Litigation funding has moved into the mainstream in the past 10 years or so.  According to the Financial Times, the popularity of litigation finance has resulted from billions of dollars from hedge funds, private equity and other institutional investors pouring money into the industry.  This has allowed providers to increase their offerings to help a wider variety of clients. However, there are many businesses which shy away from litigation due to fear of being saddled with runaway costs and large legal fees which they fear could blast a hole the size of the Supreme Court building through their cash flow.

There is a great deal of information available regarding litigation funding, but often it fails to answer the basic question – “What is it?”  Here, we spell out the concept of litigation funding and its advantages.

What is litigation funding?

Litigation funding is used whereby a third party, who has no prior or present connection to a legal matter, provides the finance required to run the case.  The funder is remunerated by a fee payable if the litigant in receipt of the funds is successful.

Litigation funding or third-party funding as it is sometimes known is often used in conjunction with:

  • A Conditional Fee Agreement (CFA) – whereby the client does not pay all or some of the legal fees if the claim is unsuccessful (however, disbursements will be payable)
  • A Damages-Based Agreement (DBA) – whereby the law firm assumes all of the risk if the case is lost, but if the claim is successful, they will take a share of the damages
  • An indemnity for legal expenses in the form of After The Event Insurance (ATE)

What are the advantages of litigation funding?

The main advantage of litigation funding is the funder assumes most or all of the risk of bringing or defending the claim.  And if litigation funding is used in conjunction with ATE, the risk of having to pay the other side’s cost should the claim be lost is also heavily mitigated.

If a company has multiple claims, litigation funding provides the capital to pursue all the actions, which turns potential litigation into an asset.  And if litigation is funded by a third party in conjunction with a CFA or DBA and ATE, it is possible to remove the cost of litigation from your organisation’s balance sheet entirely.

Will a litigation funder control who I use as a Solicitor and how my case is run?

Litigation funders must comply with strict ethics and paramount to these is they cannot interfere with the case and try to influence it to their own advantage.  Although a funder may recommend a law firm to you, it is entirely up to you whether you choose to instruct them. Your choice will not affect whether funding is granted, this is based on careful weighing up of the risk of bringing the case and the chance of success.

A funder is also unable to tell you whether to accept or reject a settlement.  Under English law, third-party funders must take the position of passive stakeholders in the legal matter they are financing.

What factors will a litigation funder consider when deciding whether to finance a claim?

The main considerations a funder will have when assessing the viability of a particular claim are:

  • Chance of success – not surprisingly, a third- party funder will only finance a case which has a good prospect of success.  To establish the odds, the funder will take advice from the instructed Solicitor. However, most organisations will require an independent barrister and in-house experts to consider the risk of litigation.  The possibility of counter-claims and others having an interest in the case will also be considered.
  • Enforcement of the decision – the funder will want to be confident that your opponent can pay any award made against them.  Therefore, they will examine their credit history, the insurance they hold, and the assets they hold both in the UK and in any other jurisdictions where the award could be enforced.

The funder will also consider how long the claim is likely to take to settle and how quickly a successful case will result in a financial payment.  Therefore, if you are seeking a remedy other than damages, such as specific performance, or have a series of preliminary issues which must be resolved, it is unlikely litigation funders would finance the case.

The other major advantage of litigation funding is both you and your Solicitor enjoy the support of the funder.  

To find out more about Commercial Litigation Funding, please contact us on 0333 222 5731 or talk to your Solicitor.

BMS Funding works with the legal profession and businesses to provide funding solutions for all market sectors.

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Litigation funding has moved into the mainstream in the past 10 years or so.  According to the Financial Times, the popularity of litigation finance has resulted from billions of dollars from hedge funds, private equity and other institutional investors pouring money into the industry.  This has allowed providers to increase their offerings to help a…
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