Litigation Funding: A Review

The current talk of the Disputes world is funding. Litigation, third party call it what you will, funding litigation or arbitration1 is definitely of the moment, with increasing scope, both geographically and in terms of types of actions being funded.

Litigation funding is a financing arrangement in which the funder agrees to pay the client's (who is usually, but not exclusively, the claimant party) legal fees to include experts, external counsel and other disbursements, in accordance with an agreed budget.

Background

Funding's evolution has increased at pace over the last 10 years' and has come a long way since for example the 1960s and before in England, when it was considered champertous and to engage in 'maintaining' the litigation would be considered a criminal offence, since abolished by the Criminal Law Act 1967 (CLJ 1967).

Providing that the funder does not "control" the dispute (which may render it unenforceable s14(2) CLJ 1967), litigation funding is perfectly legal, and as seen in recent cases including Arkin v Borchard Lines Ltd2 which established that a funder's liability would be capped at the amount of their contribution- the highly criticised "Arkin Cap" through to the 2013 Jackson LJ's civil litigation reforms, positively encouraged by the English judiciary.

Benefits of funding

Corporate clients look to litigation funding not because they cannot afford to finance the litigation, but for a number of common reasons, including recognising that funding:

Frees up capital to use to develop their business, rather than being tied up in the litigation/arbitration. Aids otherwise pressurised legal budgets. Enables the litigation to be taken off the balance sheet. Gives a 'second opinion' on the strength of the case; funders avoid cases they think will fail. We are now seeing funding supporting cases previously not considered, for example arbitration both in England following cases such as Essar Oilfields Services Limited v Norscot Rig Management PVT Limited3 in which the costs of arranging the funding were considered recoverable in the arbitration, and elsewhere following the introduction of arbitration funding in Singapore, and soon to be in force arbitration funding in Hong Kong, as well in the traditional countries such as the US and Australia which for many years led the developments we now think of as imbedded.

Best practice when working with funders

Avoid any possibility of the funder exercising control over the litigation...