What is third party funding, and why should you consider it?
What is third party funding, and why should you consider it?
Legal costs can be a crucial factor in determining whether to bring or fight a claim. A potential litigant to a claim has to consider not only their own legal costs, but the potential exposure to the other side’s costs.
Third party litigation funding allows individuals and businesses with a potential case for litigation or arbitration the opportunity to pursue it without the stress regarding the legal fees associated with it.
Third party funding (TPF) is becoming increasingly common, and the number of institutions that are prepared to finance litigation and arbitration has also seen a rise. Insurance companies, investment banks, law firms and hedge funds have all entered the litigation funding market.
Funding agreements differ from contingency fee agreements and can often be complex. Therefore, it is essential to have an experienced advisor on your side. At Annecto Legal, we can assist clients in understanding the finer points of third party finding, as well as helping to secure the best deal with providers.
What is third party funding?
Third party funding is a form of non-recourse financing in which an external party provides funding for a legal dispute or claim, typically in exchange for a portion of any settlement or award obtained. The third party funder assumes the risk of the litigation, and in exchange for their investment, they receive a share of any recovery obtained.
This type of funding can be used by individuals or businesses who do not have the financial resources to pursue a legal claim on their own.
In return for taking the risk, the third party funder will usually seek a share of the proceeds within the range of a fifth to a third of any damages recovered.
As a result, you will keep up to 80% of the proceeds whilst taking on minimal risk. If the claim is unsuccessful, the third party funder will lose their investment.
Whilst third party funding agreements are typically aimed at claimants, they can also be relevant to respondents facing a counter claim or defending a claim, to shift legal risk off balance sheet.
Many types of legal claims can be covered by third party funding agreements. These include breach of contract claims, professional liability claims, fraud related claims, intellectual property claims, tax disputes, shareholders disputes and international arbitration.
Who is eligible for third party funding?
Third party funding is not limited to parties with little or no finance. Even well-funded or solvent parties are now beginning to consider third party funding agreements in order to shift the costs and risks of litigation or arbitration from their own balance sheets. This funding can come from a variety of sources, including individuals, businesses, and organisations, regardless of their financial status.
What are the benefits of third party funding?
Third party funding arrangements provide a wide range of benefits for litigants when pursuing or defending a legal claim. Some of these benefits include:
- Access to justice: Third party funding allows individuals and companies who lack the financial resources to pursue or defend a legal claim to do so.
- Risk management: This type of funding can help manage the financial risks of litigation or arbitration by transferring some or all of the costs to the funder.
- Cost efficiency: Third party funding can help reduce the overall cost of litigation or arbitration by allowing parties to focus on the merits of the case rather than the cost of funding it.
- Improved chances of success: It can provide the necessary funding to hire top legal counsel, experts, and investigators, which can increase the chances of success.
- Flexibility: It can provide funding for a wide range of legal disputes, including commercial disputes and international arbitration.
Third party funding may be beneficial for individuals by using it combined with after the event (ATE) insurance in order to mitigate against some of the risks and costs of pursuing litigation or bringing a claim where they may not have otherwise had the necessary resources to fund a claim.
ATE insurance can also help to protect against adverse costs. Additionally, third party funding can also be an effective way for businesses to pursue a claim against better resourced opposition.
Funders are only interested in claims that have good prospects of success. Therefore, they will conduct a due diligence process and carry out their own analysis before arranging and agreement to provide funding. This analysis may help to encourage an early settlement once the other party is made aware that the claim has the backing of a funder.
When should I apply for third party funding?
Third party funding applications are typically made after the initial case analysis has been carried out and pre action correspondence has taken place. One thing that should be noted is that third party funding will not always cover costs that have already been incurred.
It is possible to seek and obtain funding to cover the early stages of a case if the costs would otherwise be prohibitive (the funder will sometimes seek a higher level of return in these circumstances).
How can Annecto Legal assist with third party funding?
Annecto Legal helps clients realise the value of their legal claims. Annecto Legal was established to help individuals and businesses pursue claims and remove any cost barrier to litigation.
The application process of third party litigation funding can sometimes be complex for the unwary. Therefore, we recommend that you contact us as soon as possible so that we can provide the advice and guidance you require.
We provide our services to a variety of clients, including solicitors, businesses, commercial insurance brokers, liquidators, insolvency practitioners and individuals.
Get in touch with an expert advisor from our team to find out more about third party funding options and which commercial litigation finance cover is the right litigation funding choice for you.
Call us today 0800 612 6587 or fill in the contact form below.
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* Annecto Legal can only assist on case where the loss is in excess of £100,000, with the exception of data breach claims. If you need assistance on a claim worth over £100,000, please get in touch using our form or the details below:
Annecto Legal Ltd, 106 Kennedy Building, Murray Street, Manchester , M4 6HS
0800 612 6587