Litigation finance industry increases threefold in six years

Recent reports show that more British companies are using litigation finance to fund their court actions, we are told.

Of hundreds of court actions surveyed in the last year, around 33% of them used some form of litigation funding in order to fulfil their requirements.

The use of litigation finance provides funds to claimants to cover legal fees and expert fees in order to take another party to court.

Whilst the costs of going to court would otherwise be too large for the individual or company to handle, the use of finance provides much lower financial risk and gives them the opportunity to potentially claim a significantly larger financial sum.

The amount that claimants can borrow ranges under to £50 million, with around 25 participating funding providers in the UK. Financiers work on the basis on no-win, no fee and instead take a percentage of the final compensation figure, sometimes with success bonuses in place.

Given the potential scope of a successful claim, the industry can be significantly lucrative and is said to be worth around £10bn in the UK and a worldwide figure of £70bn.

A source from Litigation Backing commented: “Litigation finance provides a very useful service to people who have be wrongfully compensated. For those without the finances to pursue a claim, they can receive money upfront or in stages in order to pursue a potentially lucrative settlement.”

They continued: “Litigation funders have to be quite cautious in the jobs they take on, because if the court falls flat after several years of court proceeding, the claimant and their financial backer can both be left without anything.”

Claimants are also typically sold litigation insurance packages as some kind of safety net for losing a case and still being able to satisfy a solicitor’s rate. Things that make a case more attractive include proof of any wrongdoing and looking to claim from a company that has substantial finances, making the potential pay out more appealing.

Examples for using litigation finance including shareholder disagreements, unfair sale of shares or assets, unfair dismissal and other shareholder disputes. In some cases, parties will look for a settlement upon finding out that litigation finance has been accepted, knowing that the backer must have significant faith in the deal going through.

In the event of not being able to secure litigation finance, companies can consider representing themselves, albeit risker and extracting value from their own properties and businesses in the form of bridging or second charge loans.