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An Idiot’s Guide to Litigation Funding

21 February 2013 2 Comments

LawIt’s no secret that court cases can be costly, especially when it comes to big businesses fighting it out in the courtroom. It’s been found that Apple and Google spent even more on legal fees than they did on research and development in 2011, which shows just how expensive it can be. What happens when a business can’t afford to take a strong case to court though?

Litigation funding: a solution

This is where litigation funding companies can help. A third party funding company, as they are also known, can come in to help pay the bills for businesses. If a business has a very strong case but doesn’t have the funds to fight it out in court, it can be advisable for them to speak to their solicitor about the available options. In England, all solicitors must advise their clients on funding options.

If third party funding seems to be the best way forward, the solicitor can then contact a litigation funding company with an application for funding. The litigation funding company will assess the application and the case and, if approved, will agree to fund the case to its completion. Should the case be won, the funding company will recoup its investment and a Return on Investment (ROI) from the damages that are awarded. If it fails, the business can walk away without having to pay a penny towards the funding company.

Why do litigation funding companies exist?

It might seem strange that litigation funding companies are willing to enter into such a risky business, but there is definitely something in it for them. In order for a third party funder to take on a case, it must:

-          Be very strong, with a high probability of success

-          Have a potential reward amount upwards of £1m

-          Have a defendant with the means to pay such high damages

Litigation funding can only be used in big-business cases; otherwise there would be no point in third party funding companies getting involved. The real rewards are available in multi-million pound cases, which is why they agree to fund them. However, due to the high risks involved, over 85% of applications are rejected.

How is the industry regulated?

At the moment, the litigation funding industry is self-regulated. Reputable third party funding companies are members of the Association of Litigation Funders (ALF), which has its own Code of Conduct. Members of the ALF must adhere to this code, which stipulates that:

-          Litigation funding companies must have the finances available to fund a case.

-          Must not terminate a contract with a claimant without viable legal reasons.

-          Cannot interfere with the proceedings of a case.

 

This Code of Conduct helps to regulate the industry, although there are still companies out there that look to take advantage of the market. This is why it is so important to thoroughly research a third party funding company before signing an agreement. Litigation funding is a booming industry within the UK and is also seeing success in other parts of the world.

This article was provided by Aurora Johnson on behalf of Vannin Capital, a corporate litigation funding specialist.

2 Comments »

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  • paper discovery said:

    Wow. I am enticed by its title "Idiot guide" but after I read the whole column, I realize that its not only for idiots but also for experts and pro's.