Litigation costs are often a decisive factor when assessing whether to initiate or defend a claim. Prospective litigants must consider not only their own legal expenses but also the potential liability for the opposing party’s costs.

Non-recourse third-party funding (TPF) provides businesses and individuals with strong commercial litigation or arbitration claims the financial support needed to pursue their case without the burden of upfront legal fees.

As TPF has grown in prominence, the number and variety of institutions offering funding have expanded. In addition to dedicated litigation funders, investment banks, insurance companies, law firms, and hedge funds have increasingly entered the market. This growth has also been influenced by regulatory frameworks and the evolving regulatory approach, and the ongoing review of litigation funding in the UK.

Litigation funding agreements differ significantly from contingency fee arrangements and can be highly complex. Seeking expert guidance from an experienced legal representative is essential to ensure the most advantageous terms. At Annecto Legal, we assist clients in navigating the intricacies of litigation funding agreements and securing optimal funding solutions tailored to their needs. 

What is third-party litigation funding?

Third-party litigation funding is a financial arrangement that enables clients to pursue litigation claims without incurring upfront costs or financial risk. This form of non-recourse legal financing ensures that litigation expenses are covered, preserving cash flow and keeping legal costs and contingent risk off a company’s balance sheet.

In return for assuming the financial risk, funders generally receive a portion of any damages recovered, sometimes referred to as the funder’s return or share of the proceeds. This typically ranges from 20% to 33%, depending on the size of the claim and the legal costs incurred. This structure allows claimants to retain a significant share of their compensation while mitigating financial exposure. If the case is unsuccessful, the funder absorbs the loss, with no repayment obligation for the claimant.

Third-party funding can support a wide range of legal disputes, including breach of contract claims, fraud-related matters, professional negligence cases, intellectual property litigation, collective actions, shareholder disputes, tax disputes, and international arbitration. 

When should an application for third-party funding be made?

An application for third party funding in the UK can be made early in the legal process. Applications for TPF are typically made after the initial case analysis has been carried out and pre action correspondence has taken place. One thing that should be noted is that funding will not always cover costs that have already been incurred.

However, it is possible to seek and obtain funding to cover the early stages of a case if the costs would otherwise be prohibitive (the funder will usually seek a higher level of return in these circumstances). We work closely with clients to understand when to approach funders to ensure the best chance of successfully securing financing.

We can give guidance on what work is required in relation to investigating legal merits, asset investigations, calculations of losses or damages and costs budgeting. If necessary, we can introduce you to law firms that might be willing to assist in developing the claim on a risk sharing basis, or fixed fee arrangement. 

What are the benefits of third-party litigation funding?

While third-party funding agreements are primarily designed for claimants, they can also be relevant for respondents facing a counterclaim or defending a legal action. This can relieve financial pressure from legal bills until the end of the dispute. Funded litigation provides parties with access to justice, enabling them to pursue claims they might otherwise be unable to afford.

For businesses, third-party funding can be a strategic tool, allowing them to leverage meritorious claims as financial assets, secure funding off the balance sheet, and mitigate potential adverse costs. It also serves as an effective mechanism to manage legal expenses and maximise recoveries. Additionally, businesses can use litigation funding to pursue claims against financially stronger opponents, levelling the playing field in complex disputes.

Individuals can also benefit from third-party funding, particularly when combined with legal expenses insurance such as after-the-event (ATE) insurance, which helps reduce financial exposure and mitigate the risks associated with litigation. This can be especially valuable for those who lack the resources to fund legal proceedings independently.

Funders carefully assess claims before providing financial support, focusing only on cases with strong prospects of success. Their due diligence process involves a thorough analysis of the claim’s merits and financial viability.

In some instances, the involvement of a reputable funder can prompt early settlement discussions, as the opposing party recognises the strength and credibility of a funded claim. Recent developments, such as the final report of the review of litigation funding, continue to shape expectations around party funding. 

How can Annecto Legal assist with third-party litigation funding?

Annecto Legal specialises in connecting businesses, law firms, and individuals with tailored third-party litigation funding arrangements. With extensive industry expertise and a strong network of litigation funders, we help clients secure the financial backing they need to pursue meritorious claims without the burden of upfront legal costs.

The application and process of third-party litigation funding work can be complex for the unwary. Therefore, we recommend that you contact our team as soon as possible so that we can provide the guidance you require.

Get in touch with an expert member of our team to find out more about third party litigation funding and which commercial litigation finance cover is the right litigation funding choice for you.

Annecto Legal is registered in England and Wales.