Maurice Power examines some common misconceptions about litigation funding
Litigation funding is a fast-growing sector. Investors are placing more funds into the market, new providers are emerging and the courts are acknowledging the value provided by the funders.
However, there are many misconceptions and misunderstandings about what litigation funders do, who they can assist, and how much they expect to get paid for their services.
Below we identify the most common misconceptions and provide answers to bust common myths to go some way to put at ease those with concerns about litigation funding.
Litigation funders are only interested in multi million pound claims
For several of the litigation funding organisations, this is true. They will have a minimum claim value that needs to be exceeded before they would consider offering assistance.
However, for the majority of funders, this is not the case. Providing that the litigation is meritorious, passes the funder’s risk assessment and, upon success, will generate enough to satisfy the costs of the action (legal and funder’s fees), while leaving the claimant with sufficient return for taking the action, then there are many funders who will look at claims of all sizes.
Where the claim is too small to satisfy the above, then there are funders that will be open to taking an assignment of the claim to pursue themselves.
The funding supplied is a loan and has to be repaid with interest
The funding supplied is a non-recourse investment in the litigation. Should the case be lost, then the there is nothing to repay as the funder has accepted this risk when making their offer of funding. If the case is won, then the terms agreed in the Litigation Funding Agreement, between the claimant and the funder, will apply.
I can afford to pay for my own legal costs therefore funding doesn’t apply to me
This is true, however many claimants will look to use litigation funding to reduce the financial risk associated with litigation and/or to remove the need for their finances to be tied up in, what could be, a lengthy legal process.
Another benefit of using a litigation funder is that the funder will not make an offer of funding unless they are convinced that the case is likely to win, therefore the claimant receives an independent view of the prospects of success.
The funders expect extortionate fees for providing assistance
All funders have their own views on how to structure the fee for their assistance; by taking into account the amount of investment needed, the likely length of the litigation and the level of risk present. In many cases the fee will be an agreed percentage of any win or a multiple of their committed investment.
With competition increasing in the market, the funders are now becoming more creative in providing fee structures which better align the interests of the claimant and the funder.
Litigation funders are unregulated and cannot be trusted
The Government has recently stated that the case has yet to be made for bringing in statutory regulation for third party litigation funding.
The Association of Litigation Funders (ALF) has a voluntary code of conduct for its members, however, membership is not mandatory and the majority of funders have chosen not to become members, preferring to rely on the terms of their Litigation Funding Agreement to provide comfort and protection for the claimant.
When choosing to work with a litigation funder it is always prudent to seek the advice of your legal team as to the professionalism and working practices of the funder.
Funders will want to exert undue influence on the claim
A professional and reputable funder will always want to review the progress made in the claim, however as they are only providing the funds by which a claimant can