FAQS

A: Litigation funding, also known as litigation finance or third-party funding, is when a third party provides funds to a claimant or plaintiff to pursue legal action in exchange for a share of the proceeds if the case is successful. 

How Litigation Funding Works - A funder agrees with the claimant or plaintiff to fund their matter in exchange for an agreed portion of the proceeds, generally paid only if the claimant is successful. The funding can be used to cover legal costs, such as lawyers' fees and case-related expenses, or potentially as working capital for other business purposes.

Litigation funding can help claimants or plaintiffs pursue cases they otherwise could not by providing financial resources. It can also help level the playing field against better-resourced opponents. Litigation funding can also help businesses with the cost of commercial disputes by taking the costs of litigation or arbitration off their balance sheets and mitigating the financial risk associated with pursuing commercial litigation or arbitration. It can also help businesses unlock value by turning unpaid judgments, or judgments which may be subject to appeal, into more immediate cash flow.

Many case types are considered for funding, and there are wide range of funders on the market. Erso has one of the widest mandates in the market and we consider many different types of claims including: Commercial and contractual disputes, business tort claims, claims arising from liquidation, bankruptcy and insolvency, intellectual property disputes (with a particular focus on patent disputes), domestic and international commercial arbitration, investment treaty arbitrations, class actions and group claims of all kinds, mass torts, ESG matters, and antitrust and competition claims.

What is often more important than case type, is whether the case meets the following criteria:

• The case must be meritorious and have been assessed by a credible legal team to have a good chance of succeeding;

• Your opponent(s) must be credit-worthy and likely to be able to pay a judgement;

• The realistic damages of your claim must be greater than 6x your legal budget; and

• The case must be pursued in a common-law jurisdiction or recognized arbitral forum.

The answer will depend on whether a funder is committing to pay all or only part of the legal fees and expenses of the case. If the latter, you may have the resources to pay the balance, or your law firm may offer to act under an alternative fee arrangement such as a CFA, DBA, or other arrangement in which some or all of their fees are contingent upon the matter succeeding. Which arrangement will work best often depends upon the economics of the particular case and other factors including the stage at which the litigation funder is approached.

Yes, your lawyer or legal team will be very involved in helping to secure the right offer of litigation funding for your matter, and in providing Erso with the information we need to assess whether your case is appropriate for litigation funding. They may also act as your advisors when it comes to making sure you understand the details of the litigation funding agreement (“LFA”). The funder’s own diligence on the case and its prospects will include an assessment of the legal team appointed to work on the case.

You should choose a professional litigation fund, that has a good reputation. Large-scale litigation and arbitration can often take several years so you will want to be sure that the funder you choose is able to make good on the commitment to your matter and is one you can build a rapport with.  In the UK many funders, including Erso, are members of a self-regulating association called The Association of Litigation Funders of England and Wales (ALF). ALF Funder Members abide by the ALF Code of Conduct, which provides significant benefits to those who seek funding.

Key aspects of the Code provide for:

• Capital adequacy of funders. The Code requires funders to maintain adequate financial resources at all times in order to meet their obligations to fund all of the disputes they have agreed to fund, and to cover aggregate funding liabilities under all of their funding agreements for a minimum period of 36 months.

• Termination and approval of settlements. The Code provides that funders must behave reasonably and may only withdraw from funding in specific circumstances. Where there is a dispute about termination or settlement, a binding opinion must be obtained from an independent QC, who has been either instructed jointly or appointed by the Bar Council; and

• Control Under the Code. Funders are prevented from taking control of litigation or settlement negotiations and from causing the litigant’s lawyers to act in breach of their professional duties. This is in line with the practice, in England & Wales, of keeping the roles of funders, litigants and their lawyers separate. Because of their interest in the litigation, funders may ask to be kept informed of the progress of the case. Some funders may also have considerable litigation experience that could benefit the litigant and its legal team.

The litigation funding agreement or “LFA” is the document or documents which contain the terms of the arrangement between a litigation funder and a plaintiff or claimant, including an agreement on how proceeds are shared in the event the case succeeds (priorities agreement).

When a litigation funder puts their capital into your case by funding it, they make an ‘investment’ in your case. Litigation funding is considered a high-risk investment because there is always a chance that your claim may not be successful and the funder may lose their investment.

There are various legal structures and entities used in litigation funding. A litigation funder typically a company that has expertise in the areas of litigation and arbitration (often through legally qualified staff), alongside investment experience. A funder may raise its own funds for investment in cases or may act as an advisor on behalf of institutional, corporate, or private investors such as a family office.

Litigation funding is not typically only available for claimants or plaintiffs – as the funding can be paid back and a success fee can be paid from a monetary award.  There may be some rare circumstances in which a defendant might be able to obtain litigation funding, for example, if the defendant had a valuable counterclaim which was much more meritorious than the original claim, and was highly likely to succeed, or if a defendant had obtained a judgment already at first instances and was seeking a litigation funder to purchase the judgment.

Litigation funding may be available for individuals. Erso’s counterparties are usually businesses, corporations or law firms, but individuals may be able to obtain litigation funding for their matters depending upon the case type, the merits of the case, the amount of funding required (we typically only fund cases requiring £/$500k or more of funding), which have a 1 to 10 ratio of legal costs to likely claim proceeds.

For more information on which cases qualify for funding click here.

Unfortunately, we do not provide litigation funding for divorce or family law matters.