Fenn, Paul; Rickman, Neil --- "The Empirical Analysis of Litigation Funding" [2010] ELECD 855; in Tuil, Mark; Visscher, Louis (eds), "New Trends in Financing Civil Litigation in Europe" (Edward Elgar Publishing, 2010)

Book Title: New Trends in Financing Civil Litigation in Europe

Editor(s): Tuil, Mark; Visscher, Louis

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848446854

Section: Chapter 7

Section Title: The Empirical Analysis of Litigation Funding

Author(s): Fenn, Paul; Rickman, Neil

Number of pages: 18

Extract:

7. The empirical analysis of litigation
funding
Paul Fenn and Neil Rickman

1. INTRODUCTION

Litigation raises a number of significant difficulties for the participating
parties. In particular, it is regularly claimed to be costly and risky and,
because of the asymmetric information problem between lawyer and
client, to raise principal­agent incentive problems. Problems can be exac-
erbated by procedural rules: perhaps the most obvious being the one in
many jurisdictions where the losers pay winners' costs.
Such problems may compromise the twin aims of any system of litiga-
tion: efficiency (in terms of deterrence through the bringing of meritorious
claims) and equity (through the compensation of those who have suffered
genuine harm). The contracts between lawyers and clients ­ hence `litiga-
tion funding' ­ can be seen as market and regulatory responses to such
concerns. In some jurisdictions, clients bear all the litigation risk through
`out-of-pocket' hourly fee contracts; elsewhere lawyers take on this role
through contingency payment, while insurance may also be provided by
state-sponsored legal aid or by the insurance industry itself.1 Clearly, these
examples suggest that a potentially complex set of agency relationships
(between lawyers, clients and third-party funders) surround issues relating
to fees, incentives and information asymmetries in litigation.
Of course, the choice of funding mechanisms is of theoretical interest
but only has practical consequences if it can be shown to affect key out-
comes of the litigation process; in particular, ones related to the objectives
set out above. This requires empirical ...