As any client will tell you, involvement in litigation and arbitration involves cost and risk. It costs money to instruct lawyers to pursue or defend a claim. There’s a risk that you may not recover that money. Worse still, on top of any damages that might be awarded against you, there’s a risk that you may be exposed to the opponents’ legal costs if you lose.
This situation has spawned an industry offering solutions to clients who want to reduce the cost and risk of litigation and arbitration. One of the solutions that has emerged is third-party funding. That is very simply where the litigation or arbitration is funded by a company that is not a party to the dispute.
The third-party funding industry, arguably centred in London, has grown significantly in recent years. England is the first and only jurisdiction where the largest litigation funders have chosen to self-regulate by creating the Association of Litigation funders (ALF). They have established a code of conduct for litigation funding that requires members have a minimum of £5m in capital, undergo an annual audit and are bound by a detailed complaints procedure.
It is important that clients understand that third-party funding is generally only available to clients who have a monetary claim (or counterclaim that exceeds the claimants’ claim). It is not generally available for clients who are facing a claim. Even then, much will depend on the size of the claim and the merits. Some funders like to see a minimum claim of £10M before they will commit.
If one can get over the above, then there is still the issue of enforcement risk. Funders are generally unwilling to commit if there are serious risks when it comes to enforcement. That said, they do have a lot of experience when it comes to global enforcement and that is often one of the key considerations for a client who has a good claim but is concerned about enforcement.
The decision to bring in third party funding is ultimately a decision for the client. Third party funding is generally on a non-recourse basis. The funder may also insure for adverse costs exposure. In other words, engaging a funder can relieve a lot of stress for the client. The claim is then handled by the funders and the lawyers but without the stress of legal costs and the risk of adverse costs. The quid pro quo of course is that there will be a premium for the funder in the event of a recovery. The level of premium depends on all the various factors, but it can be as high as 25% of the net recovery.
We know most of the litigation funders operating in our specialist sectors and we are often asked to advise clients on the pros and cons of funding in appropriate cases. It is often easier for a funder to become involved later in the case once more details are known about the claim and the defence.
If you consider that litigation funding might be appropriate for a claim then feel free to contact us to discuss the topic further.