Friday, February 22, 2013

Third Party Funding - step-by-step

If a business has a strong case for litigation, but doesn’t have the means to support it through to fruition, then they may need to consider sourcing funds from a third party.

Consult a Professional

In the instance of a legal dispute, a business should always consult a solicitor first and foremost. Under their code of conduct, solicitors in England and Wales must advise their clients of all viable options by which they may bring their case to court.

If a litigation case is substantial enough (generally worth over £1m and with a 60%+ chance of success), then sourcing funds from a third-party may be the ideal option.

What is Litigation Funding?

In the instance of third party funding, an agreement is laid out at the start of the case whereby the funder agrees to finance proceedings in return for a guaranteed percentage of the reward. If the case is unsuccessful, the client walks away having made zero outlay.

For an arrangement to be worthwhile for the funder, however, there must be a high probability of success and enough of an anticipated reward to ensure a return on investment. For this reason, third party funding is generally reserved for cases involving large sums of money, and so are principally regarded as a tool for businesses.

Is Litigation Funding Safe?

Third party funding is self-regulated. Membership of the Association of Litigation Funders (ALF) sets the industry standard for credibility, and their voluntary code of conduct should be adhered to. The code goes some way to regulate compliance, stipulating:
  • The funder must have secured sufficient funds to cover their agreement with the client for a period of at least 36 months
  • The funder cannot terminate their agreement with the client without a permissible reason by law
  • The funder cannot interfere with the case
Furthermore, because in such an arrangement the solicitor acts on behalf of the client and not the funder, it’s unlikely that they would allow the client to enter into funding agreement with a third party who is not a member of the ALF or a subscriber to the code of conduct.

However, it’s always good to be vigilant and there are a number of ways for businesses to protect themselves against entering an underhand agreement. A client should always ensure that they know the source and liquidity of the funds pledged.

Finally, though the funder is not allowed to have any control over the case, it’s a good idea to make sure that you and your solicitor share common values with the company, to ensure that all parties are able to work effectively together.

This article was contributed by Laura Moulden on behalf of Vannin Capital, a specialist litigation funding provider. For more information on how litigation funding works, visit the website :

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