Litigation finance: Frequently asked questions
With third-party litigation funding such a relatively new phenomenon, we’re often asked to explain how the whole thing works. Will someone really just pay for a legal claim?
Well, there’s a little more to it than that, but here, at a glance, are the most common enquiries we receive about what we do:
What is litigation finance?
Sometimes referred to as third-party litigation funding or legal financing, litigation finance is an agreement between two parties, one of whom is involved in a legal dispute. The funder agrees to cover the cost of a claim in exchange for a share of the damages.
In some cases, a claimant might not have access to the funds required to pay for a case, or a much larger defendant can stall a case until the claimant’s funds run out, forcing it to be abandoned. Litigation finance ensures no such tricks or technicalities will stand in the way of the right decision.
How does litigation finance work?
In the first instance, claimants (or their representatives) typically contact the litigation funder with the rough details of the case. This is usually enough for a funder to decide whether they could potentially be interested.
If it looks promising, a formal analysis begins, involving discussion between the funder and the claimant’s lawyers to estimate costs. A formal agreement between the claimant and the funder is then drawn up and signed.
At this point, the funder leaves things to the claimant’s legal team, who have far more direct knowledge of the situation.
Assuming a successful claim, the recovered money is banked in a trust account, from which costs are reimbursed from the gross proceeds. The funder then takes their agreed percentage, and the rest of the funds are free for the claimant to enjoy.
In the event of an unsuccessful claim, the funder pays any legal costs awarded against the claimant.
What does a litigation funder do?
The core role performed by a litigation funder is precisely that: to fund a worthy legal case and provide visible confidence. With the industry in its infancy, there is some nervousness within the legal community about funders coming in and making sweeping changes to the claimant’s representation or strategy. In our experience, doing so is counterproductive.
Certainly, a funder can also provide support and advice if requested, but this would be at the claimant’s discretion, not a condition of financing the case. Indeed, if a claimant’s legal team were not deemed trustworthy and competent in their own right, it is unlikely a case would be funded in the first place.
What claims are worth funding?
Because every legal case has its own quirks, it’s impossible to say for sure what separates good cases from bad. However, there are certainly some signs we like to see. Full, consistent documentation is one, as is the opinion of specialist counsel to back up the claimant’s assertion that their case has merit.
Time is another key factor in assessing a claim. If time is short, this could be an indicator that the claim has been mishandled, having been seen as having little chance of success by those in the know. The chance to pursue a good claim, meanwhile, is typically embraced at the first opportunity.
You can read more about which claims have merit elsewhere on the Redress blog.
Does litigation benefit a business?
Above and beyond the financial benefit of not having to fork out for a legal case, litigation funding carries other bonuses. Other than key stakeholders, who will be identified at the start of a claim, management teams typically don’t have to worry about it, which avoids productivity taking a hit.
Having a case funded can also benefit your morale, and harm that of your defendant. Your staff can rest easy knowing they no longer risk a costly legal failure, and quite often a defendant will see that a claim has been funded and rush to settle.
We’ve explored the business benefits of litigation funding in greater detail in another blog post.
Who is involved in a litigation claim?
It’s useful to keep the circle of stakeholders small when embarking on a litigation claim, as this makes information easier to share. Those whose daily jobs are affected by the claim should be represented, along with your finance and legal teams. In some cases, oversight from senior management could also help.
There should also be a clearly defined claim owner, who is empowered to request input from anyone in your organisation at any time. This will help keep things on-schedule and prevent people neglecting the claim in favour of their day-to-day tasks.
Learn more about identifying and managing stakeholders in your litigation claim.
Who are Redress Solutions?
Redress Solutions were among the first to introduce third-party litigation funding in the United Kingdom, and we continue to carry the torch for best practice within the industry.
Working with legal teams, accountants, insolvency practitioners, and directly with claimants themselves, we have funded cases with a total worth of tens of millions of pounds since our inception in 2007.
Are you considering embarking on a litigation case? Could Redress help secure justice for your organisation? Contact us and let’s get started.