the current Southern Rail dispute and £100,000 has been pledged to take whistleblowing protection for junior doctors to the courts.
A Viable Option for Litigation?
Crowdfunding could be emerging as the contemporary way of funding litigation, and there is undoubtedly a demand for it. However, if you are considering it as an option, it is important to also consider the potential risks associated for both investors and those receiving the funding. The legal system in the UK notoriously predates the digital revolution and crowdfunded cases are an untested area in law which leaves many questions unanswered.
There is some concern over liability for the other side’s costs if a crowdfunded case is lost. The usual costs order made at the end of proceedings is that the losing party should bear the winning party’s costs of bringing the case – it is unclear how this would work in practice at the end of a crowdfunded case. In a recent Court of Appeal decision, the court limited a third-party funder’s costs liability to the level of its contribution; would the same test apply to crowdfunded contributors and how in practice would hundreds or thousands of funders be liable to pay costs? There are also unanswered questions around regulation and whether funders would have the knowledge or experience to understand the risks associated with litigation. The UK’s third party funding market is currently not regulated in the same way as traditional methods of lending and only this month has the FCA announced that it is launching a crackdown on crowdfunding platforms in order to ensure that everyone involved better understands the potential risks involved.
Clearly, the concept of crowdfunding litigation leaves a lot to the imagination and there is still a long way to go. Nevertheless, with an increasing call for competitive alternatives to traditional avenues of litigation funding and a strong argument that crowdfunding litigation increases access to justice, it could be time to consider the law sooner than we think.
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