Newspaper article The Evening Standard (London, England)

Setback for Investors Who Seek Profit from Litigation; "An Astounding Claim": Lord Justice Mummery Rejected Negligence Argument

Newspaper article The Evening Standard (London, England)

Setback for Investors Who Seek Profit from Litigation; "An Astounding Claim": Lord Justice Mummery Rejected Negligence Argument

Article excerpt

Byline: JOSHUA ROZENBERG

LAWYERS, investors and regulators are meeting next month to devise a"lighttouch" regulation scheme for the rapidly growing market in litigationfunding. The all-day conference will be chaired by the Master of the Rolls, SirAnthony Clarke.

England's senior civil judge is comfortable with letting independent investorssupport legal claims in exchange for a share in any winnings. But he wants theindustry to be properly regulated. Otherwise, funders might disappear when aclaim reached an advanced stage. That could force a claimant to withdraw orleave a successful defendant unable to recover his costs.

No decision has been taken on which of the existing regulators might takeresponsibility for litigation funders.

But the preferred option would be to draw up rules of court under whichclaimants would have to provide security for costs. Funders might not have tohand over the cash at the start of a claim so long as they could show they weregood for the money.

Litigation funding took something of a knock last week when the Court of Appealstruck out a case being supported by IM Litigation Funding, one of the firstcompanies to join the market six years ago.

This was a negligence claim for [pounds sterling]88 million against the chartered accountantsMoore Stephens, who had audited a company called Stone & Rolls before itcollapsed. The auditors were accused by the company's liquidators of failing todetect fraudulent behaviour by a Croatian trader called Zvonko Stojevic, whoran Stone & Rolls as a oneman band.

The problem faced by the claimants was that, as liquidators, they had to sue inthe name of the company they were liquidating. On the face of it, therefore,Stone & Rolls were trying to claim for losses incurred through their own fraud.And, as the former Lord Chief Justice Lord Mansfield said as long ago as 1775:"No court will lend its aid to a man who founds his cause of action onan&illegal act." There were two answers to this, according to the liquidators.First, the company was the victim of a fraud by its owner. …

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