Funders as Fiduciaries

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As discussed, we believe that parties should consider a contractual fiduciary duty to address some of the conflicts of interests inherent in litigation funding. Funders who have commented to date disagree. One objection is that imposing such a duty would put the funder in an untenable situation because the funder is already a fiduciary to its investors and, as discussed, the interests of the plaintiff and the funder (as its investors’ fiduciary) may conflict. (For additional objections see here and here.)

While this is certainly a valid reservation, we think the problem is overstated. We can think of at least three situations where agents — indeed, lawyers — have dual fiduciary duties.

One situation is when an attorney acts as escrow agent for her client and a third party. The duty to the third party is not trumped by the duty to the client.

Another situation, particularly analogous to litigation funding, is that of the attorneys at publicly traded law firms, who have a duty to their clients as well as to their investors. Consider this disclosure to investors made by Slater & Gordon, the first law firm to go public in Australia, in its prospectus:

Lawyers have a primary duty to the courts and a secondary duty to their clients. These duties are paramount given the nature of the Company’s business as an Incorporated Legal Practice. There could be circumstances in which the lawyers of Slater & Gordon are required to act in accordance with these duties and contrary to other corporate responsibilities and against the interests of Shareholders or the short-term profitability of the Company.

Finally, since many law firms are structured as partnerships, lawyers have fiduciary duties to each other (as partners) and to their clients. These duties, as we all know, may conflict.

In sum, it seems that lawyers already have to grapple with dual fiduciary duties and that the changing landscape of the legal profession—the emergence of publically-traded law firms and of litigation funding—simply increases the need to mindfully navigate this minefield.


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