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Litigation funding for businesses – what is third party litigation funding?

Damian Carter provides an overview of third party litigation funding.

What is third party litigation funding?

Litigation funding is a way to finance litigation often through a third party funder. Third party litigation funding is a form of non-recourse financing for litigation. In exchange for an agreed share of the proceeds of a successful claim, a third party litigation funder will normally fund some or all of the legal costs and disbursements to take the claim to trial. If the claim is unsuccessful the funder will lose its investment.

Litigation as a potential asset

This can be very valuable to a business to leverage meritorious claims as a potential asset and finance them off balance sheet with the use of third party litigation funding. It can also be a useful way to try and manage costs and maximise recoveries. This can also be an effective way for businesses to pursue a claim against well-resourced opponents.

Individuals can also benefit from commercial litigation funding by using this combined with after the event insurance to mitigate against some of the risks and costs of pursuing litigation or bring a claim where he or she may not otherwise have the necessary resources to fund a claim.

Innovative and flexible funding options    

Third party litigation funding is often combined with the law firm acting on some form of risk reward basis in respect of its legal fees incurred in dealing with the litigation. Third party litigation funders often require the law firm to also have some investment in the case with part of the legal fees at risk if the claim does not succeed.      

There are a number of different ways of funding the costs of litigation when the claim has good prospects of success. In addition to the traditional privately funded method cases can be financed by the law firm acting under a conditional fee or “no win no fee” agreement (“CFA”); “discounted” or “partial” CFAs; or less commonly a type of contingency fee arrangement known as a “damages based agreement” (“DBA”). DBAs are likely to become more popular in light of the recent Court of Appeal decision in Zuberi v Lexlaw Ltd [2021] EWCA Civ 16.   

What do we need to assess a potential claim?

Contact us if you think you have a claim that may be suitable for third party litigation funding. We can discuss with you whether we consider that a funder may be interested in funding the claim. This will require consideration of the merits of the claim, the value of the potential claim and whether the opponent is likely to have the means to meet any successful claim or is insured. If a claim is suitable for third party litigation funding, then we will need to review the key documents and evidence and consider the likely costs to take the matter to trial. Packaging the claim in a professional way makes it much easier for a potential funder to understand the risks and reward of funding a claim. This significantly improves the chance of a case being funded and a funder offering “indicative terms”.        

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