Litigation: Is Your Funder Legitimate?

Settling matters in court can be extremely costly, and no more so than for multi-national businesses. Both Apple and Google reportedly spent more money on legal fees in 2011 than on research & development, which, when you consider the innovative nature of their products, is staggering.

Third party funding is going from strength to strength as an industry, with the UK seeing a sharp increase in cases in recent years. In 2011, the number of UK funders almost doubled, with some funders reporting to have as much as quadrupled their annual litigation fund in the past year.

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But, as with any industry attracting big business, there is a danger of illegitimate parties sullying the marketplace.

Is litigation funding safe?

Litigation funding is generally regarded as a risk-free way for businesses to acquire sufficient funds to bring a case to court.

Litigation funding is basically a three-way agreement between funder, solicitor and client. When a client requires legal advice, they should firstly approach a solicitor. Under their code of conduct, solicitors must inform their client of all the available avenues by which to fund their case. This includes payment of the legal fees, so therefore it’s in the best interests of both the client and solicitor to select a funder who is reliable.

Spotting an illegitimate litigation funder

In third party funding funders invest their own capital in a case and put themselves at risk of losing out. Because of the uncertain nature of the business, the reward to the funder when a case is won can be extremely high, and to an illegitimate funding company, who don’t control the funds they’re putting forward anyway, third party funding presents an opportunity for them to come out on top.

Illegitimate funders are usually so named for one of two reasons:

1. The finances that they have committed to the claim aren’t actually available to them; i.e. the funder is actually a broker or middleman.
2. The company represents itself as having sufficient funds, but runs out of money before the conclusion of the case.

Where legitimate funders ensure that the resource required for a case is readily available, illegitimate funders will work the other way round, sourcing a potential client and then working out how they can raise the funds. Aside from the glaring issue of the funds therefore being unsecured, it can also mean that the litigation process is delayed.

How is litigation funding regulated?

The Association of Litigation Funders (ALF) has recently established a code of conduct. If a funder has signed up to the code, then:
1. They have accepted what is referred to as ‘capital adequacy requirements’, and are therefore obligated to have secured the required resources to cover a case for a minimum period of 36 months.
2. They have accepted that they cannot terminate any agreement that they hold with their client without a strong legal reason
3. They have accepted that they cannot unduly interfere with case proceedings

There are reliable and reputable funding companies out there, and the best advice for ensuring that you select a reputable one is to research.

This article was provided by Laura Moulden on behalf of Vannin Capital, visit the website for advice on Legal Funding.


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