"By using a creative approach and the full range of options available, we have saved our clients millions."

What is Third Party Funding?

Third Party Funding is an arrangement whereby a professional funder or investor will finance all or part of the client’s legal costs as the case progresses. In exchange for providing this funding, the investor will take an agreed share of the recovery or ‘claim proceeds’ in the event of success. However, if the case fails, the funder loses its investment and is not entitled to receive any payment.

The level of a funder’s success fee or ‘contingency fee’ can vary significantly, however this will generally be an agreed percentage of the recovered monies, an agreed multiple of the invested sums or a combination of both.

It is important to note that the contingency fee charged by a third party funder cannot be recovered as part of a costs award and will therefore be payable by the client out of the damages or other proceeds received. It is therefore necessary to carefully consider all possible options to finance the interim legal costs before committing to a Third Party Funding agreement.

What Do Third Party Funders Look For In A Case?

Most funders will typically expect a case to have the following features:

Good prospects of achieving a settlement or win at trial, arbitration etc.
A credit worthy defendant. Funders will need to have confidence that the claim can be enforced should the client succeed in their action.
A considered cost budget to ensure the funder can have confidence with regards to the ratio of cost : damages. The closer the ratio of costs to damages, the higher the risk the funder faces with regards to recovering their success fee.
An understanding about how any potential adverse costs exposure is going to be funded (if applicable). Some funders insist on ATE insurance being placed before or simultaneous to entering the funding agreement whilst some may consider absorbing the liability for the opponent’s costs under the funding agreement (at additional cost).

A Prudent Approach to Securing Funding

We’ve seen numerous examples of where clients and/or their lawyers have wasted months in negotiations seeking to secure an offer of funding directly only to fail to achieve a viable or competitive offer. A number of funders will publically advise that they reject over 85% of the cases they consider.

Some third party funders will often press for “exclusivity” at an early stage during their due diligence phase. This carries significant risk for any client who is on a litigation or arbitration timetable. We strongly recommend that you speak to one of our specialist brokers at the outset to discuss the multiple options that can exist.”

Q and A

What things will a funder look for when considering whether to finance a case?

Funders will consider many factors however key points include the client’s chances of success, whether the claim value is sufficient to produce a good return for the funder and the credit worthiness of the opponent.

Will the funder take over conduct of the case?

Funders are prohibited from unduly controlling or interfering with the litigation. A funder’s involvement will generally be limited to budgetary control and being consulted about settlement. Funders will wish to be kept informed of material developments in the case.

Does Third Party Funding remove the need for ATE insurance?

No. Although Third Party Funding is separate from ATE insurance, the majority of funded clients in domestic litigation will also have ATE insurance in place covering adverse costs.

Many funders will even include a requirement for suitable ATE insurance in the funding terms. However, it’s important that the client doesn’t concede to the funder to secure the ATE insurance on their behalf. Some funders will suggest, for example, that they can finance insurance premiums etc…

The reality is that approached properly there shouldn’t be any upfront cost for insurance. Remember whilst funding and insurance can be complementary products, they can equally be competing products and as such should be explored independently.

What can TheJudge offer in relation to Third Party Funding?

Given the contingency fees charged by funders, it is important to consider multiple options, or at least have up to date knowledge of market rates, in order to ensure that the client is not paying more than they need to out of any settlement or award. Because of our unique position in this sector, we can not only approach multiple funding markets where appropriate, but also simultaneously broker ATE insurance as part of an overall risk transfer package to reduce the funding commitment. Reducing the funder’s risk should reduce the contingency fee chargeable and thereby maximise the client’s net recovery. We also have access to numerous exclusive funding markets and sources.

There are various other intricacies to be alive to when dealing with the funding market to avoid valuable time being wasted, such as how best to approach exclusivity periods with funders or the order of distribution of claim proceeds. There is rarely only ever one solution for a client and as such we make it our aim to demonstrate the options that exist to the client across both the funding and insurance sectors.