Litigation funding is an excellent option for many dispute resolution lawyers and their clients, especially when dealing with high-value or complex cases. It can help bring a successful outcome to a case, as well as provide clients with the firepower they need to pursue justice. But what exactly is litigation funding? How can it benefit your clients? How do you obtain funding for cases big and small?
Let’s have a look at the basics of litigation funding.
What is Litigation Funding?
Litigation funding is a process whereby a third party (the funder) agrees to provide financial assistance to litigants in return for a share of any damages recovered from the defendant. The amount of money provided by the funder will depend on various factors, including the value of the claim, the strength of its merits, and the likelihood of success.
It can be used for both high-value claims (e.g. cross border commercial disputes) or lower quantum litigation (e.g. disputed invoices or enforcing a security). Some funders will even take a ‘portfolio’ approach to a basket of cases.
Whereas traditional sources of funding might be suitable for £10 million claims and above, if you know where to look there is funding available for claims under six-figures.
Typically, litigation funders base their business model on around a 30% ‘take’ of any recovered damages plus costs. This prices in the risk that they will not be paid at all on unsuccessful cases.
Using A Broker
When seeking out litigation funding, it’s usually wise to use brokers who can access both specialist funders and ‘off-market’ deals. This is particularly true of cases which are complex or involve jurisdictional issues.
All litigation funders have their own preferred ‘profile’ of cases, and their risk appetite varies hugely. This means that the litigation funding market is becoming increasingly fragmented and difficult to navigate. A bit like the insurance world, a good litigation funding broker will get to understand your case and approach the most appropriate funders in a way that is most likely to yield results. This might include alternative sources of finance, not just the big-name litigation funders.
It’s important to understand that funders need to deploy capital in order to generate a return for their investors.
Scouring the market takes time; therefore, using a broker enables lawyers to concentrate on delivering a result for their client. Moreover, because most brokers get paid by funders only upon successful recovery from defendants, this eliminates risk on behalf of claimants who may have difficulty accessing legal services due to financial constraints or other reasons.
The Benefits of Litigation Funding
There are many benefits associated with obtaining litigation funding for your client’s cases. Firstly, it allows claimants to pursue justice without worrying about how they’re going to pay for it – the funder takes care of all legal costs so that claimants can focus on achieving a successful outcome while not shelling out for hourly rate fees and disbursements for an uncertain outcome. It takes away a huge amount of litigation risk.
Secondly, funded claims can force defendants into settlement negotiations more quickly due to increased pressure put on them by having an experienced funder involved in proceedings. It is a serious statement of intent. Having access to funds may also allow the parties to explore mediation or ADR more readily.
Litigation funding provides lawyers and their clients with an excellent opportunity to pursue justice whilst taking away much of the risk associated with litigation. It may even lead them down pathways that would otherwise not be possible without access to capital upfront.
With a maturing litigation funding market comes greater competition between funders, which potentially means better deals for claimants. However this also means scouring the market takes time and market knowledge, which is why using brokers is often beneficial as they are likely to know of specialist funders and ‘off-market’ deals.
Contact us for more information about litigation funding.