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A WORD ABOUT LITIGATION FUNDING

Roger Billins

Litigation funding is now a growing and understood part of the business of dispute resolution. Claimants and their advisers understand the merit of a third party funding claims in return for giving up a large share of any award- ‘50% of something is better than 100% of nothing” sounds attractive but there are many drawbacks.

The first and most obvious is that funders are only prepared to fund cases in which the chances of success are pretty much cast iron and usually backed by the opinion of counsel giving a greater than 65% chance of a successful outcome. Funders also need to be convinced that the defendant is ‘worth powder and shot’-that is has sufficient wealth to meet the claim and a costs order.

The second hurdle that a claimant must overcome is for the claim to have sufficient value to be attractive to a funder. It is now rare for funders to consider cases of a value less than £1 million and many funders will require claims in excess of £5 million, particularly if the solicitor’s budgeted costs are high in proportion to the claim. The obvious drawback to funding a low claim is that settlement can become difficult so that if there is £500k on the table from the defendant but the costs of funding including ATE premium and legal fees are £400k, a client will be unhappy with the resulting £100k and may instruct the legal team to reject the offer.

This ties in with a very important political issue. The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LAPSO”) abolished the ability for a court to order an unsuccessful defendant to pay not only his opponent’s legal costs but also the mark up on deferred costs under a conditional fee agreement with the legal team together with the premium for any After the Event Insurance policy. This made settlement easier because the net recovery to a successful claimant could be that much higher but also because of the fear factor for a defendant losing at trial and facing huge liabilities. These recoveries were abolished by parliament as a result of lobbying by the insurance industry who faced huge liabilities in indemnifying defendants of ‘no win-no fee’ personal injury cases. However, the baby was thrown out with the bath water by a general abolition meaning a clear diminution in access to justice for claimants with lower value commercial claims.

Unity is aware that arbitrators are prepared to award funding costs to successful applicants and there is nothing to stop them doing so. We would join any campaign that reinstated the rights of claimants with litigation claims to recover their costs of funding on a successful outcome. There would have to be some control of a discretion in the judge to do so by, for instance, capping the ATE premium a claimant could recover together with the percentage CFA mark up a solicitor could charge. There is no doubt such a change would improve the opportunity for claimants to obtain financial backing for worthwhile claims.

The final problem is that litigation funders will only back claimants, or defendants with a counterclaim. If you are a defendant without the backing of insurers you will have to retain in the traditional manner. Indeed, attempts to side step this problem by a firm of solicitors seeking to enforce a Damage Based Agreement against the client upon the basis that they had preserved assets has recently ran aground ( see Candey Limited v Tonstate Group Ltd & others [2022] EWCA Civ 936).

Having said all that, Unity and its associate, 4Rivers know the litigation funding market and work hard on behalf of claimants to get the best deal from that market. Please contact me at roger@unitylegalsolutions.com for more information.