Deminor Wiki - Third Party Funder

History

The concept of third-party funding has evolved significantly over the years. Historically, the practice was viewed with scepticism and was often prohibited under doctrines such as champerty and maintenance, which aimed to prevent frivolous litigation and the undue influence of external parties on legal proceedings. However, as the legal and financial landscapes have changed, these doctrines have been relaxed or abolished in many jurisdictions, paving the way for the growth of third-party funding. 

The modern era of third-party funding began in the late 20th century, with the establishment of specialised funding firms. These firms initially focused on commercial litigation, but their scope has since expanded to include a wide range of legal disputes, including class actions, arbitration, and insolvency proceedings. The industry has seen rapid growth, driven by the increase demand for litigation funding and the recognition of its benefits in promoting access to justice.  

Types of Third-Party Funding 

Third-party funding can take various forms, depending on the nature of the legal dispute and the needs of the parties involved. Some common types of funding include: 

• Single-case funding: This involves financing a specific legal case, with the funder providing the necessary capital to cover legal fees and disbursements.  

• Portfolio funding: In this arrangement, the funder provides financial support for a portfolio of cases, often involving a single law firm or claimant. This approach allows for risk diversification and can offer more favourable terms for the funded party. 

• Law firm financing: Some funders provide capital directly to the law firm, enabling them to take on cases on a contingency basis or invest in their practice. This can help firms manage cash flow and expand their services. 
• Arbitration funding: Third-party funding is increasingly being used in arbitration proceedings as well, where the costs can be substantial. 

Litigation Funding Context 

Litigation funding has become an essential tool in the legal industry, offering several advantages to parties involved in disputes. These include: 

• Access to justice: Third-party funding enables individuals and businesses with limited financial resources to pursue their claims, ensuring that meritorious cases are not abandoned due to lack of funds. 

• Risk management: By transferring the financial risk of litigation to the funder, parties can focus on their core business activities without the burden of legal costs.  

• Expertise and support: Funders often have extensive experience in litigation and can provide valuable strategic support throughout the legal process.  

Market Impact 

The growth of third-party funding has had a significant impact on the legal market. Some key developments include: 

• Increased competition: The rise of third-party funding has led to greater competition among law firms, as they can now take on cases that were previously beyond their financial reach.  

• Expansion of legal services: With the support of third-party funders, law firms and legal services are more accessible and affordable for clients. 

• Globalisation: The third-party funding industry has expanded internationally, with funders supporting cases in multiple and across different jurisdictions. This has facilitated cross-border litigation and arbitration, promoting access to justice at a global scale.  

Regulation 

The regulation of third-party funding varies across jurisdictions. Some key regulatory frameworks include: 

• United Kingdom: In the UK, third-party funding is regulated by the Association of Litigation Funders (ALF), a self-regulatory body that sets standards for funders and provides a code of conduct. The ALF's guidelines ensure transparency, fairness, and ethical behaviour throughout the funding process. 

• United States: The regulation of third-party funding in the US is more fragmented, with different states adopting varying approaches. Some states have enacted specific legislation to govern third-party funding, while others rely on existing legal principles and case law. 

• Australia: Australia has a well-established third-party funding industry, with funders subject to regulatory oversight by the Australian Securities and Investments Commission (ASIC). The country's legal framework supports the growth of third-party funding while ensuring investor protection and market integrity. 

• European Union: The EU has seen increasing interest in third-party funding, with several member states adopting regulatory measures to govern the practice. The European Parliament has also called for harmonised rules to promote transparency and protect litigants.  

Conclusion 

Third-party funding has transformed the legal landscape, offering a means for parties to pursue their claims without the burden of financial constraints. The industry has grown rapidly, driven by increasing demand for litigation funding and the recognition of its benefits in promoting access to justice. As the market continues to evolve, regulatory frameworks will play a crucial role in ensuring transparency, fairness, and ethical behaviour in the funding process. Understanding the various aspects of third-party funding, including its history, types, market impact, and regulation, is essential for legal professionals navigating this dynamic and complex industry.