Litigation Funding FAQs

Below you will find typical answers to a number of the most frequently asked questions about litigation funding, otherwise known as litigation / legal finance or third-party funding.

1. What is litigation funding?

Litigation funding, also known as legal financing or third-party funding, provides financial support to parties (usually plaintiffs or claimants) involved in litigation or arbitration. The funding normally covers legal fees and expenses, enabling cases to proceed that might not otherwise have the financial resources to do so.

2. How does litigation funding work?

A litigation funder agrees to finance all or part of the legal expenses of a case in exchange for a return on their investment (commonly a percentage from the proceeds if the case is successful). If the case is unsuccessful, the funder loses its investment and the party does not owe anything.

3. Who can apply for litigation funding?

Individuals, companies, and law firms (representing clients) are the most common parties applying for litigation funding. Applicants must have a strong case with a good chance of success and significant financial claims.

4. What types of cases are eligible for litigation funding?

Litigation funders typically support a wide range of cases, including (but not limited to) commercial disputes, intellectual property rights cases, class actions, international arbitration, and antitrust litigation. 

Clients with a high volume of litigation can also benefit from funding a portfolio of cases (three or more cases grouped and funded within a portfolio).

5. Are there any geographical restrictions on obtaining litigation funding?

Some funders operate globally, while others may have geographical limitations. It's best to consult directly with the funder to understand any specific restrictions. Furthermore, some jurisdictions may not allow litigation funding to be used.

6. Do I need to instruct a lawyer before approaching a funder?

Yes, it is advisable to have legal representation or at least have consulted with a lawyer regarding your case before applying for litigation funding. This ensures that your case is assessed accurately.

7. How soon before the trial of my case should I approach a funder to request legal finance?

It is recommended to seek litigation funding as early as possible. Early engagement allows the funder to assess the case thoroughly and provide funding in a timely manner, well before trial costs escalate. However, it is possible for a funder to become involved in a case at most stages.

8. What information do I need to provide to apply for litigation funding?

Applicants should be prepared to provide a summary of the case, the legal argument, an estimate of the claim's value, projected legal costs, and any relevant documents or evidence supporting the case.

9. How do litigation funders assess which cases to fund?

Funders conduct a rigorous due diligence process, assessing the merits of the case, the legal team's expertise, the financial claim's size, the likelihood of a successful outcome, combined with an assessment on enforcement (solvency of the counter-party).

10. How long does it take to secure litigation funding?

The time frame can vary widely depending on the complexity of the case and the due diligence required. Generally, it could take anywhere from a few weeks to several months.

11. Where does a funder typically get its finances from to fund a case?

Some funders can finance a case using their own capital, allowing for relatively quick access to the funds. However, other funders may be structured in a way that they may need to raise the capital via investments, institutional investors, private equity, or other financial entities. Therefore, this is an important question for those seeking funding to ask.

12. What are the costs associated with litigation funding?

Normally there are no upfront costs to the client for the funding. However, this can vary depending on the type and stage of the claim and also the litigation funding agreement. The funder will normally only receive a return on their investment upon the successful conclusion of a claim.

13. How does litigation funding affect attorney-client privilege?

Litigation funding does not typically affect the attorney-client privilege. Funders are careful to structure agreements to preserve confidentiality and privilege.

14. What impact does litigation funding have on the control of the litigation?

The claimant retains control over their case, although the funder may have some rights to consult or receive updates. The specifics can vary by agreement but maintaining the claimant's and attorney's autonomy is a priority.

15. Will my funding arrangement be disclosed?

Disclosure requirements vary by jurisdiction. In some cases, funding arrangements may need to be disclosed to the court or opposing parties, but this is managed in a way to protect the funded party's interests.

16. What happens if the funded party loses the case?

If the funded party loses the case, typically, they do not have to repay the funder for the finances provided. Litigation funding agreements are often non-recourse, meaning the funder bears the risk of the litigation. If the case is unsuccessful, the investment is lost from the funder's end, and the funded party is not liable for repayment.

17. What if my claim recovers less than the funder has invested?

In situations where the recovery is less than the amount invested by the litigation funder, the return to the funder is usually proportional to the recovery. The specifics depend on the terms of the funding agreement, but often, the funder would receive a lesser amount (aligned with the recovery amount), ensuring the client is not indebted beyond the proceeds of the case.

18. I don’t need funding for all my legal costs, will a funder pay part of them?

Yes, a funder can fund part of your legal costs. Litigation funding is flexible and can be tailored to meet specific needs. Whether you need partial funding for certain stages of your litigation or specific expenses, the funder should be able to  work with you to provide a funding solution that meets your requirements.

19. Will the funder pay for costs I have already incurred?

This depends on the specific policy of the funders and the circumstances of your case. Some litigation funders agree to cover retrospective legal costs as part of the funding agreement. It's best to discuss this directly with the funder to understand if they can accommodate these costs.

20. Can the funder withdraw funding?

Generally, litigation funders reserve the right to withdraw funding under certain conditions, which would be specified in the funding agreement. These conditions might include material breaches of the agreement by the funded party, significant changes in the case's prospects of success, or unethical conduct. However, withdrawal of funding is typically a last resort, and funders aim to work closely with the funded party to navigate any challenges.

21. What happens after the funding has been agreed and provided?

After providing financing, funders will usually take an active interest in the progression of the case, though they do not control the legal strategy or proceedings. They may require regular updates and assessments of the case to monitor its progress and prospects. The funding is used to cover legal expenses as agreed upon in the funding arrangement.

22. What is ‘after the event insurance’ (ATE)?

After the Event (ATE) insurance is a type of legal expenses insurance policy taken out after a legal dispute has arisen, designed to protect the insured party against the risk of having to pay the opponent's legal costs and their own disbursements if the case is lost. 

23. What is a Conditional Fee Agreement (“CFA”)?

A Conditional Fee Agreement (CFA) is an arrangement between a client and their lawyer, where the lawyer's fees are contingent upon the outcome of the case. If the case is unsuccessful, the client may not have to pay the lawyer's fees. If successful, the lawyer may receive their standard fee plus a success fee, which can be a percentage of the damages awarded.

24. What is a Damages Based Agreement (“DBA”)?

A Damages Based Agreement (DBA) is a financial arrangement between a client and their lawyer where the lawyer’s fees are dependent upon the success of the case and are calculated as a percentage of the damages recovered. Unlike a CFA, where fees might partly depend on the time spent on the case, a DBA is strictly contingent on the outcome and the amount of damages awarded.

25. Is litigation funding available for defendants?

Yes, even though it is far less common, litigation funding can be available for defendants. Typically, the defendant and funder define a "successful" outcome, involving a settlement or judgement below a specific threshold. The funder commits to cover defence costs and to indemnify the defendant if the outcome is above the threshold. In return, if the outcome is below the threshold, the funder receives a predefined return based on the cost savings achieved through the settlement or judgment.

Even though defendant funding is not common, it is recommended that you contact funders to discuss your specific situation. 

26. What happens if my case requires additional funding?

It can be quite common for a case to require more funding (commonly due to the need for additional time or resources needed to continue pursing the claim). If this is the case you would normally initially discuss this with your current funder to extend your existing Litigation Funding Agreement (LFA). Additional funding terms will depend on the specifics of your case and the agreements made.

27. What is the difference between litigation funding and a loan?

Litigation funding is non-recourse, meaning you only repay the funder if you win or settle your case. In contrast, a loan must be repaid regardless of the case's outcome, often with interest. Regardless of whether the case wins or loses, the funder typically pays all the costs / expenses.

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