What is Litigation Finance
Court cases can take years to resolve, with significant costs incurred during the litigation and enforcement process.
Unsuccessful claimants may also be subject to adverse cost orders in loser pays jurisdictions, requiring them to pay the defendant’s costs. Law firms have developed contingent fee arrangements to assist claimants, which in turn have exposed those firms to risk and cash flow constraints. Without third party funding and risk transference, many claimants would be unable to pursue meritorious claims.
The Association of Litigation Funders of England and Wales (“ALF”) explains Litigation Funding as follows:
Litigation funding is where a third party provides the financial resources to enable costly litigation or arbitration cases to proceed. The litigant obtains all or part of the financing to cover its legal costs from a private commercial litigation funder, who has no direct interest in the proceedings. In return, if the case is won, the funder receives an agreed share of the proceeds of the claim. If the case is unsuccessful, the funder loses its money, and nothing is owed by the litigant.
This financing tool provides a valuable means of access to justice for claimants who may not have funds available, or may not wish to tie up funds, for costly yet meritorious claims. Its application is currently limited to commercial cases of a high value, and it is not yet suitable for consumer cases, personal injury cases or claims that do not carry a sufficiently high level of damages.
Some Litigation Funders also provide financing to law firms wishing to manage their exposure to conditional fee arrangements in litigation work and can offer financing against other litigation-related risks, such as a portfolio of litigation claims.