Litigation funding has been available in the UK for many years. Today, commercial litigation funding is one of the biggest third party funding areas. This is because; while there is increased risk in investing in such cases, the return on investment for companies can be well-worth it. Commercial legal battles can be drawn out and incredibly costly and many companies and law firms require investment.
Litigation funding has changed considerably though, as some funding methods used in the past are now very much frowned up. The laws are still changing today in order to better suit the industry.
Consumer Credit Agreements (CCAs)
CCAs are one of the oldest third party funding methods. With a CCA, a client would borrow the money required for a court case, with an agreement lasting around three years with the financial body. The loan would then be insured with an After the Event (ATE) policy. The funds could be drawn out to pay for the legal battle and would be repaid once the case was won.
However, this model fell out of favor when the finance houses ran out of money, leaving insurance companies in the lurch.
Direct lending is also an unfavorable funding method today, as it can open up the law firm to financial problems. A solicitor’s office would approach a financial body itself to apply for a loan to cover the cost of the legal dispute, which would at least give it direct access to money.
Damages Based Agreements (DBAs)
The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) will bring with it new rules regarding ‘no win no fee’ cases. The changes are to be implemented in April 2013 in an effort to realign solicitors’ motivations when fighting a case.
A DBA will be between a claimant and a solicitor and will set out how much the law firm will be paid on the successful completion of the case. This will amount to a percentage of the damages, plus a lower hourly rate for the lawyers’ time. This means that it will be in the solicitors’ best interests to get as big a pay-out as possible for their client.
In commercial law, litigation funding is a viable option for especially large businesses looking to fund legal battles. If the business does not have the funds available to hire a law firm or support a case through to the end, applying for funding through a third party investor may be the best bet.
Most litigation funding companies only accept cases with a pay-out that reaches into the millions, and they will expect around a 25-40% return on investment, plus reimbursement for the original investment.
However, as the damages in these cases are so large, the claimant and the law firm would still be left with a very sizable chunk of money.
The face of litigation funding has changed considerably through the years and as new laws come into effect it is hoped that it will become an even stronger industry.
This article was provided by Aurora Johnson on behalf of Vannin Capital, a commercial third party funding specialist.