Comment: Crowdfunding a way to campaign

THE Alistair Carmichael case is a high-profile example of litigation by donation, writes Graeme MacLeod

Crowdfunding presents a real opportunity for campaigners to bring cases where cost might otherwise be a barrier, as the case against Alistair Carmichael showed. Picture: TSPL

The unsuccessful petition to remove Orkney and Shetland MP Alistair Carmichael is a fascinating case, which puts the spotlight on the apparently not uncommon practice of leaking information to gain political advantage. It also highlights the growing trend of financing litigation through crowdfunding.

In the US, crowdfunding is big business with individuals investing in cases in the hope of a return. Firms such as Invest4Justice invite people to invest in cases and their website refers to returns of up to 500 per cent in just a few months, on the basis that 95 per cent of legal disputes settle.

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CrowdJustice recently entered the UK market as a legal crowdfunder. However, unlike its American counterparts, it is an altruistic funding platform. The public are encouraged to make donations, not investments, in cases involving matters of public interest, including matters of environmental or social concern. As such there is no monetary reward for participants, just the satisfaction of supporting a potentially successful claim from which there may be a resulting common benefit. Any surplus funds are donated to charity, with 5 per cent of all funds paid to CrowdJustice.

The Carmichael case is a high-profile example of litigation crowdfunding by donation. In a highly unusual move, four of Mr Carmichael’s constituents petitioned the Election Court to remove him as an MP, arguing he was guilty of an illegal practice in terms of the Representation of the People Act 1983. The case related to a leaked memo, alleging SNP leader Nicola Sturgeon had told the French ambassador she would prefer David Cameron to win the 2015 general election.

After the election, it transpired that, despite his denials in a pre-election interview with Channel 4 News, Mr Carmichael had authorised the leak. However, to succeed in having Mr Carmichael’s election overturned, the petitioners had to show that the Channel 4 interview contained false statements about his personal character or conduct and that the statements were designed to affect his return as an MP. The Election Court agreed that Mr Carmichael had made a false statement for the purpose of affecting his own return at the election. However, although the court was critical of his conduct, it was not satisfied beyond a reasonable doubt that the lie he told in the course of the Channel 4 interview related to his personal character or conduct. The petition was therefore unsuccessful.

Crowdfunding was used to fund the legal fees of both parties in the case. The petitioners’ initial target of £60,000 was quickly exceeded. However, getting the action off the ground is just the first of many hurdles and the cost of litigation can be unpredictable. The campaigners appealed for extra funds with a current target of £208,000, nearly three times the initial one, as the case progressed to enable them to see it to its conclusion.

Assuming a party is able to raise sufficient funds to have the case heard, it also has to consider what will happen if it is unsuccessful. In Scotland, legal costs (known as expenses) are generally awarded to the successful party. Alistair Carmichael has confirmed he will seek to recoup his expenses from the petitioners, which are around £150,000. The petitioners have raised just under £200,000. However, from that sum, the four petitioners named in the court action will have to pay their own legal costs, plus anything the court awards to Mr Carmichael. Beyond the original donation, there is no liability for legal costs on the part of the funders; the petitioners will be liable to meet any shortfall from their own pockets. If unable to do so, either using the funds raised or with their own money, they face the possibility of bankruptcy.

However, although expenses are usually awarded to the successful party, this is not guaranteed; it is always within the court’s discretion and even where this discretion is exercised in favour of the successful party, the amount recovered always falls some way short of what was spent. It is generally accepted that the court award of expenses will only cover around two thirds of the amount spent by that party at best. Mr Carmichael will be liable for the shortfall and, to date, around £14,500 of a targeted of £50,000 has been crowdfunded towards his legal costs.

There is no doubt that crowdfunding presents a real opportunity for campaigners to bring cases where cost might otherwise be a barrier. The case against Alistair Carmichael has been prominent in highlighting that opportunity – and some of the risks.

• Graeme MacLeod is a partner at law firm CMS http://www.cmslegal.com