What is Litigation Funding?

Litigation funding, also known as legal financing and third-party funding, is a way of obtaining financial resources which will enable costly litigation or arbitration cases to go ahead and proceed.

Litigation finance is a growing industry and is recognised as a cost-effective financial tool for claimants.  It is now the case that Solicitors in England and Wales are obliged to inform their clients of the existence of litigation funding and explain it as a real option. This way, they can take it into account when planning the funding of the case.

Litigation funding is not actually a new concept, despite the new surge in growth, and has been around in England and Wales since the year 1967. It is not yet permitted in Scotland but is permitted in other countries around the world such as Australia (since the 1990s), the USA, Canada and Singapore.

In this guide, we will be looking at what litigation funding is, what it is used for and how it works.

How does it work?

If you are needing to fund a court case, then through litigation funding, a third party will provide you with financial resources to enable you to go to court or fight a legal dispute.

The way the funding works is that the Litigant (the person involved in the lawsuit) will obtain all or part of the funding to cover the legal costs from a private commercial litigation funder. The funder must have no direct interest in the proceedings of the case.

If the case turns out to be successful and is won, then the funder will receive a share of the proceeds of which the claim was made. Alternately, if the cost is unsuccessful and lose the case, the funder will lose its money as the policy is usually on a no win, no fee basis. In short, you only pay back the funding if you win the case.

Taking this into account, it becomes clear that because the funder’s return is so heavily tied to the success of the case, litigation funders are extremely picky when it comes to which cases they will take on. Therefore, not everyone will find it easy to obtain litigation funding.

Before any contracts are signed by either party, the funder’s overall share of the money is negotiated with the litigant. It could be a percentage of the damages recovered or a multiple of the amount advanced by the funder. It could also be a combination of the two.

Typically, you can borrow an amount which ranges from £1,000 all the way up to £1 million. This wide range reflects the nature of court cases and can be used to cover extensive medical costs if there was an injury involved.

What claims could litigation funding cover?

There are various things which you can use litigation funding to pursue a case for. The sort of things it will typically cover include:

  • Personal Injuries
  • Accidents at Work
  • Employee Disputes
  • Divorce or Partner Disputes
  • Property Damage
  • Commercial Claim

As mentioned, the funder may not take on certain claims that they do not think will win in court. This is since the funder will lose money if the case turns out to be unsuccessful for the claimant.

Interestingly, if the opposing party in a legal dispute is aware that litigation funding was approved from the case, they may be more inclined to settle the dispute early. This is because, for a funder to pay out, they must have faith that you will win your case or at least see it as very likely – therefore, it can act as a sort of threat to the opposing party. If the claim has attracted funding, it must be a winnable case for the claimant.

What is litigation funding used for?

The things which litigation can fund include:

  • Legal Fees & Disbursements
  • Consultants & Experts
  • Court and Issue Fees
  • Counsels Fees
  • Medical & Specialist Reports
  • Medical & Rehabilitation Costs
  • Personal & Living Expenses
  • Additional Disbursements

The most obvious thing which is covered by litigation funding is the legal fees associated with making a claim.
In addition to this, it is understood that claims can often take a long time to go through. During this time, the claimant may find themselves out of work as a result of injury or a dispute. Therefore, one of the things covered is the claimant’s personal and living expenses as part of the overall fee.

Litigation funding also helps to pay for any medical and rehabilitation costs if the claimant has been affected by an injury on which they wish to claim on. Many treatments and procedures are not provided by the NHS, leaving an individual no choice but to seek medical attention through private health care. Therefore, the costs will be covered by the funding provided.  This will include; surgery costs, medical consultants, any treatment and therapy, medical equipment and the costs associated with rehabilitation.

The Future of Litigation Funding?

Many more territories across the globe such as Hong Kong, are recognising that litigation funding should be made a lawful in arbitration.

As the market begins to charge, so will the risk profile of the funders and how they will assess each individual case on a singular or scheme basis.  Many funders are beginning to adopt a far more sophisticated approach to their decision-making, many are using technological advancements to help them wade through the potential claims pool. The approach it is moving towards could be likened to digitally based underwriting, perhaps with the use of Artificial Intelligence involved.

The number of litigation providers is growing in the UK. Traditionally, litigation funders would only take on cases which needing funding of £2 million upwards. Nowadays, companies are offering funding from as low as £1,000. Even though it is still in its infancy in the UK, third-party funding appears to be becoming an established part of the legal funding procedure.

As mentioned, the more the industry grows the tighter the regulation will have to become – which is a good thing as the claimants, funders and solicitors alike will all have greater protection.