A Legal Ethics Perspective on Alternative Litigation Financing
Canadian Business Law Journal, Vol. 55, p. 133, 2014, Forthcoming
33 Pages Posted: 7 Mar 2014 Last revised: 21 Mar 2014
Date Written: March 5, 2014
One of the foundational principles of legal ethics is that the lawyer owes an obligation of undivided loyalty to the client, and no other interests or relationships can be permitted to interfere with the lawyer’s exercise of independent professional judgment on behalf of the client. The strongest non-consequentialist doctrinal objection to third-party litigation funding is that it may compromise the lawyer’s independence. Yet this argument cannot be made in too strong a form, because lawyers are already permitted to enter into relationships or have interests that present a prima facie risk to the lawyer’s independence. In the United States, two such situations are the representation of plaintiffs in contingent-fee financed litigation and the representation of insured defendants by lawyers compensated, and substantially controlled, by liability insurers. Both of these situations present conflicts of interest that are mitigated for the most part not by formal rules of professional conduct but by other legal and non-legal sources of constraint. In the insurance defense context, many apparent conflicts are mitigated by doctrines within insurance law that limit the extent to which insurers can act self-interestedly at the expense of the insured. Regarding contingent-fee representation, market mechanisms are entrusted with the role of regulating the size of fees, while agency and tort principles regulate the conduct of lawyers representing plaintiffs in contingent-fee matters. These comparisons show that third-part litigation finance should not be condemned categorically as compromising the lawyer’s independent judgment. Rather, the acceptability of third-party finance should be dependent upon the extent to which the relationship between the funder and the recipient of funding is regulated to mitigate the risk of self-interested behaviour on the part of the funder.
Forthcoming in a symposium in the Canadian Business Law Journal on alternative litigation financing.
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