Monday, March 17, 2014

From Then to Now: How Has Litigation Funding Reformed?

Brought to you by our friends at Vannin Capital PCC Ltd

Over the last five years, legal funding in the UK has changed considerably. Third party funding has become a global phenomenon and the number of businesses going down the funding route has increased immensely.

Why? Taking a case to court is a costly endeavour and in such tough economic times, it is no wonder why so many firms are taking the high road when it comes to pursuing a patent dispute or insolvency claim.

However, third party funding has witnessed a boom in popularity given that it is a viable means to achieving justice and spreading the risks. It gives businesses the chance to go to court when money is lacking. 
  • Investment

A third party funder fundamentally sees it as an investment. Yes, it is a huge risk to cover your legal fees because if the case loses, they don’t get any of their investment back and they have to cover the defendant’s legal costs. The client on the other hand, can walk away without paying anything.

Nevertheless, if the case wins they will expect a return which is roughly around 25-40% of the investment. This may sound a lot but given that some cases can take around five years to reach a verdict, the fee is justifiable. You will probably find that most funders don’t take cases on unless they value more than £2million, simply because they have to be financially viable.

As covering all of the costs is so risky, third party providers will not accept a case unless it has a strong defence and a sound likelihood of winning. This is why up to 80% of applications for funding are rejected. 
  • Code of Practice

It has been claimed that legal funders bet on the outcome of a litigation dispute when in reality, it is much more professionally calculated. Reputable funders are members of the recently formed Association of Litigation Funders of England and Wales (ALF). All members are bound by a rigorous code of practice which is in place to ensure good practice in the industry.

Members must follow set rules which safeguard the client against terminating agreements half way through a case, and it guarantees that they have adequate funding supply, so they don’t run out of money during a trial. What’s more, they aren’t allowed to overly interfere in the cases. 
  • Regulations

Solicitors are regulated too by the professional body The Solicitors Regulation Authority (SRA). By law, solicitors must explain all funding routes to their clients, so that they are fully aware of their options.

More recently, the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) came into force (1st April 2013) to reform legal costs in the UK. The full effects are yet to be understood however, it has been predicted that it will lead to better budgeting and greater transparency for clients.
Litigation funding has changed significantly over the last five years but cost remains at the heart of it.

Third party funding is an exceptionally worthwhile funding route and it is hoped that the new regulations will make costs clearer.

There’s only one question remaining- what will happen during the next five years? We’re excited to find out!

This article was written on behalf of Vannin Capital. Visit their website to learn more about litigation funding.

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