Scotland behind the times on third party funding

In this year’s SLN Annual Review, MBM Commercial’s Cat Maclean (pictured), who secured victory for her client, Mr Carlyle, at the Supreme Court in a bank dispute case in 2015, looks at the state of third party litigation funding in Scotland – without which her client could not have had his day in court.

Third Party Funding (TPF) allows businesses engaged in a commercial dispute to pursue it without worrying about cost.

Cat explains: “The litigant obtains all or part of the financing to cover its legal costs from a private commercial litigation funder, who has no direct interest in the proceedings.”

TPF neutralises financial risk for the litigant, with the funder paying all legal costs in return for a share of the damages.

“If the case fails, the funder bears all the costs and the claimant pays nothing. In this way a TPF will take on the financial risk of litigation, freeing up cash flow for the claimant and shifting the risk off the claimant’s balance sheet.”

While the practice of “champerty” was traditionally prohibited in England, that has never been the case in Scotland - although, as Cat explains: “…the Scottish courts have always been able to impose liability for judicial expenses on a person who, though not a party to the action, has clear control of the litigation (such a person is known as a dominus litus), such liability has always been extremely rare and the prohibition on champerty itself, has never been part of Scots law.”

Funders south of the border are also now regulated, by the Association of Litigation Funders of England and Wales. But not for the first time, as Cat notes, Scotland remains behind the times: “Just as traditionally the UK can appear to be several paces behind the US in terms of litigation trends, so too is Scotland typically anywhere from years to decades behind England, and the TPF litigation market in Scotland is no exception.”

Future growth will also depend on the ABS regime coming into effect in Scotland. So far, growth in Scotland has been as a result of English companies establishing bases north of the border.

Restitution is the only funder founded in Scotland but has struggled to grow given its lack of resource compared to English competitiors.

“Nevertheless”, Cat writes, “it can be proud of the fact that it has supported, and continues to support, one of the highest profile Scottish TPF cases to date – that of Mr Carlyle.”