Using outsiders to bankroll disputes has been treated with some suspicion by the courts. But the construction industry would be well advised to explore it

So what do Status Quo and the construction industry have to do with one another? Well, both the industry and the legendary rockers can get involved in lengthy and protracted disputes. In the Quo case, it was over a claim for royalties made on contracts 40 years ago which allegedly became due for payment during the eighties.

The case attracted attention because of a device used by the claimant to fund their royalties dispute: third-party funding, or TPF – a method by which the resolution of a dispute can be funded by a third party.

Previously there had been great reluctance to allow people or companies who were not directly involved in the litigation to take an active part in it, such as by funding it. It was not perceived as being in the public interest if the courts became overloaded with vast amounts of claims that were brought because the litigants involved had little to lose as their costs were being paid by a third party. Of course, the counter argument is that the costs of litigation are often a barrier that prevents parties securing their legal rights.

All of this has a resonance in the development of adjudication. One of the main reasons for providing a right to adjudication was to give parties a quick and cost-effective way to get a basic resolution of their disputes. However, adjudication is not suitable for all cases, particularly substantial and complex ones. It can also throw up decisions that are incorrect and need to be resolved by litigation or arbitration. So TPF is something which, at the least, the construction industry might be interested in exploring as it develops.

For a brief time, Status Quo’s litigation looked like giving us some judicial comment on third-party funding and how it was viewed by the courts. The claimant who had the benefit of third-party funding won his case in January at first instance and, therefore, ordinarily would have had a claim for costs whereupon the implications of third-party funding would have been reviewed by the court.

Unfortunately for us, the Court of Appeal overturned that decision in April. As the claimant has now lost, there is far less likelihood that the court will be called upon to make any observations in relation to third-party funding and how that should be viewed in this case.

It was not perceived as being in the public interest if the courts became overloaded with claims brought because the litigants involved had little to lose

What we do know is that the master of the roles, the senior Court of Appeal judge, speaking at the Civil Justice Council’s costs forum set for earlier this year, said: “I don’t see why the principle of third-party funding, subject to reasonable controls, should not be accepted here.” He went on: “As long as it is willing to be transparent, one can see a public interest in supporting the funder.”

Nevertheless, the court is likely to remain concerned about the underlying issue of whether it really is appropriate for non-parties to be taking substantial stakes in the outcome of litigation that they had no original underlying interest in. However, a number of large accountants, insurance and finance businesses are setting up and establishing third-party fund subsidiaries.

Of course, there is a downside to involving a third-party funder. First, the party will want protection in terms of assessment of risk, merits and outcome. That is likely to mean greater cost and scrutiny in assessing claims and regular risk reviews as matters progress. All of that will add to the cost.

Second, there is the question of profit – third-party funders will not be providing support for no return. One marketplace funding arrangement is based on a fee of 30% of the first £350,000 recovered and 20% on anything above that. Commentators suggest that third-party funders will only be interested in large claims where the investment, costs of monitoring and reviewing that investment and likely returns make the process worth their while.

Clearly third-party funding will not be an answer to, or appropriate for, all cases. It may be that a party would decide that the extent of involvement of a third party, their “interference” in the case and the amount they will take of the proceeds of litigation, all mean that it is not the right way forward. On this point Status Quo’s adviser was clearly not a fan, describing the funding as “more blackmail with a nasty thing behind it – someone’s making a profit”.