Legal funding has always been available to businesses across the UK however, over the last five years it has undergone some major reforms.
The industry has witnessed a boom in the number of third party funding firms which offer financial backing to companies in commercial litigation disputes. Whether it is a patent dispute, an insolvency claim or a shareholders’ dispute, third party funders give businesses the opportunity to take a case to court when finances are in short supply.
Of course their interest is financially motivated, it is business after all, but ultimately it is about investment. They are taking a huge risk by covering the legal costs because if the case loses, they don’t get anything and they have to pay the defendant’s legal fees; whereas the client can walk away without paying a single penny.
Financially viable
If the case does succeed though, they will expect a return which on average is 25-40% of their initial investment. This is justifiable given that some cases can take several years to complete, which is a long time to go without being paid.
You will find that not all disputes are of interest to third party funders and most cases must be in the value of £2-3 million. To secure funding, the case needs to have a strong likelihood of success and it is for this reason that more than 80% of applications are rejected, simply because they are not financially viable.
Funders undertake a meticulous protocol when considering whether or not to accept a case. They must determine what the chances are of success and at what cost.
Codes of practice
Funders do not bet on a dispute’s outcome; it is much more professionally calculated and only respectable funders will be members of The Association of Litigation Funders of England and Wales (ALF).
The industry is self-regulated but all members of the Association are bound by a strict code of practice that ensures funders practise correctly. This means they must follow set rules in terminating funding agreements, they must have adequate supply of funds, and they cannot unduly interfere in cases they are funding.
Solicitors are bound to their professional body The Solicitors Regulation Authority (SRA) which means that they must explain all funding options to clients. Moreover, the new regulations enforced in the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) ensure that there is greater transparency, faster disclosure and better budgeting.
As you can see, a lot has changed in litigation funding but one thing remains coherent; costs are at the heart of all lawsuits. In today’s climate, many cannot afford to achieve legal justice but third party funding is fast becoming an extremely viable funding route.
How will the industry look in another five years’ time? No-one can say for sure; I mean we’re not physic. However, one thing is certain- it is definitely a growing phenomenon and a force not to be reckoned with.
This article was provided by Vannin Capital, the UK’s leading specialist third party litigation funding provider.