Damian Carter provides some guidance to dispel third party litigation funding myths

Myth 1: Litigation Funding is only useful if you can't afford to fund litigation

Third party litigation funding is not just for those who cannot afford to fund litigation. It is available for individuals and companies, to manage costs risks in litigation and reduce the financial burden of funding litigation.

Companies welcome the benefits provided by keeping the costs of litigation off the balance sheet and to manage the risk of potentially being unsuccessful. Individuals are also attracted to the fact that the funding is non-recourse so that the funder only gets repaid (and is paid a multiple of its investment amount) in the event of a successful claim. Litigation funding has become much more than a source of money for those unable to afford the costs of the litigation process and it is a much broader market presenting risk management opportunities and upfront cash savings.

Another advantage of third party litigation funding is that it may allow multiple claims to be pursued at the same time when previously this may not have been possible if a company had a more limited internal legal budget.

Myth 2: Claimants lack control in their own litigation when using Litigation Funding

It is commonly believed that the funders of a case will be heavily involved in the decision making and determining the strategy of the litigation, with minimal consideration to what the Claimants want to do. This is incorrect. The claim will progress like any other case and legal advice will be provided to clients in the usual way. The solicitor will be required to regularly report to the funder and notify them of any substantive changes or developments, such as offers to settle or to mediate as well as changes in the material circumstances of the case.

The clients and the legal team will work together to progress the litigation, with the funder being kept up to date on developments. There is limited involvement of the funder in respect of the litigation itself – and the interests of the client(s) and funder are aligned to achieve a successful outcome.

Myth 3: Litigation Funding fails to cover all costs and disbursements involved in litigation

Litigation funding can be tailored to partially cover the costs and disbursements involved in litigation, or in some cases to cover them in their entirety. Funding can be obtained to cover legal fees and disbursements (including court fees, counsel fees and expert fees).

Additionally, funding packages will normally also include an After the Event insurance policy, which can protect the Claimants from adverse costs orders (i.e. an order requiring the Claimants to pay the opponents costs) should this be an interim order or if the claim is not successful. The premium payable for this type of policy is normally deferred until the conclusion of the case, and only payable in the event of a successful outcome (from the damages received from the opponent).

Myth 4: Litigation Funding is only available for commercial litigation cases

It is not only commercial litigation cases that are suitable for third party litigation funding. Third party funding can be obtained to cover a wide range of disputes, and providing that the opponent has the ability to pay damages (or is insured), and the case meets certain qualifying criteria, funding may be obtained, regardless of the subject matter of the claim.

Examples of qualifying cases include shareholder claims, construction disputes, professional negligence claims, defamation, intellectual property, regulatory matters, employment related disputes, partnership disputes, warranty claims, subrogated recoveries and property related claims.

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.