MARKET COMMENTARY 09
Litigants in themarket for litigation funding should be aware that a funder’s success fee will likely be amultiple of the amount invested and/or a percentage of the amount recovered - reflective of the likely risk - and that the costs of litigation funding can vary dramatically from funder to funder. Often, success fees will be staged, with lower sums due, the earlier the proceedings are resolved. It is essential that litigants seeking funding properly consider the various funding options available to ensure that any success fees theymay be required to pay are reasonable. Litigants should also consider whether or not the funder has immediate access to funds, where the funds are coming from(that is, direct from the funder, or fromother third parties), howmuch funds are available, and whether the funds to be providedwill indeed be sufficient - placing an additional emphasis on the importance of early and accurate costs budgeting, where possible. Litigants seeking litigation fundingmay find it useful to consider those funders which aremembers of the Association of Litigation Funders of England andWales (an independent body charged by theMinistry of Justice, through the Civil Justice Council to deliver self-regulation of litigation funding in England andWales). Members of the Association are required to follow the Association’s Code of Conduct. However, there are other legitimate and sensible funders, which are not members of the Association. Notably, solicitors are obliged to inform their clients about the availability of litigation funding at the start of a case. The increased use of third-party litigation funding is necessarily adding a new layer of complexity to both litigation and arbitration. There is currently no requirement upon litigants to disclose their funding arrangements. However, if a litigant does become aware that its opponent is funded, thismay shed a new light on the assessment of the case’s merits, since funders are generally unlikely to take on unmeritorious cases (funders very often seek to fund only those cases which they have been advised have prospects of success in the vicinity of 60% and above). That is because, third-party funding arrangements are usually provided on a “non-recourse” basis. That is, the funders’ only recourse will be against the proceeds of the claim. Therefore, if the case is lost, the funder will lose its investment and is owed nothing by the litigant.
Funded claims can bemore difficult to settle, in circumstances where litigation funders may not properly understand the complex issues which can arise in commercial claims, and on receiving favourable but limited legal advice, may have a strong appetite for trial. However, in the aftermath of the highly publicised Excalibur litigation, third-party funders will, no doubt, nowbe very aware of the risk that theymay themselves be ordered to pay adverse costs orders on an indemnity basis - even in circumstances where theywere not themselves responsible for thematters giving rise to that order. Consequently, the Excalibur decisionmay encourage greater focus by funders on the elements of a claim which are likely to fail and result in an indemnity costs order. Thismay assist to provide leverage for litigants seeking to resolve funded cases outside of Court or arbitration. Fundersmay also now give increased consideration to howheavily theymonitor claims. Although, increased scrutiny of cases by fundersmay cause them to stray into the forbidden fields of champerty andmaintenance, whichwould render the funding agreement void and unenforceable, and leave the funder liable to pay the full amount of the costs of the successful party. Finally, litigants should be wary of sharing their privileged informationwith prospective funders. A “joint-interest” for the purposes of privilege is likely to arise once the funding agreement is in place. However, this will not apply to communications which pre-date the funding agreement. Accordingly, it is important to be aware that sharing privileged informationwith a prospective funder may result in awaiver of privilege. We will be watching closely how the dynamics of litigation-funded claims play out in order to feed this into our strategic approach to resolving future claims.
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