Like many people, I often use Christmas as an opportunity to catch up with old friends and let them know my family and career news. Having told an old university friend that after 23 years in private practice I was now working for a litigation funder, a few days after Christmas I received a LinkedIn invitation from him including, to my surprise, a message asking me "What on earth is litigation funding?". I was surprised by the message because my friend is a practising solicitor, having qualified twenty years ago.
What this shows is that although litigation funding has on numerous occasions received judicial approval over recent years, and is widely used in high value cases, there is still a long way to go before it becomes firmly established in the tool kit of many high street law firms.
I am also often surprised by the lack of understanding amongst some of the legal profession who are aware of the benefits of litigation funding about what a funder is looking for when considering funding applications.
So, what is litigation funding and how does it work? In a nutshell, litigation funders pay legal fees and/or disbursements in return for a pre-agreed share of the proceeds in the event of a successful outcome. This share is usually known as a success fee and the level of the success fee varies from case to case and from funder to funder. Typically, the success fee will be a multiple of the funder's investment or a percentage of the recovery or a combination of both.
Before making a funding offer, the funder will undertake very thorough due diligence in order to satisfy itself that the claim satisfies three main criteria which are:
The prospects of success are strong. Most funders will require the claim to have prospects of 60% or more. Counsel's opinion is not always required, especially if the acting solicitors have significant expertise in the relevant field, but if counsel has proved an opinion a funder will usually ask for this. I recently rejected a claim where an opinion had been sought from counsel for the purpose of a funding application and the best counsel could say was that the prospects were better than evens. Other factors may also be relevant to the likelihood of a successful outcome. For instance, I also recently reviewed a contentious probate claim where the opponent was a charity who would have feared the criticism which could flow from spending a great deal of money on litigation thereby increasing the prospects of an early...