Litigation Funding: the Lie of the Land

Legal advice and the litigation process can be costly and complex. If you find yourself in legal hot water with limited funds, third party funding has obvious merit. A rise in its global popularity in recent years means that it is becoming a more viable option, but how does the legislation support this?

Globally, the rise of litigation funding has, and continues to be, hampered by the continued prohibition of ‘maintenance and champerty’:

  • ‘maintenance’: the funding of litigation by a third party who is a stranger to the dispute
  • ‘champerty’: the funding of a litigation by a stranger third party in exchange for a percentage of the win.

Good Practice

Despite some attempts made by the US-based Institute for Legal Reform to ensure formal statutory regulation of funding, third party funders operating in the English jurisdiction will, for now, be self-regulated.

However, claimants may be reassured by the formation of the Association of Litigation Funders (‘ALF’) new Code of Conduct, which has gone some way to strengthen the integral backbone of the process.

If a funder accepts the Association of Litigation Funders ‘voluntary code’, they will have agreed to what is referred to as ‘capital adequacy requirements’. This means that they’re obligated to have the resources to cover the costs for at least the subsequent 36 months. It also stipulates that the funder cannot terminate any agreement they reach with you without good legal reason and will not unduly interfere with your case.

No Win No Fee & Damage-Based Agreements

‘No win no fee’ arrangements have been touted as the ideal way to fund a case without incurring the associated costs. However, it’s realistic to expect that in such cases, the client will end up footing at least some of the bill, for example in the form of court or expert witness fees.

The popularity of third party funding may be impacted by the introduction of Damage Based Agreements (DBAs), a new funding option where the client simply pays the solicitor a proportion of the damages won. This directly aligns the lawyer’s interests with the client, and so helps to encourage a more competitive marketplace.

Third party funding does have significant appeal to claimants with limited financial resource, especially if they are taking on a well-resourced opponent. With some funders reporting to have as much as quadrupled their annual litigation fund in the past year, it’s likely we’ll be hearing a lot more about it over the coming years.

This article was contributed by Laura Moulden on behalf of Vannin Capital, a specialist litigation funding provider.  Visit Litigationfunding.com to find out more.