Litigation funding is where a third party provides the financial resources to enable costly litigation or arbitration cases to proceed. The litigant obtains all or part of the financing to cover its legal costs from a private commercial litigation funder, who has no direct interest in the proceedings. In return, if the case is won, the funder receives an agreed share of the proceeds of the claim. If the case is unsuccessful, the funder loses its money and nothing is owed by the litigant.
Because the litigation funder’s return is tied to the success of the case, funders look to fund cases with good prospects of success.
The funders’ share of the proceeds of a successful case is negotiated with the litigant at the outset. This financial reward typically consists of either a percentage of the damages recovered, or a multiple of the amount advanced by the funder, or a combination of the two.
This financing tool provides a valuable means of access to justice for claimants who may not have funds available, or may not wish to tie up funds, for costly yet meritorious claims. Its application is currently limited to commercial cases of a high value, and it is not yet suitable for consumer cases, personal injury cases or claims that do not carry a sufficiently high level of damages.
Litigation funding provides a cost-effective financing tool for claimants, and solicitors in England and Wales are now obliged to explain its existence and function to their clients so that they can take it into consideration when planning the funding of a case.
The Association of Litigation Funders provides useful guidance on this expanding service.
Leading Litigation Funders include: