Deminor Wiki - Third Party Funding

History

The concept of TPF has evolved significantly over the years. The practice was initially viewed with uncertainty and was often prohibited under doctrines such as champerty and maintenance, which aimed to prevent frivolous litigation and the improper influence of third parties on legal proceedings. However, as the legal landscape has changed, these doctrines have been abolished in many jurisdictions, paving the way for the growth of TPF. 

The modern era of TPF began in the late 20th century, with significant developments occurring in the early 2000s. The United States, United Kingdom, and Australia were among the first countries to embrace TPF, recognising its potential to improve access to justice. Today, TPF is a well-established practice in many jurisdictions worldwide, supported by a growing number of specialised funding firms.  

Types of Third-Party Funding  

TPF can take various forms, depending on the nature of the case and the agreement between the funder and the client. Common types include: 

• Single-case funding: The funder provides financial support for a specific case, with the expectation of a return if the case is successful. 

• Portfolio funding: The funder invests in a portfolio of cases managed by a law firm or a corporate entity, spreading the risk across multiple claims. 

• Seed funding: The funder provides an agreed initial amount in the case to investigate the merits of a potential claim, with the option to provide further funding if the case proceeds. 

TPF can also be used alongside other types of funding such as before- and after-the-event insurance or together with law firm fee arrangements (conditional fee agreements or damaged based agreements). 

Market Impact  

The rise of TPF has had a significant impact on the legal landscape. It has increased access to justice by enabling more parties to pursue valid claims that they might otherwise have abandoned due to financial constraints. TPF has levelled the playing field, particularly in commercial disputes where one party may have significantly more resources than the other. 

Regulation 

The regulation of TPF varies significantly across jurisdictions. In some countries, TPF is subject to specific regulatory frameworks designed to protect the interests of all parties involved. These regulations may include requirements for transparency, disclosure, and ethical conduct. 

For example, in the United Kingdom, the Association of Litigation Funders (ALF) has established a voluntary code of conduct that sets out best practices for funders. This code includes provisions on capital adequacy, conflicts of interest, and the fair treatment to clients. 

In contrast, other jurisdictions may have minimal or no specific regulations governing TPF, relying instead on general legal principles and market forces to ensure fair practices. As TPF continues to grow, there is ongoing debate about the need for more comprehensive regulation to address potential issues such as funder influence and transparency. 

Conclusion 

TPF has become an integral part of the modern legal landscape, offering a viable solution for parties who need financial support to pursue their claims.  

As TPF continues to grow, it will likely face new challenges and opportunities. The ongoing development of regulatory frameworks, the increasing sophistication of funding arrangements, and the expanding global market for TPF will shape its future. Legal professionals must stay informed about these developments to effectively navigate the complexities of TPF and leverage its benefits for their clients.