LITIGATION FUNDING

Litigation Funding & Third Party Funding 

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Litigation funding, also known as third party funding or financing is where an unrelated third party steps in to provide financial backing, that enables a claimant with a strong legal case to pursue the  litigation or arbitration, despite the significant costs of the legal process.

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The claimant secures all or part of the necessary financial backing to pursue their claim from an independent private commercial litigation funder, who will have, and must have no direct interest, or control of the legal action.

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It is possible for claimants to secure different funding packages from different litigation funders, and so it is not unusual for two litigation funding to work together with some legal actions, especially if they are particularly large legal disputes such a significant group actions.

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The Cost of Litigation Funding

The cost of using a litigation funder’s money (which usually isn’t actually the funder’s money at all, but another third parties*) is that in return, if the legal dispute is won, the funder will receive an agreed return from the disputes proceeds. For example this could be something like 1.5 times or 3 times the original financial investment, or possibly a model based on the damages recovered, such as 35% or 45% of the damages awarded and recovered.

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Non Recourse Litigation Funding 

If however, the legal dispute results in an unsuccessful outcome, the litigation funder will lose its financial investment in the dispute, but you would owe them nothing as the original funding would have been made on a non-recourse basis, i.e. you don’t have to pay them back unless you win. This is one of the reasons the fee for a win is so high, as it needs to offset the costs incurred on the lost cases.

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If you have entered into a funding agreement with a litigation funder, then it is almost certain that you will have also bought an ATE insurance policy (After the Event insurance) to cover any adverse costs that the other side of your legal dispute will have incurred, and you would have to pay if you lost your case in usual circumstances.

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Securing Litigation Funding or Litigation Financing

Securing funding with a litigation funder is not easy. They make no secret of the fact they only want to pick winners, and their due diligence process is very robust indeed. Out of every 100 applications for funding, only about 5 or 6 of them will actually reach the stage of being offered funds. Just because you’re legal representative has given your legal disputes a 60% prospects of success, that doesn’t translate into a guaranteed acceptance from a litigation funder by any means.

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Is Litigation Funding or Financing Legal in the UK 

Litigation funding is permitted in the UK under statute, case law and public policy.  The Jackson reforms of commercial litigation came into force on 1 April 2013, and as part of that review, there was widespread recognition that litigation funding promotes access to justice by enabling litigants to manage their exposure to costs.

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So in summary, litigation funding can provide a cost-effective financing tool for claimants, and their legal representatives. This financing solution can provide an essential means of access to justice for claimants who may not have liquid funds available for litigation, or may not wish to tie up funds for costly yet meritorious claims.

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Litigation funding is currently limited to commercial cases of a relatively high value, for example strong commercial disputes with damages over £250,000 as a minimum.

 

If you need any further information on commercial Litigation Funding or ATE insurance, just click below.

 

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