15 December 2016

Litigation Funding: What Can We Expect In The Future?

Litigation funding is increasingly an option which parties to English litigation explore, even if they choose not to pursue it or are unable to secure commercially acceptable funding terms.
UK Litigation, Mediation & Arbitration
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Summary and implications

Litigation funding is increasingly an option which parties to English litigation explore, even if they choose not to pursue it or are unable to secure commercially acceptable funding terms.

We take a look at the recent developments in the industry, potential obstacles and also key predictions.

Recent developments

The Court of Appeal's comments in the recent case of Excalibur Ventures LLC v Texas Keystone Inc and others [2014] EWHC 3436 have confirmed that litigation funding is here to stay as "a feature of modern litigation" (see details of the case in Joy McElroy's article). It has also been suggested by commentators that litigation funding is becoming more mainstream and, due to increased awareness of it as an option, more in demand too.

The benefits of litigation funding as a strategic tool are becoming more widely recognised. Securing litigation funding, where disclosed to the other side, can demonstrate that a party has the finances to fight a case. It may also encourage parties to reach a commercial settlement earlier because more costly stages of proceedings (such as disclosure or witness statements) will not present the same opportunities to make settlement offers in circumstances where costs are less of a pressure point for the funded party.

A more recent development is the increased availability of ad hoc funding, for example, through crowdfunding platforms. Traditionally, crowdfunding had been the domain of the corporate/entrepreneur world to help raise funds. However, a couple of market-leading platforms have emerged in the US and the UK enabling people to raise funds to cover legal costs for cases as varied as planning challenges, appealing fines, proposing law reform and even participation in the current Brexit appeal on Article 50.

Potential obstacles

Despite the steady growth in awareness and use of litigation funding, there remain a number of issues which could affect the future growth of the practice area:

The Excalibur case highlighted the risks of providing funding after third-party funders were ordered to pay indemnity costs (more of the other party's legal costs than is usually ordered) in circumstances where they maintained that they were not responsible for any of the factors that led to the indemnity costs being ordered (see see details of the case in Joy McElroy's article).

The rise in crowdfunding as a solution to legal costs raises questions around whether the platform or individual donors might be ordered to pay a winning party's legal costs at the conclusion of a case, following the standard loser-pays-the-costs rule.

A further issue which could stifle the growth of the litigation funding industry is regulation: Currently, funders can self-regulate through membership of the Association of Litigation Funders (ALF) which sets down and enforces a code of conduct for its members (of which there are currently seven). Legal issues arising from crowdfunded litigation or further indemnity costs awards could lead to requests for increased or compulsory regulation for litigation funders. However, no regulatory changes are anticipated at the moment.

Key predictions

A possible consequence of litigation funding becoming more mainstream, with more players in the market, could be more competitive pricing for parties seeking funding.

There are two main potential growth areas for funding:

  1. After the Event (ATE) insurance, which can be used to insure third party funders/investors against potential adverse costs orders, such as that made in the Excalibur case.
  2. Class actions: following the introduction of the Consumer Rights Act 2015 (the Act), an "opt-out" procedure exists where consumers within the defined class (i.e. those who are affected) are automatically included. It has been suggested that any increase in class actions as a result of the Act could provide fertile ground for litigation funders due to significant investment required in order to get such large claims off the ground.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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