Litigation Funding Models

Litigation Funding is the financial arrangement by which a law firm’s client makes arrangements to pay the law firm’s fees, in circumstances where they cannot normally pay such fees up front.  

These litigation funding arrangements are usually entered into between the solicitor and the client directly, where they agree a circumstance in which the solicitor’s fees will become payable (usually at the successful conclusion of the instruction).  More information about these types of arrangement can be found here.

However, sometimes the law firm may not be as inclined to enter into such an arrangement or may be concerned as regards the risk it faces for a number of reasons including the risk to their business and cash flow.  As an alternative to solicitor funding arrangements, the solicitor/law firm instructed can have its fees paid by a Third Party Litigation Funder, who invests such sums on the basis of gaining a much larger return from the dispute or any legal proceedings issued.

When is third party funding appropriate?

In terms of contested litigation proceedings, Third Party Litigation funding models are only appropriate to Claimants (as Defendants will usually have no recovery as a result of such proceedings and thus nothing to pay the funder’s return on investment).

In addition, a Third party funder (which is usually an independent finance company) will need assurance that the sums sought will considerably outweigh the cost of funding a solicitor, such that its own business costs and a profit element are additionally provided for.

Accordingly, Third party litigation funding is only appropriate for larger claims and are not appropriate for small claims (particularly in light of the inability to recover legal costs in small claims proceedings).

Prospects of Success

Most importantly, however, is an assessment of the merits of your case, whether it be an ability to obtain a value for any interest you have by negotiation (for example an exit from a company shareholding) or a litigation claim.

Before any Third party funding can be seriously considered, the solicitor and client will need to independently assess the prospects of obtaining a successful recovery.  Without merits, it is unlikely that a funder will embark on any funding arrangement.

An alternative arrangement for the client could be Bridging Finance to pay legal costs.  Please see our webpage which deals with such options. 

Certain financiers specialise in funding legal fees on litigation fees, with such funding possibly being secured against the equity which may be available in your property (and perhaps cannot be unlocked because of your earnings or for any other reason) although a majority of Bridging Finance does not require any security.

Where a client obtains Bridging Finance to fund their legal fees, the prospects of success are a personal consideration and will not prevent an instructed solicitor to proceed if the client is determined to continue the instruction of their solicitor.

Funding Models

The number of funding models are too numerous to set out in any detail here, and we would suggest that in the event you are considering such arrangements then you firstly meet with us and then, once a review of your case is made, we can assist in a meeting with a litigation funder.

However, there are some common models involve the following aspects:

  • Bridging Finance

    This is straightforward finance from a lender which understands the justification for such lending and will base its decision on the claim and its Prospects of Success. The facility can be agreed up to a certain limit with interest only accruing on such sums being drawn down as the solicitor’s fees and expenses are paid.

    More information on this can be found here.

  • Shares of Damages Based Agreements

    With these types of model, the litigation funder may step in to fund the solicitor’s legal fees on the basis of a private agreement between the solicitor and the litigation funder to share the proceeds of a Damages Based Agreement.

    In such circumstances the solicitor, who may have entered A Damages Based Agreement with their client for his/her legal services to be remunerated on the basis of a percentage of his/her client’s eventual recoveries, may agree with the litigation funder to forfeit part of this percentage share in exchange for the regular payment of their legal fees, or a proportion of them.

  • Share of Proceeds of claim/interest

    This is a Damages Based Agreement directly between the client and the Third Party Litigation funder, wherein the claim or negotiations themselves may have more involvement by the Third Party Litigation funder, who may even decide on the solicitor instructed and agree the solicitor’s hourly rates and fees.  

    This may work in a very similar way to a Damages Based Agreement but will at all stages require more active involvement from the Third Party Litigation funder.

As stated above, the Litigation Funding model chosen will have to be appropriate to your financial position, the prospects of the claim or interest leading to a successful recovery (not always in litigation – a lot of funding arrangements work equally as well in negotiated pre-litigation settlements) and the choice of solicitor.

At Francis Wilks & Jones we are extremely familiar with working on fee arrangements, including with Third Party Litigation funders, and will support you in finding the arrangement appropriate to your needs and requirements.

Please call any member of our commercial litigation team for your consultation now on 020 7841 0390.  Alternatively e mail us with your enquiry and we will call you back at a time convenient to you.