by Maurice Power

Busting the Litigation Funding Myths

Article published in: Modern Law Magazine – Issue 30 | Published June 2017

Maurice Power, Ferguson Litigation Funding, examines common misconceptions funders hear

Litigation funding is a fast-growing sector, with investors placing more funds into the market, new providers emerging and the Courts 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.

1) Litigation funders are only interested in multi million pound claims

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), whilst leaving the claimant with sufficient return for taking the action, then there are many funders who will look at claims of all sizes.

2) 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 there is nothing to repay as the funder has accepted this risk when making their offer of funding.

3) 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.

4) The Funders expect extortionate fees for providing assistance

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.

5) Litigation funders are unregulated and cannot be trusted

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.

6) 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 pursue a claim, they are unable to intervene, instruct or advise the acting solicitors.

7) Having funding will reduce the chances of the claim settling

On the contrary, the presence of a funder in the claim will show the defendant that an experienced third party believes the claim is strong and that the claimant is well funded and able to go the course.

8) Litigation Funders will only consider funding all the legal costs

Although this may be true for some funders, the majority will take a flexible view of the claimant’s needs. Many are able to fund only the disbursements and/or a percentage of the legal fees.

By demystifying the process, our protocols and highlighting industry standards we can go some way in providing a greater access to justice

9) Funding poses a threat to the legal system and access to justice

In actual fact, the opposite is true. The use of third party litigation funding has been ratified in the Courts in numerous cases.

10) Funding encourages frivolous litigation

It is difficult to see how this would be the case because, as they are risking their money, all funders will only offer funding to cases that they believe have a high probability of success.

11) Funders are only interested in commercial disputes

Provided that the funder believes that the case has a high probability of success, then most funders will be happy to review funding applications from other areas.

12) Funders would require after the event (ATE) insurance to be taken out when offering funding

Since the implementation of the Jackson reforms, through the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LAS PO), the cost of ATE, which protects a claimant against adverse costs should they lose the case, is now not recoverable from the defendant. Therefore, the cost of ATE has to be factored in when the claimant is deciding whether to pursue an action.

These are just some of the most common misconceptions and myths we hear about litigation funding. It is important that we as funders address these concerns and allay any fears our clients may have. By demystifying the process, our protocols and highlighting industry standards we can go some way in providing a greater access to justice.