We understand that litigation can be expensive and clients are sometimes anxious by how much it may cost to resolve their dispute. This is why we offer our clients a number of different funding options to suit their needs.
One of these options is litigation funding, often known as third party funding. It is available to individuals and corporate entities involved in litigation and arbitration. Claimants are the general beneficiaries but defendants may also secure funding if there is a large counterclaim at stake.
It involves a third party investor - usually a specialist litigation funding company (a funder) with no prior connection to the dispute, agreeing to fund part or all of the costs in return for a fee in the event of success. Put simply, the ‘success’ fee may be expressed in multiples of the funding agreed to paid or the amount of funding actually paid i.e. £250,000 of agreed or paid funding may result in a £1million fee. The fee may also be a percentage of the damages recovered or a simple rate of return. The type of fee will depend on the nature of the case and the risks involved.
A funder may be used to help pay some or all of the solicitor’s fees and/or their expenses and disbursements and/or the fees incurred by instructing a barrister. They may also be used help pay for an insurance policy to cover the risk of paying an opponent’s costs and any security for costs ordered in favour of an opponent. However, a funder has no control of a case, cannot interfere and all key decisions are for the client to decide.
Generally only claims with a large pot of money at stake are considered for litigation funding and where enforcement of any judgment against the opponent is unlikely to be difficult. A funder will want to ensure that they can reap the fruits of their investment, yet will generally only expect to be paid its fee if a recovery is made from an opponent. A funder usually loses its capital in unsuccessful cases and may also be ordered to pay some or all of an opponent’s costs, which is why insurance may be recommended.
A funder typically expects a claim to have been investigated before they agree to fund, to satisfy them that a claim has good prospects of success. Therefore, clients may need to incur the initial cost of any investigations; however, they may lead to avoiding the overall exposure if funding can be secured. Nevertheless, a funder may be agree to become involved at an earlier stage, albeit may only do so for a higher level of return.
The general rule is that the fee ultimately paid to a funder in the event of success (and any insurance policy purchased) cannot be recovered from a losing opponent in litigation. (This may not always be the case in arbitration.) As a result, only a proportion of the damages recovered will be received once a funder’s fee is paid and any additional fees paid such as those incurred pre-funding.
Whilst a client would need to share some of the damages with a funder, there are many benefits of using litigation funding, even if a client has the budget to fund a case themselves. These include being able to share the risk of bringing a claim, freeing up capital instead of using it towards legal expenditure and, importantly, simply being able to bring a claim in the first place, increasing access to justice.
Litigation funding can be an excellent option for cases where sufficient damages are at stake and are likely to be recovered. For further information, please use the drop down below.
This blog was written by Dale Gibbons, Senior Associate Costs lawyer in our Costs team.