Third Party Funding for Litigation. Does it do what it says on the side of the box?
In our experience and for the right type of case yes it really can work!
As specialist litigation lawyers in our experience third party funding to assist with the expense of bringing a claim really can help. It’s a relatively recent phenomenon in English law but we are regularly seeing cases which would not have seen the light of day had it not been for this external source of support.
By way of example please click on our short case study of a recent case where funding has enabled liquidators to pursue preference claims which might not otherwise have been brought http://bit.ly/1E4T5cO
Do the Third Party Funders really take a risk or is it really a case of plain sailing?
The recent case of Excalibur Ventures – Gulf Keystone EWHC 3436 perhaps best demonstrates what can go wrong for the funder if a claim fails and the full transcript is available at http://bit.ly/1EikBCX
Although it was an unusual case the High Court judgment held that where a losing party was ordered to pay the successful party’s costs on an indemnity basis, the funders were liable for the indemnity costs.
As we say it differed from other cases to a large extent and was described as “speculative and opportunistic” and pursued “aggressively”, but it serves as a reminder that third party funders are taking a risk with their capital and if their funded cases turns out to be a bad claim, they could end up footing the bill.
At paragraph 129 of his judgment Lord Justice Clarke LJ said:
“I entertain some doubt that my decision will send an unacceptable chill through the litigation funding industry, whose aim is not to finance hopeless cases but those with strong merits. If it serves to cause funders and their advisors to take rigorous steps short of champerty, i.e. behaviour likely to interfere with the due administration of justice, – particularly in the form of rigorous analysis of law, facts and witnesses, consideration of proportionality and review at appropriate intervals – to reduce the occurrence of the sort of circumstances that caused me to order indemnity costs in this case, that is an advantage and in the public interest.
And what happens if solicitors fail to tell clients that they had no ATE insurance or some other means to protect them from costs orders, when you are exposed to adverse costs orders?
In Adris and Others-V-Royal Bank of Scotland and Others  EWHC, a number of claimants brought claims against the banks alleging breaches of the Consumer Credit Act 1974. The claims had been collated by a claims management company who introduced the claimants to a firm of solicitors. The solicitors made a “cost-free” proposition to the claimants which, in order to work, needed to be underpinned by ATE insurance.
The solicitors eventually admitted that they both failed in their responsibility to obtain ATE insurance and to advise the claimants about their costs exposure if the claims were unsuccessful.
His Honour Judge Waksman QC held that the:
“A failure to tell clients that they had no ATE insurance when they would have expected it, or some other means to protect them from costs orders, and that they were exposed to adverse costs orders should they lose a gross breach of towards those clients. It also meant that when cases were taken on behalf of those clients, [the solicitors were] effectively acting without instructions since the clients were prevented from giving instructions on anything like an informed view of the case.
He concluded that:
“It is obvious that if the clients had been told of the true position they are likely to have instructed (the law firm) not to progress the claims.
For further information on Litigation Funding please see our overview on litigation funding on our website at: http://bit.ly/1sqw1zQ