Crowdfunding is currently all the rage, enabling many new products and services to hit the market that would not otherwise have raised investment. It has also recently entered the legal world, with sites such as www.crowdjustice.co.uk offering a platform for communities to build support and funding for various public legal challenges.

There has been plenty of recent comment, such as this BBC article, on how it could be a game-changer in areas such as planning disputes, however our in-house Barrister Stephen Ellis-Jones has a few concerns regarding the liability of the crowd funders to additional costs if a case is lost.

 

Crowdfunding may appear to be an attractive risk free method by which a concerned third party can assist a litigant, by providing funding in what appears to be a legitimate and publically meritorious case, in circumstances where otherwise the litigant might have to abandon a claim or a defence because of lack of funding for legal costs.

However, third parties need to be aware that CPR 48.2 provides a mechanism whereby third parties can be ordered to pay the costs of the other party in the event that the party who they have supported loses and is unable to pay the costs.  In the recent case of Excalibur Ventures LLC v Texas Keystone inc & Ors (Rev 2) [2014] EWCH 3436 (Comm), the third parties were ordered to pay costs on an indemnity basis, even though they were not responsible for the conduct that had resulted in an indemnity costs order being made.  Furthermore, the liability to pay these costs was not limited to the amount that they had contributed by way of the funding.

 

The Terms of Use on the Crowd Justice website state that, in their view ‘UK case law indicates that pure funders – Backers who don’t have a personal interest in the Case, don’t stand to benefit from it and don’t control the course of the Case – will not typically have any liability beyond their initial Pledge’, however this is a fairly untested area and in our view requires caution.

Please note that the information in this article is not designed to provide legal or other advice or create a solicitor - client relationship. No liability is accepted for any loss caused in reliance upon its content and you should not take or refrain from taking action based upon the same.