The growth of third-party litigation funding shows that a contingency legal aid fund (CLAF) could succeed and should be set up, Lord Justice Jackson has said.

The fund would operate as a not-for-profit funder, financing some ‘ordinary’ commercial and non-commercial cases, and some ‘deserving’ cases for individuals of modest means, at the fund’s discretion.

The CLAF would need an initial injection of cash, which Jackson said could come from the government in mitigation of legal aid cuts; from the National Lottery; or from investors who could purchase ‘fixed interest coupons’ or ‘quasi-debentures’ – the latter offering a higher return but exposing the investor to greater risk.

Noting the success of commercial litigation funders, Jackson said individual lawyers may be willing to buy, for example, £10,000 bonds, if they had confidence in the management of the scheme.

He noted that a CLAF would have a number of advantages over the commercial funding sector, as it would not have ‘owners or shareholders creaming off the profits’ and could re-invest these back into the scheme.

Following the initial ‘seed’ funding, the CLAF would be self-financing. It would pay the claimant’s costs win or lose, and if the claimant succeeds, the CLAF would recover its costs from the other party, together with a share of the proceeds of the action.

The CLAF could take on adverse costs risk on behalf of clients, either by self-insuring or by taking out block or case-by-case after-the-event insurance cover.