Litigation funding, when investors put in capital to fund a lawsuit in exchange for part of any settlement, is steadily growing in the UK. In this guide, we’ll take a look at the main things you need to know.
What is litigation funding for?
Third-party litigation funding allows individuals and businesses to access funding in order to fight a case in court. Litigation funding agreements are used by many types of claimants, from customers who have been overcharged, those fighting unequal pay disputes and in the recent sub-postmaster’s Horizon scandal. In return for paying the legal costs, the funder receives a percentage of any settlement when a case is successful.
Who are the funders?
Financiers, hedge funds and venture capitalists are some examples of those who might fund a commercial case. They advance the money needed to a law firm or to a plaintiff on what is called a non-recourse agreement, meaning that if the case is unsuccessful, they lose their investment.
Funding agreement
The litigation funding agreement is a legally binding contract that sets out the terms of the arrangement and is regulated by the Association of Litigation Funders. There are many companies here in the UK, such as https://www.novo-modo.co.uk/litigation-funding, that can offer expert advice on this. Agreements are not usually required to be disclosed to the court in England and Wales, although there are exceptions.
Funding portfolios
Some funders finance several cases being pursued by a law firm or solicitor and may get a return on their capital from one case or a group. For the funder, this means less risk, as it is spread across multiple cases.
Champerty and maintenance
An ancient doctrine, champerty and maintenance has been abolished in the UK, but used to prevent third-parties from assisting in legal claims if they had no link to them. This has meant that litigation funding is now a common practice both here and in the US and Australia. As long as funders comply with local laws and regulations, they are free to invest.