1 Commercial legal finance basics

1.1 How is commercial legal finance defined in your jurisdiction?

There is no hard definition of ‘commercial legal finance' in England and Wales. Commercial legal finance is broadly recognised as being non-recourse funding for commercial parties for the funding of legal fees and expenses in relation to the prosecution of commercial claims, both litigation and arbitration. The structures available in commercial legal finance have developed significantly. The funding of portfolios of commercial claims is commonplace. It is also now relatively common for more complex structures to be adopted, including:

  • the purchase of commercial claims;
  • the purchase of commercial awards;
  • funding of portfolios of claims by law firm or client; and
  • the monetisation of litigation assets for non-legal spend.

1.2 How does commercial legal finance differ from consumer litigation finance and contingency agreements?

While there is no legal definition, ‘consumer litigation finance' broadly refers to funding which supports actions brought by consumers, usually against large corporates, either as a group or by a volume of similar individual claims. Such actions take a variety of forms, ranging from group claims against financial services institutions for the misselling of products to follow-on claims brought by representatives on behalf of consumers arising from breaches of competition law – often where the relevant regulator has confirmed that an entity has abused its market position.

1.3 What are the major legal finance products/solutions in your jurisdiction? (a) Single case fees and expenses; (b) Portfolio fees and expenses; (c) Monetisation of claims; (d) Monetisation of judgments and awards and (e) Other

(a) Single case fees and expenses

This is the most traditional form of commercial legal finance and remains popular with claimants and funders. As such, it is used a lot and remains a major product with claimants looking to take legal spend off balance sheet and share risk with third-party funders. As such an investment is binary and undiversified, this remains the riskiest form of litigation funding and is therefore priced at higher levels than other, more diversified types of funding.

(b) Portfolio fees and expenses

An evolution of the traditional single case fees and expenses model, funding the fees and expenses of a portfolio of claims is also now common. The primary benefit to clients is that the costs of funding a portfolio are generally lower than the costs of funding single cases due to the diversification of risk across a portfolio of claims. This is increasingly popular with large corporates, private equity houses and asset managers which might have a broad book of claims and a significant legal spend that can be taken off balance sheet.

(c) Monetisation of claims

This is also a major finance product in England and Wales, most commonly in the insolvency industry. Insolvency practitioners sell claims to litigation funders in order to realise value for creditors earlier on and take the burden of time and cost of prosecuting claims out of the insolvent estate.

Outside of the insolvency context, monetisation of claims is growing and the funding market has sufficient depth and breadth to support this demand.

(d) Monetisation of judgments and awards

This is a frequently used legal finance solution in England and Wales, particularly as the judgments and awards that arise from the big-ticket, often international disputes that are present in the local market lend themselves well to monetisation, or part monetisation, upon award and before an enforcement process is underway. Parties in possession of an award will often go to the funding market to seek to sell all or part of an award once obtained, and there are a number of funders which regularly purchase awards. This can be structured as an outright sale or a partial sale, whereby the funder pays out a sum to the award holder at the outset and then shares recoveries over a pre-defined hurdle rate once enforcement is underway.

(e) Other

Given the maturity and flexibility of the legal finance market in England and Wales, innovative solutions can often be found to meet the financial needs of clients with claims or awards. Financing of law firms is commonplace, as is financing of law firm risk, allowing lawyers and funders to share risk appropriately, with cost savings to clients. Defence funding is relatively uncommon but is available in the right circumstances – particularly where sufficient provision has been made by a defendant in accounts and there is little defendant solvency risk. Funds can be raised by a defendant to fund a defence, with the return being determined by the ‘success' of that defence, which is usually tied to a resolution below a pre-agreed figure.

1.4 In what areas of law is litigation finance most prevalent in your jurisdiction (eg, competition, insolvency, patents, contracts)?

In some form, litigation finance is prevalent in most sectors and disciplines, and is not just limited to commercial litigation – for example, family law claims have been funded, including some very high-profile cases. Litigation finance in England and Wales, as in most jurisdictions, is most obviously used in insolvency situations and competition/class action group actions, where there is no obvious alternative source of capital. While that was traditionally the mainstay of commercial litigation finance, this is now changing and frequently parties that can afford to meet their legal spend are using litigation finance not out of necessity, but as a source of alternative liquidity following an assessment of the financial position of the client and a review of their financial needs. In commercial disputes, seeking litigation finance is normalised and financing options for commercial litigation is a standard discussion at the outset of a dispute. Many professional funders now have investors with particular sector expertise from private practice, including in relation to competition, construction and commercial disputes, which supports the litigation finance ecosystem in those sectors.

1.5 Who are the major players in the industry (eg, pure players, multi-strategy firms, start-ups)?

The litigation finance industry in England and Wales is self-regulated by the Association of Litigation Funders of England and Wales (ALF), on the appointment of the Ministry of Justice, with the stated aim of:

  • improving the use and application of litigation funding; and
  • encouraging best practice and ethical behaviour among litigation funders.

The founding members of ALF are widely considered to be the major players in the industry and together have multiple billions of dollars under management. ALF members are generally ‘pure players' focused on litigation funding in various sectors and of varying investment sizes. Outside of ALF, there are other pure players in the market, which often focus on smaller target ticket sizes and sector specialisms, including a number of funds that focus on lower-value insolvency claims. As the litigation funding market has grown, there have been a number of new entrants, in the form of both start-ups and multi-strategy funds investing in litigation on an ad hoc basis – often alongside pure player funders as co-investors. Given the maturity of the market, funders are usually well known to each other and are used to co-investing either to ensure adequate funding coverage on larger investments or to spread risk to bring the cost of funding down.

2 Legal framework

2.1 How mature is the market for legal finance in your jurisdiction? What types of commercial litigations and/or arbitrations may be funded by a third party?

The legal finance market in England and Wales is one of the most mature globally, along with those in the United States and Australia. There is:

  • a broad network of funders and insurers available to efficiently allocate risk; and
  • a deep and established profession of lawyers, financiers, insurers and investors with significant experience in litigation and litigation funding.

Most meritorious commercial litigations and/or arbitrations in the jurisdiction will successfully obtain funding, provided that they are prima facie fundable – that is:

  • the merits are strong;
  • the economics are sufficient; and
  • enforcement is realistic.

Different funders will have different appetites for investments at different times, including ideal investment size and timing to judgment, subject matter, jurisdictions and sectors and so on. Co-funding is common where a single funder does not want to take on a full investment and funders regularly work together to provide solutions to clients. Secondaries are a growing market, whereby a litigation funder which has initially funded the litigation sells all or part of its position to another funder.

2.2 Is there a dedicated legal finance regime in your jurisdiction? What other laws and regulations have relevance to legal finance in your jurisdiction?

In November 2011, the Civil Justice Council published the Code of Conduct for Litigation Funders in England and Wales, which was primarily driven by a desire to ensure a fair balance between the interests of funders and ethical best practice. It has since been twice updated, in 2014 and 2016.

The Code of Conduct requires that Association of Litigation Funders (ALF) members:

  • have a minimum of £5 million in capital verified by a third party; and
  • cover their liabilities for 36 months.

Funders cannot take steps to breach lawyers' professional duties; nor can they seek to control the conduct of the ongoing trial. Litigation funders cannot include pure discretionary termination rights in funding agreements and must behave reasonably in terminating litigation funding agreements for material breach.

Litigation funders which are not part of the ALF often acknowledge compliance with the ALF Code of Conduct in their litigation funding agreements, which is often requested by clients.

2.3 Which public sector bodies and authorities are responsible for enforcing the applicable laws and regulations? What powers do they have?

Litigation funding is broadly self-regulated in England and Wales through the ALF.

2.4 Do the rules and codes of any self-regulatory organisations or professional associations have relevance to legal finance in your jurisdiction? What powers do such organisations and associations have?

The ALF Code of Conduct, which is adhered to by all ALF members, is the primary relevant set of rules governing legal finance in England and Wales.

2.5 What is the general attitude towards legal finance in your jurisdiction among the courts and other relevant bodies?

Litigation funding enjoys broad support from the judiciary: access to justice is an incredibly important goal of the justice system in England and Wales, and litigation funding is a crucial tool in levelling the playing field in disputes between parties with differences in bargaining power, promoting equality of arms in ‘David and Goliath' disputes.

2.6 Is legal finance considered consumer credit and is it captured by the relevant protective regulations in your jurisdiction?

Litigation funding is not usually structured in such a way that it is subject to consumer credit regulation, which in England and Wales is primarily governed by the Consumer Credit Act 1974 (CCA). In traditional litigation funding arrangements, funding is non-recourse and so it is not credit or a loan, and therefore not subject to the CCA. When dealing with consumers, however, this is something that should be actively considered.

3 Other risk-sharing models available to litigants and law firms

3.1 Are conditional (contingent or success) fee agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

Yes – conditional fee agreements are permitted and are used regularly. There are a variety of ways in which conditional fee agreements are structured. The most common is a contingent fee agreement, whereby all or a portion of the lawyers' fees are deferred in exchange for an uplift in the event of success, which is capped at 100%. For example, a law firm might charge 50% of its fees on an ongoing basis and defer 50% of its fees, receiving a success fee of a 100% uplift on that deferred amount upon success. Law firms can also operate under damages-based agreements, whereby the firm receives a percentage of recoveries in the event of success, capped at 50%. In both cases, law firms can look to litigation funders for full or partial financing.

3.2 What is the maximum contingency that is permitted (ie, up to 100% of hourly fees or something less)? Is there a cap on the amount of success fees lawyers can receive under such arrangements?

For contingency arrangements, the success fee is capped at 100%. For damages-based agreements, the cap is 50% of recoveries.

3.3 Are damages-based agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

Yes, damages-based agreements (DBAs) are allowed under the Damages Based Agreements Regulations 2013. Such agreements are often used by lawyers in high-value cases to take higher risks and share in the proceeds of the case. Compared to similar arrangements in the United States, these arrangements are relatively uncommon in England and Wales, but their use is growing. Litigation funding has assisted this growth, as law firms can look to litigation funders to pay their ongoing costs secured against DBA proceeds without this affecting the client's position.

3.4 What other funding and/or risk-sharing options are available to litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

Clients will usually work with law firms and litigation funders to build a structure which most efficiently allocates risk based on the appetite of the client, the funder and the law firm. Various structures are used either on a standalone basis or in tandem; and the market is well developed to ensure that the most efficient structure can be obtained. This flexibility is an advantage to all involved and allows each party to take as much, or as little, risk as it wishes.

3.5 Are law firms in your jurisdiction allowed to have non-lawyer owners or non-lawyer shareholders?

Yes – pursuant to the Legal Services Act 2008, a legal entity known as an ‘alternative business structure' was legalised. This has allowed non-lawyers to participate in the ownership of law firms and some law firms have listed under this arrangement.

3.6 How do the available funding and risk-sharing options impact on the attitudes of corporate litigants about affirmative recovery programmes or the pursuit of high-value commercial claims more generally?

The nature of the litigation funding market in England and Wales, – with strong judicial support, professional staff and the Code of Conduct for Litigation Funders in England and Wales – means that it is well respected by law firms and clients alike. Litigation funders have strong professional teams, and if a case has been funded this is a clear signal that it has:

  • strong merits;
  • a stellar legal team; and
  • sufficient evidence for the damages claimed.

The process of obtaining funding is often said by clients and law firms to have improved the overall merits of the case and can serve to drive early positive resolution. Corporate litigants therefore have a positive view of funding, and often use it to drive recovery programmes and pursue claims that they might otherwise not pursue with balance-sheet funds.

3.7 How do the range of funding and risk-sharing options available impact on the attitudes of law firms about their own business?

Leading law firms are increasingly using funding and entering into formal panel or portfolio arrangements with funders, which allows firms to share risk with funders and clients, to align interests and benefit from upside. Indeed, all leading litigation firms now regularly discuss litigation funding with clients, on panels and online. Law firms are increasingly looking to litigation funding as a way to take additional risk and share in the upside in order to encourage growth. The availability of risk-sharing structures and litigation funding has dramatically shifted the landscape for law firms, and particularly dispute resolution departments, which can now be real drivers of law firm growth, even in full-service law firms.

4 Collective actions

4.1 Is it possible to bring collective actions in your jurisdiction? If so, can they be funded by third parties? In those circumstances, how is the amount of the funder's return determined? Are there caps or other restrictions? Do such agreements require court approval?

Yes, collective actions are possible in England and Wales and are firmly entrenched in the modern rules of civil procedure. The collective action sector has seen substantial and rapid growth in recent years following the decision in Mastercard Inc v Walter Hugh Merricks CBE, which opened up the possibility of opt-out class actions in England and Wales. This, alongside other developments in English law and heightened interest among English firms and barristers, has led England and Wales to become one of the leading jurisdictions in which to bring collective actions.

In England and Wales, group actions can be, and often are, funded by third parties. Association of Litigation Funders (ALF) members follow the Code of Conduct and non-ALF funders often agree to follow the guidance set forward by the code. The funder's return is set out in a litigation funding agreement, with this return usually linked to the capital to be deployed in the collective action and the quantum of returns.

It is not a requirement that the court be notified of the existence of funding, although the identity of the funder may be disclosed by court order. Often, in order to demonstrate the support behind collective actions, funders will make public their funding of collective actions.

4.2 How significant is the funding of collective actions in your jurisdiction relative to the use of legal finance by individual commercial litigants?

Both funding of collective actions and individual commercial litigation funding are significant markets in England and Wales, and most established funders will be involved in supporting both classes of litigation.

5 Securing financing

5.1 What factors will a funder generally consider when evaluating whether to fund a case?

Ultimately, a funder will assess a case based on the expected return and how this expected return interplays with the returns available to the claimant(s). When assessing the expected return, the funders will look at a myriad of factors, including:

  • the legal merits;
  • the quality of the claimant's legal team;
  • the behaviour and rationality of the claimant and defendant and any settlement dynamic;
  • how long a dispute is likely to last;
  • how long enforcement is likely to take;
  • whether the defendant can afford to settle or pay a judgment; and
  • whether there are any reputational issues in relation to the dispute.

A funder will consider all of these elements, and more, when deciding whether to make an offer of funding. Usually, it will also:

  • assess what percentage of the claim proceeds it will take in the event of success; and
  • advance funding offers only where the claimant retains the majority of the claim value, such that the claimant is always motivated to prosecute the claim and to avoid the funder taking the balance of the proceeds.

5.2 What should a litigant or litigant's counsel look for in a legal finance partner?

Litigants should seek legal finance partners that offer value as well as capital. As the funding market has matured, users of litigation finance have demanded more professional services from funders in addition to the provision of capital. Established funders have in-house expertise in all manner of disciplines, including legal strategy, enforcement, finance and intelligence. Litigation finance partners should stand with claimants to lever that expertise and experience to drive better and more efficient results.

5.3 What is the typical process for concluding the legal finance agreement?

The usual process starts with a term sheet and then involves a period of focused diligence, in which the investment is considered in greater detail, and improved where possible, before final execution of the legal finance agreement and ancillary documents. The diligence phase is often the point at which funders can add more value, as a third party comes into the client and lawyer dynamic with a fresh approach and a motivation to enhance the merits and prospects of recovery.

5.4 What terms does the legal finance agreement typically include?

The legal finance agreement will typically include:

  • the commitment of the funder, including the budget and how that budget is allocated between legal fees, disbursements, insurance premia and any other costs;
  • the funder's obligations in respect of any adverse costs (or how any insurance provision is made);
  • how the funder's return will be calculated;
  • how proceeds of the claim(s) are to be distributed, known as the ‘waterfall';
  • the claimant's obligations to prosecute the case diligently and report to the funder on an ongoing basis, and particularly with respect to any material developments; and
  • boilerplate provisions on issues such as:
    • representations and warranties;
    • conditions precedent;
    • third-party rights; and
    • dispute resolution.

5.5 Do any caps apply to the funder's fees?

There are no legal caps on funders' fees in England and Wales. However, from a commercial standpoint, funders avoid situations in which the claimant will not seek to take 50% or more of the proceeds, as the claimant will lose motivation, which may undermine the merits of the case in circumstances where the funder is unable to influence or control proceedings.

5.6 Can the funder terminate the legal finance agreement before the litigation has ended? If so, under what circumstances and what are the implications?

The Association of Litigation Funders (ALF) Code of Conduct provides that a funder can terminate the litigation funding agreement if it:

  • reasonably ceases to be satisfied about the merits of the dispute;
  • reasonably believes that the dispute is no longer commercially viable; or
  • reasonably believes that there has been a material breach of the funding agreement by the funded party.

The ALF Code of Conduct prevents funders from including terms where funding can be terminated on a pure discretionary basis.

5.7 Under what circumstances (if any) must funding be approved by the court in advance?

While the court is not required to certify or approve funding as a matter of course, there are circumstances in which a court will review the funding arrangements as a matter of its overall judicial discretion. For example, the Competition Appeal Tribunal reviewed a funding agreement in the Merricks litigation after a new funder replaced the original funder, on the basis that the tribunal had a duty to protect the class members' interests in relation to the funder's ability to terminate on a discretionary basis. Obviously, this would not be the case in a funding arrangement with an ALF funder complying with the ALF Code of Conduct.

5.8 Have there been notable disputes arising from legal finance agreements, and if so, what can a litigant or counsel do to avoid such disputes?

A notable major dispute arising in England and Wales relating to litigation funding was Excalibur Ventures v Texas Keystone Inc [2016] EWCA Civ 1144, which confirmed that a commercial funder may be required to contribute to the defendant's costs on the same basis as the funded party. That decision held that where the claimant has been ordered to pay costs on an indemnity basis, the funder may be liable on the same basis. Excalibur also confirmed that costs may be ordered against both the funder and a third party that provided the funder with capital. The capital provider argued in that case that to fine the capital provider would pierce the corporate veil; however, this was rejected by the court in circumstances where the funder was a mere vehicle through which to provide the funding.

5.9 Is the funder bound to fund any counterclaims arising from the funded litigation?

There are no legal obligations on a funder to fund counterclaims in relation to funded litigation. The funder's funding obligations will be clearly set out in the funding agreement, usually with an agreed budget, which limits the funding obligation on behalf of the funder, with the litigant obliged to fund any shortfall in the proceedings.

6 Purchasing a litigation claim, judgment or award

6.1 Can the funder purchase legal claims?

It is possible for funders to purchase legal claims, where the legal claim is assigned to the funder and the funder then becomes able to bring the claim itself, with the necessary control and influence that it can then exercise.

6.2 How does a funder purchase a claim out of an insolvency?

A funder can purchase claims out of an insolvency from an insolvency practitioner in the usual way that it would purchase other claims. This is popular in insolvency, as cash can be released immediately. Funders of smaller insolvency matters often prefer this to straight funding, as it allows the funder to exert some control over the litigation. The Small Business, Enterprise and Employment Act 2015 provides the legislative framework for such claims to be sold and this is a relatively common practice.

6.3 Are final judgments and/or mere causes of action assignable in your jurisdiction and is there a regulatory framework governing this?

Yes. A judgment and cause of action are assignable as a commercial right and are often assigned in the same manner as other choses in actions.

7 Role of the funder

7.1 Can the funder influence the litigant's choice of counsel?

A funder is not prevented from influencing the counsel that a litigant chooses to use. However, this does not happen regularly, as often by the time the funder becomes involved, counsel have already been appointed by the litigant. In circumstances where claimants work with funders directly and counsel have not been appointed, it is open to the funder to work with the litigants to appoint the legal team that is best placed to diligently prosecute the claim. Increasingly, as clients are now dealing with funders directly, funders have more influence in helping litigants to choose counsel based on expertise relevant to the dispute, in another example of funders improving the prospects of success in a case.

7.2 Can the funder attend and/or participate in the court proceedings?

A funder can attend court proceedings, mediations and hearings – and often does so in order to provide counsel and advice to the litigant as requested. However, it does not participate in court proceedings. Generally, funders are barred from controlling and influencing proceedings under the champerty and maintenance rules.

7.3 Can the funder influence the acceptance or terms of a proposed settlement agreement?

Control of the dispute, including settlement, is entirely a matter for the litigant as a matter of English law. However, litigation funding agreements often include provisions in relation to settlement whereby there are consequences in respect of funding where reasonable settlement offers are rejected, with reasonableness usually determined by a qualified third party if not agreed. However, the only impact of this is in respect of funding and insurance, and the litigant remains entitled to conduct the proceedings in the manner it wishes.

Funders that adhere to the Association of Litigation Funders Code of Conduct must behave reasonably and may withdraw from funding only in specific circumstances. Where there is a dispute over termination or settlement, a binding opinion must be obtained from an independent king's counsel who has been either:

  • instructed by the funder and litigant; or
  • appointed by the Bar Council.

7.4 In what other ways can the funder participate in, and exert influence on, the litigation?

Under the doctrine of maintenance and champerty, funders cannot participate in or exert influence on the litigation. The only circumstances in which funders may do so is where a funder purchases a claim or judgment and thereby becomes the litigant.

8 Ethical considerations

8.1 In what circumstances (if any) is it necessary to disclose a legal finance agreement to the court or to the opposition? What specific information must be disclosed?

Disclosure of the funding agreement is necessary only where compelled by the court, which will be ordered only on application where the defendant makes an application for a non-party costs order – often in the context of making a security for costs application. The specific information to be disclosed can vary, but is usually limited to the funding commitment and the provision for adverse costs cover (including insurance). The commercial terms between the funder and litigant are not usually disclosed.

8.2 Are communications between the parties to the legal finance agreement subject to privilege in your jurisdiction?

While there have been cases considering whether legal advice privilege applies to communications with funders – which is still an open question – litigation privilege applies where communications with funders are confidential. Funders will usually require that a non-disclosure and confidentiality agreement be entered into before documents and information are shared in order to ensure that such communications are covered by litigation privilege.

8.3 Does the rule of attorney work product apply to documents generated for the purposes of securing legal finance in your jurisdiction?

Yes, litigation privilege will usually cover such documents.

8.4 In what circumstances (if any) do rules about fee-splitting impact on the use and practice of legal finance?

This affects the availability of funding where funding is advanced to a law firm: regulations govern the level at which damages-based agreements can be set (with law firms unable to take 50% or more of the damages) and conditional fee arrangements (where the uplift cannot exceed 100%). As a result, this caps the funds which a law firm will receive in the event of success, which in turn sets a limit on what funders can receive if funding the law firm directly, rather than the client.

8.5 Do the doctrines of champerty and maintenance apply in your jurisdiction?

Yes, the doctrine of champerty and maintenance was developed in England and still applies, with funders continuing to comply with the doctrine.

8.6 Are there any types of proceedings (family, private prosecutions) for which funding is not permitted?

Private prosecutions are not eligible for legal aid in England and Wales. Funding is permitted for family disputes and is relatively common.

9 Proceedings

9.1 What is the typical timeframe for first-instance proceedings in your jurisdiction?

As a general rule, from issue to judgment in England and Wales takes between 18 and 24 months. Courts are pragmatic and open to the use of technology in order to keep commercial cases moving, and the judiciary are well versed in ensuring that litigation proceeds expeditiously.

9.2 What are the opportunities in the litigation process for a case to be struck out prior to a trial?

A defendant can make an application for strike-out pursuant to the English civil procedure rules at any stage in the proceedings. Another method that defendants can use to seek to resist a claim in its entirety is by way of jurisdiction challenge, which is relatively common given the prevalent use of the English courts by international parties.

9.3 How much party discovery of evidence is permitted in your jurisdiction? Are there procedures for seeking or compelling evidence from non-parties?

Discovery in England and Wales is known as ‘disclosure' and is extensive. As England and Wales is a common law jurisdiction, disclosure of documents by both sides is critical to the resolution of the dispute; and this is often the phase of litigation which is most time consuming and expensive. There is a significant body of case law and procedural rules governing disclosure, with a general principle that all relevant documents must be disclosed to the court and parties, save those protected by privilege or similar. Among other things, this compels parties to disclose relevant documents which may undermine their case. The sanctions for failure to comply with disclosure obligations are extensive. It is possible to compel third parties to provide documents through non-party disclosure orders.

9.4 Are interlocutory appeals (appeals of non-final judgments) permitted during proceedings in the first instance?

While non-final judgments are not subject to appeal, interim judgments on interlocutory matters, such as jurisdiction or in relation to any interim orders, can be appealed before the first instance proceedings have concluded in full. In relation to jurisdiction challenges, it is common for a judgment on jurisdiction to be appealed prior to the matter being returned to the first instance court to determine the substantive dispute if jurisdiction is upheld.

9.5 Are first-instance decisions commonly appealed in your jurisdiction? What is the typical timeframe for appeal proceedings?

Permission is required in England and Wales to appeal a first-instance decision, which prevents all first-instance decisions from being appealed by parties determined to disrupt or delay proceedings. The timing of appeals varies depending on the issue to be appealed and the time required for any appeal hearing, but an appeal can usually be expected to take around 12 months.

9.6 How are decisions typically enforced in your jurisdiction? What is the typical timeframe for enforcement proceedings?

Enforcement proceedings are usually relatively quick, with attachment to assets following judgment the primary remedy for claimants seeking to enforce.

9.7 Is there an automatic stay on enforcement pending appeal or under what circumstances is one granted? Are appeals from first instance granted as of right?

There is no automatic stay on enforcement pending appeal, although it is possible to apply for such a stay in special circumstances. First-instance appeals are not granted as of right and require permission.

10 Costs and insurance

10.1 Will the court order the losing party to pay the costs of the winning party? How else might costs be allocated between the parties and under what conditions?

Yes – the ‘loser pays' principle applies in England and Wales and the losing party is ordered to pay the winning party's costs, or part thereof, to be determined by the courts if not agreed. The courts will take a pragmatic approach to costs orders and there is a specific costs court to deal with disputes. The discretion to award costs usually reflects:

  • the conduct of the parties during the dispute; and
  • the nature of the final judgment.

If a losing defendant has lost on all counts and has conducted the litigation in an inappropriate manner, it may receive an order to pay costs on an indemnity basis (ie, in full). Conversely, if a winning party succeeds only on a narrow point and loses multiple points, and has conducted the litigation poorly, it will receive only a portion of its costs to reflect the nature of its ‘victory'. Generally, the courts will make costs orders reflecting where costs have been incurred in an efficient and appropriate manner.

10.2 Are some or all of the costs of funding recoverable by the winning party?

Yes – see question 10.1.

10.3 Can the court order costs against the litigation funder?

Under Section 51 of the Senior Courts Act (1981), the courts can determine to whom and to what extent costs are to be paid by a party, including the third-party funder of a party. Excalibur extended this to those that fund third-party funders where the funder serves as a mere vehicle for the investment. In Davey v Money [2019], the court held that several considerations should be taken into account when deciding whether to order costs against a funder, including:

  • the relative size of the investment by the funder and the proceeds it would gain from success;
  • whether the funder was aware that the claimant could not meet an adverse costs award of that order, and whether that was in excess of the funder's investment; and
  • whether particular costs were incurred prior to the funding agreement.

The decision in Arkin stated that in principle, commercial funders should be liable for the costs of opposing parties only relative to the extent to which they provided funding. However, this may be more if the agreement was found to be champertous. The Arkin cap has since been disapplied several times. The court has stated that an order to pay costs against a "pure funder" is generally unlikely, but where a particular funder had exercised a "considerable degree of control" over the litigation, it was appropriate to apportion costs against it outside the Arkin cap.

10.4 Can the court order security for costs? If so, in what circumstances will it generally do so and how is this calculated and provided?

Yes – against claimants generally, and also against funders. In RBS Rights Issue, the court granted a security for costs application against a funder, stating that the factors to take into consideration are:

  • the real risk of non-payment by the funder (including whether there would be "deliberate reticence");
  • whether the motivations for the investment were commercial or altruistic; and
  • whether the defendant should give a cross-undertaking to pay the claimant's costs of posting security.

This was expanded in Ingenius, where the judged ordered that a funder provide security of approximately £4 million, as the claimant's after-the-event (ATE) insurance was insufficient to cover security costs.

10.5 Is security for costs commonly ordered in funded litigation?

Security for costs is ordered where the court considers this necessary; it will not order security for costs simply because a funder is funding litigation. Funders will often anticipate this by:

  • ensuring that ATE insurance is in place, which will usually be sufficient to defeat an application for security for costs; or
  • offering an undertaking to pay adverse costs in the event of a loss.

10.6 Is after-the-event (ATE) insurance allowed in your jurisdiction? If so, how mature is the market?

The ATE market in England and Wales is extremely mature, and arguably the leading global market for ATE insurance, with competitive and experienced insurers and brokers assisting funders in obtaining ATE insurance in relation to claims.

10.7 In what circumstances is ATE insurance typically used? What are the advantages and disadvantages?

Most funders will provide funding only on the condition that ATE insurance is obtained by the litigant, primarily as there is a risk that the funder will be liable for adverse costs if the litigant cannot pay. For commercial claims brought in England and Wales, whether in the court or in arbitration, the potential adverse cost risk can be significant, often running to millions of pounds. The primary advantage of ATE insurance is de-risking the possibility of being ordered to pay an adverse costs order, meaning that litigation can be pursued without the claimant bearing downside risk. The availability of ATE insurance can also defeat an application for security for costs, which will often be made by a defendant being sued by a party that may be unable to meet an adverse costs order. If such an application is successful, it can defeat the claim if the claimant cannot put up security: ATE insurance mitigates the risk of this outcome, and so can also offer strategic benefit.

As with litigation funding, the financial support of a commercial third party can often act as a useful signal that a claim is meritorious and encourage early settlement. Also, as with litigation funding, the key disadvantage is the associated costs, as ATE insurers will usually require an upfront premium to be paid and a back-end premium to be paid from successful recoveries. As with litigation funding, whether that is a disadvantage will depend on:

  • the price of the coverage; and
  • the assessment of the risk.

10.8 What other types of insurance are available for litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages?

Given the depth and expertise in the insurance market in England and Wales, insurance products are available for both funders and litigants to share risk and ensure that the funding can be advanced in the most efficient way. For example, cross-undertaking insurance is available for parties seeking a freezing order, as insurance against the risk of having to pay out a cross-undertaking in damages. Judgment preservation insurance is available for judgments that have been granted but are subject to appeal, insuring the result at first instance and de-risking the consequences of appeal – often taking some risk, usually capital, off the table. Anti-avoidance insurance can be obtained as insurance on the ATE policy, ensuring that ATE providers cannot avoid the policy and thus that adverse costs risk is covered. Funders can also use insurance products, such as capital protection wrappers, to bring down the cost of capital and make funding more accessible.

Established funders are well versed in the insurance products on offer and have networks of brokers that can help litigants to obtain the right insurance products for them, but funders will not act as brokers or insurers.

11 Trends and predictions

11.1 How would you describe the current legal finance landscape and prevailing trends in your jurisdiction?

Increased adoption of funding across all manner of disputes is a key trend at present. Commercial disputes are increasingly being funded, whereas historically the mainstay of funding has been consumer representation.

Another key trend is innovation. While still common, ‘standard claim funding' – that is, funding one case with risk tied to a binary outcome – is not the only funding product available to clients. Portfolios of funding, through law firms or corporates, are likely to continue to increase. As new sources of capital become available, the availability of funding is expected to expand, particularly as investors are likely to be increasingly interested in litigation funding as a non-correlated asset class. For commercial disputes, litigation finance is likely to increase as a preferred option as balance sheets come under pressure and businesses look for ways to increase liquidity and share risk in a recessionary environment.

11.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

No proposed legislative reforms are anticipated in the next 12 months in England and Wales. New developments will likely involve more innovative funding structures being identified by funders – including in collaboration with insurers – in order to increase the accessibility of litigation funding to an ever-growing market. More funders are likely to continue to enter the market as it grows. Environmental, social and governance (ESG) is likely to continue to be a focus, with ESG-focused funds and pools of capital being raised to deploy in favour of ESG claims, including the Soros Impact Fund.

12 Tips and traps

12.1 What would be your recommendations for the smooth progress of funded litigation in your jurisdiction and what potential pitfalls would you highlight?

Involve a funder as early as possible in the process. Professional funders are well versed in spotting the pinch points on whether and how funding can support an action, and early involvement will ensure that efforts are focused on the points that matter so that funding can be obtained as efficiently as possible. A key point to focus on is the route to recovery – funders are ultimately interested in helping clients to achieve commercial returns, which goes beyond simply obtaining favourable judgment. Have an enforcement mindset, asking questions such as the following:

  • Assuming that you can obtain judgment or award, what do you do then?
  • How much will that cost and how long will it take?
  • Can the judgment debtor pay now, and is it likely to be able to pay in a number of years when the litigation comes to an end?
  • Can you take any steps now to improve that outcome?

In terms of assisting with litigation, partner with a funder that is more than just a capital provider. One of the key benefits of funding is having an expert in litigation and recovery that has interests aligned with yours – that is, achieving the best outcome in the quickest possible way.

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.