Litigation funding/finance is where a funder agrees to pay the costs of pursuing a legal claim in return for a share of any recovery obtained through settlement or adjudication. A funder may also agree to pay other costs associated with the claim, and may cover adverse costs if the claim fails.
Litigation funding seeks to restore the balance to commercial disputes, allowing litigants to pursue claims that otherwise they would not be able to due to the prohibitive costs that are inherent in commercial litigation, and moreover the risk of paying the other side if they lose. Litigation finance arrangements are often on a non-recourse basis – that is to say, should the claim fail or generally there is no recovery of proceeds, the claimant will not be on the hook with the funder.
One of the big advantages of litigation funding is that the opponent may cave in when they may not otherwise have done, knowing that the claimant is being backed by a reputable litigation funder with deep pockets. The opponent also knows that no sensible litigation funder would fund without having undertaken a merits test, having independently reviewed the prospects of success, which also sends a signal to the opponent in litigation.
The typical funding market caters usually for high-value cases (where cost/damages ratios are estimated to be as high as 1:10) but there is also a market for smaller matters, provided the damages are sufficient for it to be worth a funder’s investment. In most cases, funders will be looking at a 1:4 costs to damages ratio in order for it to be worth pursuing, both for the claimant and the funder.
The benefits of litigation funding are clear in that the client receives non-recourse funding for their case. The majority of cases settle before going to trial, meaning that a settlement resolution is likely.The funder will do their own due diligence with their in-house legal teams and risk analysts, meaning that the client receives an added advantage of a second opinion from a seasoned and independent lawyer before embarking down the road of risk litigation.
WLL are well placed to assess whether litigation funding is an option. We have a strong expertise in civil and commercial dispute resolution, and particularly in bankruptcy/ insolvency and professional negligence related cases.
