Litigation funding in the UK is now undergoing changes as it prepares for the implementing of the Jackson recommendations when they become law in April 2013. Litigation funding is never cheap, especially in the arena of expensive commercial litigation, where claims can be for millions if not billions . Such claims may take years to be resolved. Little wonder that litigation funding has been such a focus of attention and imminent reform.
Litigants, whether they are individuals or companies, can seldom afford to fund their own litigation. They might be able to pay for it out of a winning claim, but without funding how could they bring the case. Lord Justice Jackson acknowledged the need to widen access to justice in his recommended reforms. He also addressed recent de facto changes in litigation funding and these are now almost de jure.
For a third party to fund litigation was long illegal, owing to medieval laws of champerty and maintenance. Case law since 1995 had started to change this in practice. Now the new law will be the real green light to the development of a third party funding industry. Already there are about twenty third party litigating funding companies in the UK. Why do they provide the funds(often big funds) to help companies and individuals resolve their legal disputes? Not because they are benevolent philanthropists, but because they are businesses who are investing in litigation. They will require a share of the winnings. However, if the case loses, they lose their investment.
The key to successful litigation funding is meticulous and diligent choice of cases. Indeed, it is estimated that 85% of applications for third party litigation funding fail. What kind of cases do litigation funders in the UK like to fund? Those with the least risk, but also with a high stake to make it worth their investment. Cases worth less than £1million pounds are usually rejected.
So litigation funding is costly; even third party funders need to look for ways of sharing and protecting their investment. These additional litigation funding solutions have also been acknowledged in the 2013 changes. Briefly, they will see cases funded by CFA’s increasingly being replaced by Damage Based Awards or partial CFA’s, linked with contingency fees. Sensible litigation funding looks to using insurance to minimise risks; both ATE and BTE insurance can help.
It is estimated that at least £200 million is invested by third party litigation funding companies. This is set to grow. Clearly the litigation funding market is one to watch; it is no tiddler!
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