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Crowdfunding: when legal aid fails, the community rises


Introduction

Crowdfunding is not a novel concept; however, it has encountered an unprecedent rise along with the digital age. Websites such as GoFundMe and Patreon are widely used to raise money for causes and struggling individuals. Litigation funding, where a third party, usually an institution or an individual, provides a claimant with financial support, has always happened on a private level. It is common for a claimant to receive support either by applying for legal aid, or through a litigation inventor: where a company or an individual covers legal expenses and is entitled to receive part of the settlements if the case wins.

The impact of crowdfunding is not clear yet, many cases which have been successfully crowdfunded have not found success within the courts. Cases such as the Miller case which ruled the governments Brexit attempt illegal have indeed thrived in the media and in fundraising. This is an anomaly. The use of online crowdfunding for litigation is complex. It involves ethical considerations where a balance is needed between disclosure to donors and jeopardising the case. Additionally, the regulations in place do not fully address crowdfunding for litigation and in turn provide donors with a number of uncertainties.

One thing is clear: the rise of crowdfunding litigation can be connected to the cuts of legal aid. Ultimately, the future of this type of financial support is very important. A successful crowdfunding litigation could be an indication to the government that it should not scale back its legal aid cuts, whilst its failure could leave a population that is already struggling with the costs of litigation without any alternative measures to government failure.

In order to analyse the impact and potential of crowdfunding in the UK, one can look at its success and how they have impacted government policy and legislation. Additionally, it is important to consider both legal and ethical considerations relating to this type of third-party funding to determine whether it is and should be a viable way to increase access to justice in the future.


Crowdfunding: High profile cases and their impact in the UK

There are two main models of crowdfunding litigation: equity-based and donations-based[1]. The equity-based works as an investment, meaning those who providing financial aid can get a return if the case is successful. The donations-based model relies on pure funders, that is individuals who do not receive a return. Although, the US has seen a rise in crowdfunding used as an investment through the equity-based model, the UK has mostly seen donor-based crowdfunding through websites such as CrowdJustice. CrowdJustice is currently the most high-profile litigation crowdfunding website active in the UK. Created in 2014, the platform has raised over £10 million and boasts over 200,000 backers. To determine whether crowdfunding can be successful one needs to look no further than its ‘Success Stories’ page.

Among its most famous cases the Miller case[2]: a challenge to the government plan to use the royal prerogative to trigger Article 50 withdrawal from the European Union. The case raised £150,000 from over 4,000 donors and lead to a successful legal challenge to Brexit before the Supreme Court. The court held that an Act of Parliament was needed to trigger Article 50, forcing the introduction of the European Union (Notification of Withdrawal) Act 2017.

In 2016, the website helped fund a judicial review of an NHS contract introduced by the Health Secretary. Arguing that the Secretary acted beyond his powers, a group of doctors raised more than £300,00. Despite the hugely successful campaign, the High Court rejected their arguments[3].

In 2017, an advocacy group raised over £50,000 to challenge the Investigatory Powers Act. The High Court ruled in that case that the core parts of the act were not compatible with European Union Law and gave the government six months to amend it.

In 2018, a campaign by the Centre for Women’s Justice for a judicial review against the decision to release a sexual offender[4]. The case[5] also argued that the Parole Board Rules 2016 r.25(1), which prohibit Parole Board proceedings from being public information, was an affront to open justice. The application for a judicial review was granted as the court found that the decision to release prisoner was irrational and the specific Board Rule prevented victims for accessing any information about release decisions.

Recently, a deaf 12-year-old boy raised over £6,000 to challenge a government decision to introduce no new GCSEs. Daniel Jillings argued that delaying the introduction of a GCSE in British Sign Language would be unfair to Deaf children and breached their rights under the Equality Act 2010. The case, which garnered a lot of media attention, pressured the government to announce that if a viable option for a BSL GCSE was made available they would consider an exception to their announcement. A proposal for the GCSE was publicly announced at the end of 2018.

These are but a few examples of successful crowdfunding litigation stories, however they indicate that this method can be used to successfully changed government policy. It is not hard to determine what makes a successful claim on the website, one look at its success stories shows that media attention and a ‘big issue’ are important factors. Issues such as challenging Brexit, the release of a convicted sexual assaulter and a young deaf boy who wants to promote disability rights for other children, all have something in common: they are marketable. These give ordinary people the opportunity to help other further causes that might impact them, mothers of deaf children who want their child to benefit from the same rights, or Remainers that were looking for another way to oppose Brexit. This reliance on advertising can often mean that the campaigns are dependant on media attention and willingness and could cause problems if the government sees this success as a means to cut legal aid even further.


CrowdJustice: Legal and Ethical Considerations

CrowdJustice allows individuals the opportunity to support cases with as little as £5. Through the platform individuals, Case Owners, can set up a page signalling what their cause is and how much they need to raise within a timeframe. Initially, this is a pledge: if the initial target is not met within 30 days donor’s card are not charged, if successful CrowdJustice charges a ‘platform fee’ and the payment is transferred directly to the lawyer in charge of the case. Any left-overs are donated to money raised that is not used can go to another case on the website that may further a similar cause or to the Access to Justice Foundation (the charity supported by CrowdJustice). The website terms and conditions are clear: “This is a donation site!”. The possibility of getting some money back is rare and reserved for those who invest over £1,000.


Platforms like CrowdJustice present a number of troubling legal and ethical considerations. The most obvious lie with government response, does the success of these platforms mask the problems caused by legal aid, thus justifying government policy? Additionally, what legal limitations are available to protect donors and opposing parties? Most importantly to practitioners, how do these funding methods impact their proceedings? Looking ahead, what are the possible concerns with the introduction of investment-based crowdfunding?


Who protects donors and opposing parties?

Crowdfunding for litigation can further unmeritorious claims. English laws of “champerty and maintenance” law barred third party funding for a long time, being designed to stop wealthy and powerful people from abusing the courts by funding harassment litigations. These were relaxed over the past century, with one of the main considerations being highlighted by Jackson LJ as providing “additional means of funding litigation and, for some parties, the only means of funding litigation” and therefore promoting access to justice[6]. However, there remain some restrictions that are applicable to crowdfunding litigation, namely under Criminal Justice and Courts Act 2015: donors who give over £3,000 to certain judicial review cases can be subject to a court order to be identified. This can be justified by the need for anonymity of donors (which are likely to increase the amount of donations) with the possibility of abuse of the system.

Although CrowdJustice has placed a number of limitations to ensure the integrity of cases raising funds through its platforms, there remains opportunities for those who wish to take advantage of the system. Lord Neuberger on the topic of litigation funding stated, “What can be used for the benefit of all can also be abused to the benefit of some.”[7] Anonymity and a global platform could, for example, give the opportunity for large companies to back unmerited campaigns against competitors in order to damage their reputation.

Overall, more regulation is needed to safeguard donations. Maugham QC wrote about crowdfunding as the next ‘mis-selling scandal’[8]. The reality of current crowdfunding in England is that once the money is raised, there is no way to return that money to donors. At the same time, crowdfunding happens at a relatively early stage of proceedings and Maugham QC points to two main issues: the pressure to raise funds quickly which may lead to over-promising; and the uncertainty of litigation funding in future steps. It is clear that the causes that garner the most attention and thus funding rely on an ideal, such as Brexit, and the impact of a case might be exaggerated to encourage more people to donate. In addition, litigation proceedings can go on for a long period of time, facing Case Owners with the challenge of deciding how much to raise. Raising too little may force the party to drop a case later, consequently, Case owners tend to set a higher target. In the BSL GCSE case, the petitioner chose to send unused funds to another case within CrowdJustice, with a seemingly similar premise (changing Entertainment for better accessibility for deaf people). Although currently in line with the terms and conditions set out on the website, the ability to spend donor money on other issues should be more closely regulated to protect their interests. However, the platform has little reason to assess success possibilities or even feasibility of a case as it “makes a profit irrespective of the case’s outcome”[9]. For example in 2018, a peace activist raised £11,000 for a judicial review Theresa May and the Defence Minister for “conspiracy to commit war crimes”. The application was denied as the Attorney General refused to hear evidence. Activism cases can often raise a significant amount of money for a cause that belongs solely in the political arena and lacks any prospect of success in a court of law.

Ultimately, CrowdJustice does not have enough safeguards to protect donor money and discourage promoters from selling something which they cannot guarantee.


Government Response – A threat to Legal Aid?

Julia Salasky described Crowdfunding litigation as a way of power distribution: “allowing lots of Davids to come together to be a single Goliath”[10]. As the founder of CrowdJustice, and a previous solicitor, it is not surprising to see her excitement for the platform. Its goal of increasing access to justice or allowing the public to join together for a cause is noble and guaranteed to help people, however, its impact could have negative consequences for those who need it the most. The nature of CrowdJustice, and other crowdfunding websites, is similar in that they all “appeal to the same pool of people”[11] and depend on an emotive or political appeal. In essence, this means that a small number of very interesting cases with good publicity will be able to use this platform for funding they would otherwise not be able to access, whilst the remaining millions that fall within the justice gaps remain without legal representation.

The main issue is that the good work being done by crowdfunding and other areas such as the hard work on Pro Bono Law clinics could encourage further cuts to legal aid or at least justify what has already been done. Joe Tomlinson puts it as:

“If crowdfunding (and other private funding methods) can be effective in partially filling the resource gap, government may take this as an indicator that public funds are not necessary.”[12]

Although crowdfunding has many benefits and does work to increase access to justice, it cannot be compared to what an effective legal aid system could do. Unfortunately, the creation of a few Goliaths could be enough to mask the chasm left by legal aid cuts in the short term, however they cannot fix the giant deficit in access to justice on their own.

Crowdfunding and Confidentiality of proceedings

Having considered the issue of mis-selling a case, another important considerations is how much information should the case owner provide to potential donors. Under its case pages, CrowdJustice has a tab for Case Updates, where the promoters can keep their donors informed on important developments of the case. This is problematic on a strategic level. These pages can provide two key points of information to the opposing side: how much has been raised and possible clues on the litigation tactic. Newman points to how these can be used: to search for “snippets of previously undisclosed information” or even when “making representations to the courts about costs”[13]. Essentially, if too little detail is provided on the case, the risk is that donors will be less likely to fund a case they are not familiar with. On the other hand, too much information could give a significant advantage to the other side. This is especially important as these cases often rely almost exclusively on funds they receive through the platform (or disclose how much of their own money they have invested in an attempt to maintain transparency) and facing a large company with unlimited funds, the risk that they might use the page to calculate how long a party can last in litigation.


Crowdfunding for investment – what are the risks?

Launching equity-based funding in the UK could increase the market for crowdfunding litigation significantly. Before its introduction there are a number of considerations for the FCA. Currently, the “Arkin cap” restricts third-party liability costs to its contribution level, but in an investment scenario adverse costs will likely become an issue. Due to the possibility of an unforeseeable and often substantial loss, an understanding of the case and its prospects of success will be necessary[14]. This clashes with the confidentiality needed in proceedings, as other parties could gain access to vital case information by posing as an investor. This is a vital barrier to the introduction of investment crowdfunding and could significantly delay its introduction until a solution can be found.

The problem is that finding a balance between the interests of investors and the interests of the case owners seems almost impossible. On the one hand, investing in litigation will likely involve high stakes, and therefore it is unreasonable to expect a party to invest in a case when they cannot reasonable assess the possibility of a win. However, the risks of sharing this information are countless. It is likely that this will have to involve strict Non-Disclosure Agreements with exorbitant penalty fees: in order to stop opposing parties from attempting to pose as investors, the price of breaking the NDA should be higher than their possible gains from winning the case. Additionally, financial authorities should push for criminal liability as well as high financial liability in an attempt to safeguard these proceedings. Nevertheless, the amount of liability involved in this type of crowdfunding could intimidate potential investors.

It is worth mentioning that the lack of regulation relating to crowdfunding has left it vulnerable to money laundering[15]. Walters points to a stark warning by the executive director at the Solicitors Regulation Authority about crowdfunding litigation saying, “it is a really easy way to launder money”. This could be severely heightened by the introduction of equity-based funding and it’s another way to justify the need for an in-depth review of current legislation in the area (or lack thereof).



Is crowdfunding the future of legal aid?

Litigation crowdfunding is in its infancy, and thus there are many vulnerabilities to exploit: from money-laundering opportunities to confidentiality issues. If it is to become a viable source of funding for legal cases, more regulation is needed, especially with the possibility of creating a new investment source. The current balance between sharing information with donor and acting in the case’s best interest have created an opportunity for opposing parties to gain vital information (such how much funding a litigant may have). Consequently, this model is not ready for championing causes against large corporations, whose financial and strategic resources are certain to exhaust the possibilities created through crowdfunding.

The rise of crowdfunding might appear an interesting look at the effects of globalisation, creating a platform for those who want to help, and its success indeed indicates that there are many who do. Yet, a closer look reveals an imminent national crisis. If the switch in litigation funding continues to move away from public funds and towards private campaigns, we risk undermining the rule of law. The rule of law is reliant on accessible courts and affordable justice for all, not just the few that have a particularly marketable case or strong social media presence. That is not to say that crowdfunding litigation shouldn’t play a part in the future of access to justice campaigns, however, it should not downplay the need for widened legal aid and should be reserved to cause-based litigation rather than individual proceedings. This will ensure that crowdfunding maintains its power to further public-interest causes without encouraging further weakening of the legal aid system.

Litigation is expensive and two decades of increasing cuts to legal aid have created a heavily imbalanced justice system. The solution does not lie with crowdfunding. Despite recent successes, it is clear that the new platform is too influenced by the media to effectively promote access to justice, as it too often relies on marketing and media traction. Excessive litigation prices and lack of relief for those in need will continue to reward large corporations, who often face litigation and have the means to overindulge in defence lawyers, whilst forcing neglected groups further into underrepresentation; save for the few that the media deems worthy of attention. Ultimately, only a well-funded legal aid can stop the looming national crisis that faces our justice system.



Bibliography

- - ‘Update On CrowdJustice: 'Why Was John Worboys Granted Parole? His Victims Need Answers.' (Centre for Women’s Justice, 36 January 2018) <https://www.centreforwomensjustice.org.uk/news/2018/1/26/update-on-crowdjustice-why-was-john-worboys-granted-parole-his-victims-need-answers> accessed 08 March 2021.

Lord Justice Jackson, ‘Review of Civil Costs: Final Report’ (December 2009).

Lord Neuberger, "From Barretry, Maintenance and Champerty to Litigation Funding" (Harbour Litigation Funding Lecture, 2013).

Maugham J, ‘Is crowdfunding the next mis-selling scandal?’ (Law Society Gazette, 20 July 2020) <https://www.lawgazette.co.uk/practice-points/is-crowdfunding-the-next-mis-selling-scandal/5105038.article> accessed 08 March 2021.

Newman M, ‘Strength in numbers’ (Law Society Gazette, 23 July 2018) <https://www.lawgazette.co.uk/features/strength-in-numbers/5066950.article> accessed 08 March 2021.

Pritchard T, ‘Litigation crowdfunding: a tool for change’ (2020) 163(10) SJ 2020 60.

Salasky J, ‘Crowdfunding and compliance: what you need to know’ (2016) 160(2) SJ 17.

Spendlove H, ‘Litigation: crowdfunding’ (2015) 96 SJ 16.

Tomlinson J, ‘Crowdfunding public interest judicial reviews: a risky new resource and the case for a practical ethics’ [2019] PL 166.

Walters M, ‘We're no replacement for legal aid, says crowdfunding pioneer’ (Law Society Gazette, 22 November 2018) <https://www.lawgazette.co.uk/law/were-no-replacement-for-legal-aid-says-crowdfunding-pioneer/5068408.article> accessed 06 March 2021.

[1] Julia Salasky, ‘Crowdfunding and compliance: what you need to know’ (2016) 160(2) SJ 17. [2] R (on the application of Miller and another) v Secretary of State for Exiting the European Union [2017] UKSC 5. [3] R (on the application of Justice for Health Ltd) v Secretary of State for Health [2016] EWHC 2338 (Admin) [4] - - ‘Update On CrowdJustice: 'Why Was John Worboys Granted Parole? His Victims Need Answers.' (Centre for Women’s Justice, 36 January 2018) <https://www.centreforwomensjustice.org.uk/news/2018/1/26/update-on-crowdjustice-why-was-john-worboys-granted-parole-his-victims-need-answers> accessed 08 March 2021. [5] R. (on the application of DSD) v Parole Board for England and Wales [2018] EWHC 694 (Admin) [6] Lord Justice Jackson, ‘Review of Civil Costs: Final Report’ (December 2009) [7] Lord Neuberger, "From Barretry, Maintenance and Champerty to Litigation Funding" (Harbour Litigation Funding Lecture, 2013). [8] Jolyon Maugham, ‘Is crowdfunding the next mis-selling scandal?’ (Law Society Gazette, 20 July 2020) <https://www.lawgazette.co.uk/practice-points/is-crowdfunding-the-next-mis-selling-scandal/5105038.article> accessed 08 March 2021. [9] Melanie Newman, ‘Strength in numbers’ (Law Society Gazette, 23 July 2018) <https://www.lawgazette.co.uk/features/strength-in-numbers/5066950.article> accessed 08 March 2021. [10] Julia Salasky, ‘Crowdfunding and compliance: what you need to know’ (2016) 160(2) SJ 17. [11]Melanie Newman, ‘Strength in numbers’ (Law Society Gazette, 23 July 2018) <https://www.lawgazette.co.uk/features/strength-in-numbers/5066950.article> accessed 08 March 2021. [12] Joe Tomlinson, ‘Crowdfunding public interest judicial reviews: a risky new resource and the case for a practical ethics’ [2019] PL 166. [13] Melanie Newman, ‘Strength in numbers’ (Law Society Gazette, 23 July 2018) <https://www.lawgazette.co.uk/features/strength-in-numbers/5066950.article> accessed 08 March 2021. [14] Harry Spendlove, ‘Litigation: crowdfunding’ (2015) 96 SJ 16. [15] Max Walters, ‘We're no replacement for legal aid, says crowdfunding pioneer’ (Law Society Gazette, 22 November 2018) <https://www.lawgazette.co.uk/law/were-no-replacement-for-legal-aid-says-crowdfunding-pioneer/5068408.article> accessed 06 March 2021.

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