Litigation Funding- What Is It?

Litigation funding or financing, also referred to as third-party funding, is a financial arrangement in which a third party (the funder) supplies capital to a party involved in a legal dispute, typically the claimant. In return, the funder receives a share of the eventual amount recovered in the legal proceedings. This form of financing is typically non-recourse. Meaning that the claimant is obligated to compensate the funder only in the event of a successful claim.

While this funding approach has been in existence for many years, it has recently evolved from being a relatively obscure investment product to emerging as a strong asset class. Venture capital investors are increasingly drawn to litigation funding as an investment opportunity.

Crucial Avenue for Claimants

Moreover, litigation funding serves as a crucial avenue for claimants who lack available funds. Or, prefer not to tie up their resources in pursuing valid yet costly claims. It is predominantly used for high-value commercial cases, with limited applicability to consumer cases, or claims lacking sufficiently substantial damages.

Low Hanging Fruit

The success of a litigation funder’s investment is due to the positive outcome of the case. This leads funders to selectively choose cases with promising prospects, and that are ‘low hanging fruits’.

At the start of the arrangement, the funder and litigant negotiate the funder’s share of the proceeds in the event of a successful case. This financial gain typically takes the form of either a percentage of the recovered damages, a multiple of the amount initially advanced by the funder, or a combination of both.

Investment Opportunity

Litigation funding stands out as a cost-effective financing option for claimants, and a potentially lucrative investment opportunity for funders. In England and Wales, solicitors are now obligated to communicate the existence and function of litigation funding to their clients. This empowers them to factor it into their case funding strategies.

If you would like information on litigation funding either as a claimant or co-funder– get in touch with us today!