Civil Justice Council calls for regulation of crowdfunding litigation with separate regime where funders do not receive financial reward
The Civil Justice Council has said that all forms of crowdfunding litigation should be regulated.
This was among recommendations in its review of litigation funding,which was established in April 2024 to consider the self-regulated position of third party funding for legal cases.
It said that where crowdfunding offers funders a financial reward in the event of success, this should be treated as a form of litigation funding and regulated as such.
This was because “the individual or organisation responsible for running the crowdfunding campaign would be operating in an equivalent manner to a litigation funder”.
Where crowdfunding does not allow funders a financial reward, it should be subject to a separate regulatory regime, the council said.
This should require donated funds to be held on trust and used for the proposed litigation only, with unused funds returned to donors or given to the Access to Justice Foundation.
Under the new regulatory regime for ‘unrewarded’ crowdfunding there should be measures to mitigate the risk of its use for money laundering or other criminality; to protect funders from abuse by unethical or unscrupulous individuals or organisations, and to ensure that funders have clear information about the nature of the claim, its prospects of success and any potential liability.
The review said section 85 (provision of information about financial resources) and section 86 (use of information about financial resources) of the Criminal Justice and Courts Act 2015 should be brought into force to apply to crowdfunded judicial review proceedings and the Civil Procedure Rule Committee should gain powers to make rules that extend the effect of those provisions to other categories of crowdfunded civil litigation.
Crowdfunding is established as a means to finance judicial review proceedings, the review found, with 413 such cases reported by 2023, and “there is a degree of crowdfunding taking place that is not readily visible to scrutiny and that there are anecdotal accounts of it being used inappropriately”.
The review said there were concerns that crowdfunding without financial rewards for backers “will be provided for unmeritorious or vexatious claims, which will be contrary to the funders’ interests, the defendant’s interests in having to expend time and resources in responding to such claims, and the public interest as the courts will have to expend their limited resources (to the detriment of other litigants on such claims”.
There were also risks that lack of transparency in crowdfunding might not make clear to potential funders the merits, benefits or risks of funding or the ability of crowdfunded litigants to pay any adverse costs.
Concerns had also been raised about unregulated crowdfunding by HM Treasury and the Home Office, both of which feared it could be a vehicle for money laundering.
Sir Geoffrey Vos, Master of the Rolls and chair of the Civil Justice Council, said: “This report provides a comprehensive and balanced package of reforms that will ensure that third party funding continues to support access to justice. It recommends the introduction of appropriate and proportionate regulation. The recommendations will improve the effectiveness and accessibility of the overall litigation funding landscape.”
Mark Smulian
