It is not just small businesses that wish to avoid the costs of litigation. Even large, multi-national companies, are recognising the benefit of taking the costs of litigation off their balance sheet to ensure valuable capital remains firmly invested in the management and growth of the business.

But that does not mean that these large companies are not pursuing good claims and recovering money through litigation which is rightfully theirs.

So who is paying for it all?

Third Party Funders are hot stepping their way to being the new preferred method for companies of all sizes to litigate their disputes allowing businesses to keep their cash where it belongs.

What is in it for the funder?

Professional funders will assess the merits of the case and, if they consider the prospects of success to be sufficient, they will invest in the case with the view to making a profit.  The moneys stumped up, however, are not a loan and if the litigation is lost, the funder will lose their investment.

What do third party funders look for in a claim?

  • The value of the case – a third party funder is not entitled to an award of costs if the case is successful because the funder is not a party to the litigation and therefore has no entitlement to claim costs.  A third party funder, by way of agreement with you, is paid out of the damages you are awarded if successful.  For this reason, third party funders will have a minimum claim value that they are willing to invest in.
  • The legal merits of the case – the third party funder is making an investment and will therefore want to balance the risk of losing its investment against the ability to make a profit
  • The cost of bringing the claim – the third party funder will require a detailed costs budget to ensure that the costs involved are included in its calculation prior to investing
  • The ability of the defendant to pay if the claim is successful – regardless of the legal merits of the case, the funder will want to know that the defendant is able to pay the damages award that the claimant receives

What is in it for you?

The terms of any third party funding arrangement will be bespoke to the case and the requirements of the claimant and the policies of the funder. What these arrangements essentially provide is a means for businesses to buy off the risk of litigation.  Businesses can balance the financial benefit of pursuing the claim if successful, against the portion of damages payable to the third party funder for funding the claim, all the while keeping its own cash safely invested in its own business and away from the risk of litigation.

About the author

Gemma Carson Partner

Gemma specialises in commercial litigation including commercial contract disputes and arbitration proceedings. She also advises on professional negligence claims.