Tread carefully with crowdfunding – Charles Livingstone

One well-publicised legal case that utilised crowdfunding involved the provision of music tuition in the country's state schools. Picture: Greg Macvean
One well-publicised legal case that utilised crowdfunding involved the provision of music tuition in the country's state schools. Picture: Greg Macvean
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Soliciting contributions online is one way to finance expensive litigation, but Charles Livingstone has advice to offer

Litigation can be expensive, time-consuming and open-ended. As anyone who has ever pursued or defended a court action knows, it is impossible to guarantee how long the process will take or how much it will cost – putting pressure on even the deepest of pockets. Legal aid is also increasingly hard to come by, with even modest incomes making potential litigants – i.e. people who are either pursuing a case in court or being pursued – ineligible. In response to these issues, “crowdfunding” litigation has become an increasingly popular option.

Charles Livingstone is a partner in government, regulation and competition at Brodies LLP

Charles Livingstone is a partner in government, regulation and competition at Brodies LLP

Nowadays, people crowdfund everything from holidays to movies to IT start-ups; crowdfunding litigation works in much the same way. Those needing funds to pursue or defend an action can set up a page on a crowdfunding site setting out the details of their case, how much they need to raise and requesting donations.

There have been a number of well-publicised crowdfunded cases in Scotland. These include Wightman in relation to the revocation of Article 50, the “sequel” Court of Session challenge to the Prime Minister’s ability to advise the Queen to prorogue Parliament, a judicial review of music tuition fees in Scottish state schools and challenge to a local authority’s decision to issue a parking ticket.

As well as their own legal costs, litigants can seek donations to cover any expenses they have to pay if their litigation is not successful. Crowdfunding therefore gives them an opportunity to protect themselves against the cost and financial risks of litigation by appealing to members of the public, family, friends and others who might be considering similar litigation but want a “test case” to establish the principles. A number of high profile litigations in Scotland have been entirely crowdfunded, meaning those raising the actions have not had to pay out of their own pockets.

While crowdfunding is most often used in judicial reviews and other cases raising public interest issues, it does not have to be limited to that, and can be used for any form of litigation. It may, of course, be harder to generate interest in a private commercial dispute than in, for example, a high-profile human rights case, but if a dispute raises issues of potentially wide application, there may be others willing to make a contribution.

Approaches to crowdfunding will vary, but it is possible for litigants to raise funds for their actions in stages – pre-action correspondence, preparing the court papers, dealing with any permission requirements and pursuing the case to a full hearing.

This approach makes funding more manageable for donors, who can see how a case is progressing and choose whether to stay involved. Donors can also be protected by using funding sites that only take individual donations if the aggregate donations reach the desired thresholds, avoiding the “collective action” problem of donating money without knowing whether there will ultimately be sufficient funds for the litigation to proceed.

This process is also lower risk for litigants, who can set the initial funding threshold lower for the first stage of a litigation and try to build momentum from there, rather than committing themselves to an all or nothing approach that would involve raising all costs at the outset.

However, individuals seeking crowdfunding for litigation should always be aware that they will ultimately be liable for their own legal expenses arising from the action; unless they have an agreement with their lawyers that fees will be capped at the level of funding raised. That can put the lawyers in a difficult position given the inherent uncertainty involved in litigation, and so can mean having to raise extra funds to include a contingency buffer for unexpected additional costs. It is also important to anticipate the possibility of an appeal – winning a crowdfunded case at first instance may only be a temporary victory if there are insufficient funds to defend it on appeal.

The crowdfunded party may also have an award of expenses made against them if they are unsuccessful, though in certain public interest cases it may be possible to get a court order at the outset of litigation to protect against such an award.

Anyone thinking about crowdfunding a court action should therefore think carefully about exactly how much the action might ultimately cost, including the extent to which they would need to protect against an adverse award of expenses.

Charles Livingstone is a partner in government, regulation and competition at Brodies LLP