Chapters 5 and 7 (Privilege and Best Practices) – Conflicts of Interest for the Funders

Duarte G. Henriques (anonymous)

Chapters 5 and 7 Privilege and Best Practices – Conflicts of Interest for the Funders

A general comment that is common to the Privilege and Best Practices chapters concerns the issue of non-competition or exclusivity, and more broadly conflicts of interest for the funders deriving from information a potential funded party has shared with a potential funder.
Information shared with a potential funder involves many (if not every) aspects of the strengths and weaknesses of the case, the strategy of the legal team, evidence (documents) and other crucial facets. Savvy parties seeking to secure funding to their cases will enter into an NDA with the funder. However, once the information is shared, it becomes part of the funder’s mental bank of knowledge and often needs not to be documented to be at the funder’s disposal.
The question that arises is whether the funder may fund a case of conflicting party. For instance, a funder may be sought to fund a counter-claim of the respondent or a side claim of a co-claimant with interest and strategy not completely coincident with that of the original party that sought the funder’s financial assistance.
A funder may decide to fund such a claim without making use of the counter-party’s privileged information. The funder may simply know that it will prevail.
The flipside of this question is the funder’s business perspective: a party may well approach a large number of funders and share privileged information with them under a NDA just for the purpose of creating a future conflict of interest.

The Draft Report acknowledges this issue but in a slightly different perspective:
“There is a further concern that the funder itself keep the information confidential and does not share information it has from one party/client with another party/client without consent. In England & Wales, where many of the major funders are self-regulated under the Association of Litigation Funders, comfort can be taken from Article 7 of the ALF Code of Conduct which
provides that “A funder will observe the confidentiality of all information and documentation relating to the dispute to the extent the law permits, and subject to the terms of any confidentiality or non-disclosure agreement agreed between the funder and the funded party. For the avoidance of doubt, the funder is responsible for the purposes of this code for preserving confidentiality on behalf of any Funder’s Subsidiary or Associated Entity.” Equivalent provisions can be added to
the confidentiality agreement entered into with the funder.” (p. 111)

In my view, this consideration of the Draft Report and this non-binding ethical regulation is not enough to tackle the issue of conflicts of interest for the funders.

Must this issue be subject to further regulation, and which kind of regulation? Or, to the contrary, existing ALF rules and similar provisions in applicable NDAs will be sufficient to avoid conflicts of interest for the funders?