Litigation funding is increasingly common, particularly since the reduced availability of legal aid.
What is litigation funding?
Litigation funding is where a third party (with no prior connection to the litigation) agrees to finance all or part of the legal costs of the litigation. In return, this third party will ordinarily be entitled to receive an amount payable from the proceeds recovered by the funded litigant following a successful outcome of their case.
Who might want litigation funding?
There are several groups of people who might consider litigation funding, to name a few:
- Litigants who cannot otherwise afford to pursue a claim;
- Litigants who prefer to share the risk of pursuing their claims (albeit that, assuming their case is successful, they will have to pay some of the damages to the funder); or
- Corporate litigants where third party funding allows them to finance more actions than their limited budget would otherwise permit.
What types of cases are litigation funding available for?
Broadly speaking, litigation funding is available for all monetary claims such as:
- Commercial litigation or arbitration;
- Insolvency claims;
- Matrimonial claims;
- Employment claims; and
- Group litigation.
What type of fees might a funder cover?
A funder will ordinarily cover the following costs:
- Solicitor’s fees;
- Barrister’s fees;
- Disbursements; and
- Court or Tribunal fees.
A funder may also consider covering these additional costs:
- Security for costs (where the Claimant is required to provide security by, for example, paying a sum of money into Court, to cover the Defendant’s costs of defending the claim if the claim is unsuccessful);
- The costs of an “ATE” (After The Event) insurance premium (such insurance is available to cover the risk of the Claimant having to pay the Defendant’s legal costs if their claim is unsuccessful); and
- Launching an appeal following a loss.
What factors might a litigation funder look at before deciding to fund?
Size of the claim
Some funders like to focus on a relatively small number of large cases where the returns can be substantial. That said, there are other funders that prefer to fund a far greater number of smaller claims at somewhat finer margins as to hedge any risk across a portfolio.
Litigation funders ordinarily require there to be a legal panel (barrister and law firm) to review the claim to advise that the claim has a good prospect of succeeding (usually 60%+) and if there is any risk of a counterclaim for example. A litigation funder will likely also look at more specific factors such as enforceability (whether any damages and costs awarded can be successfully recovered from the Defendant) or whether there is insurance or any other indemnity covering the Defendant’s liability.
The litigant (or, in practice, their solicitor) will likely be required to produce a budget of the likely costs of the litigation prior to funding.
Will sharing information with the funder affect privilege?
If a document is privileged, it cannot be seen by the other side or the Court during the disclosure process in litigation. There is a risk that the documents shared with a funder are not privileged and would therefore be open to be inspected by the other side. To mitigate this risk, funders will likely require a confidentiality and common interest agreement to be put in place before documents are shared with them.
To what extent is the funder’s relationship with the litigant confidential?
As it stands, there is no clear requirement or obligation to disclose the identity of a litigation funder under the Civil Procedure Rules and there is no generic statutory requirement to do so. That said, it is nevertheless possible for the opposition party to seek a court order for the disclosure of a funder’s identity. For such an application to succeed it would ordinarily follow circumstances such as where there is a breach of a costs order or where an application for security for costs is in contemplation.
Conversely, it might be advantageous for the funded litigant to disclose the funder’s identity to demonstrate to the other side that they are able to fight all the way to trial. Further, the existence of funding will signal to the other side that the claim has likely been reviewed by a legal panel and has been found to enjoy good prospects of succeeding.
What is the judicial view on litigation funding?
In litigation, legal fees can escalate quickly and can risk becoming a bar to the claim progressing to trial. Litigation funding therefore provides an important mechanism to allow litigants access to legal advice and justice. The Competition Appeal Tribunal recently described litigation funding as a “well-recognised feature of modern litigation” that “facilitates access to justice for those who otherwise may be unable to afford it”.
This is a substantial u-turn since the early 20th century during which litigation funding was prohibited by the conventions of maintenance and champerty, both of which were crimes and torts.
This article is provided by Burlingtons for general information only. It is not intended to be and cannot be relied upon as legal advice or otherwise. If you would like to discuss any of the matters covered in this article, please contact Dominic Holden or write to us using the contact form below.