Litigation Funding in the Uk
Litigation funding, also called third–party funding or legal financing, is a practice whereby a third party professional funder agrees to pay for some or all of a claimant’s legal expenses and costs relating to a dispute, in return for a fee or a share of the proceeds of the claim. Unlike loans to finance disbursements or WIP, the funding provided is only payable when the claim succeeds. However, if the litigation fails, the third party funder bears the costs.
There is no official minimum requirement for legal financing. Each funder evaluates the funding requirements on merit on a case-by-case basis. However, the use of litigation funding is most common for large disputes. In the UK, this type of funding can be broadly categorized into four different forms:
Third party funding
Damages based agreements
Conditional fee agreements
Legal financing is not a new concept. It has been around in Wales and England since 1967; however, it was limited to insolvency cases until recently. Although it means a claimant will have to share the cake if he/she is unable or unwilling to pay for the legal costs of a claim, it is better to eat half a cake than no cake at all. In fact, many people who opt for legal financing can actually afford to pay for the legal costs, but are risk averse.
When it comes to obtaining legal funding, most funders consider three important things, namely:
Whether a claim is likely to succeed
Whether potential rewards are big enough to make the claim worthwhile for both the claimant and the funder
Whether the defendant can afford to pay the claim
The funder’s share of the reward may vary significantly. It depends on the level of risk the funder is taking, as well as the specific funder. Some calculate their share of the damages as a multiple of the money they put in, while others take a percentage of the reward.
However, if the claimant loses the case, the funder takes a hit. The funder cannot demand reimbursement from the claimant unless there was a significant breach of the funding agreement by the claimant. For example, if the claimant hid important material facts, which would have forced the funder to reconsider funding the case.
Before signing a legal funding agreement, claimants should do their due diligence on the funder to ensure it actually has the financial capacity to fund their claims. In addition, they should carefully read the fine print of the agreement and focus on the circumstances in which the funding provider can pull out of the agreement. It is also important to remember that the funder will get a share of the reward, which means that the claimant will need to get a higher sum to make it worth settling.
For third party funding from one of the most reputable and reliable companies in the UK, call Claim Finance.