Litigation funding, also known as litigation finance or third-party funding, is a form of financial assistance provided by a specialist funder to cover the costs associated with pursuing legal claims. This arrangement typically involves an investor agreeing to finance litigation expenses in exchange for a share of the proceeds if the case is successful. If the claim fails, the funder absorbs the loss, meaning the claimant carries no direct financial risk from the litigation itself.
How Litigation Funding Works in Practice
The process of obtaining litigation funding involves several steps. Initially, a potential claimant approaches a funder with details of their legal dispute. The funder then undertakes a detailed due diligence review, carefully assessing the strength of the claim, likely outcomes and potential recovery amounts.
If satisfied that the claim is viable, the funder presents a litigation funding agreement specifying terms, such as the percentage of any recovery the funder will receive. Once signed, the funder covers all related litigation expenses. The claimant retains control over major decisions in the case but will usually consult the funder on key issues, particularly settlement offers.
Established legal expertise from a London law firm such as Forsters can significantly strengthen their position when approaching funders.
Benefits of Litigation Funding
Litigation funding offers significant benefits, notably enabling access to justice for claimants who may otherwise lack sufficient resources. It helps businesses strategically manage litigation risks without tying up crucial working capital. As the cost burden shifts to the funder, businesses can maintain financial stability, optimising resources for growth rather than legal expenses.
Moreover, litigation funding can empower claimants to negotiate from a stronger position. When defendants recognise a claimant is backed by a funder, they may be more inclined to settle reasonably, avoiding protracted disputes.
Litigation funding has become more widely regulated in recent years. The UK government recently published guidance on the enforceability of funding agreements to clarify this evolving landscape.
Litigation funding represents an increasingly essential tool within dispute resolution strategies, providing claimants access to resources and expertise through collaboration with professional funders and experienced solicitors.
