Author: Josh Prior
Key contact: Aisha Wardell
Litigation funding has become an increasingly important feature of the disputes landscape in England and Wales. With claimants often facing prohibitively high legal costs, the ability to secure third-party finance can mean the difference between pursuing or abandoning a claim. But funding is not without its complexities. This article outlines how litigation funding works, the key issues to consider, and the current trends shaping the market.
What is litigation funding?
Litigation funding (sometimes called third-party funding) involves an independent funder agreeing to cover some or all of a claimant’s legal costs in exchange for a share of the damages if the case succeeds. Unlike conditional fee agreements or damages-based agreements with lawyers (commonly described as “no win, no fee”), funding is an investment: the funder receives nothing if the case fails, but if it succeeds the funder will usually recover its outlay plus a return.
Funders are selective. They typically require strong merits and a good prospect of recovery before investing. Whilst there is no legal rule, in practice funders often look for cases with a likelihood of success in the region of 60–70% and with damages large enough to justify the risk.
What about ATE insurance?
After the Event (ATE) insurance is often purchased alongside litigation funding but is distinct in what it covers. ATE covers the claimant against the risk of having to pay the opponent’s costs if the case is unsuccessful. In some policies it can also cover the claimant’s own disbursements.
Whereas third-party funding removes the upfront burden of paying legal fees, ATE insurance mitigates the risk of an adverse costs order. Used together, they provide claimants with a powerful combination: the ability to bring proceedings without paying upfront and protection from most of the financial downside if they lose.
What should claimants consider?
When reviewing funding and insurance proposals, claimants should keep in mind:
- Costs of funding – Funders generally seek either a multiple of their investment (commonly two to four times the amount advanced) or a percentage of damages (often between 20–40%).
- Adverse costs – Claimants should consider ATE insurance as the primary tool to protect against the risk of paying the other side’s costs. Premiums can be substantial, and are often staged or deferred until the end of the case.
- Negotiation – Different funders and insurers will offer different terms. Comparing proposals is essential.
- Control and transparency – While funders are not entitled to run the litigation, agreements should be clear about decision-making, settlement approval, and disclosure of the funding arrangement to the court.
Why is funding more relevant now?
Recent high-profile cases highlight the role funding and ATE cover can play in delivering access to justice. The Post Office litigation, for example, relied heavily on external funding to bring a claim that would otherwise have been impossible for the sub-postmasters to afford.
Funding and ATE allow claimants with limited means to pursue valid claims against well-resourced opponents, levelling the playing field where the economics might otherwise prevent litigation.
Current trends
- Regulatory scrutiny and disclosure – Following the Supreme Court’s decision in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28, certain funding agreements have been held to fall within the definition of damages-based agreements. This has prompted restructuring of funding arrangements and closer scrutiny of how they are disclosed to the court.
- Due diligence by funders – Funders continue to carry out rigorous assessments of both the merits of the claim and the likely ability to enforce any judgment. This protects their investment and ensures that successful outcomes translate into recoveries.
- Technology and AI – Some funders and insurers are beginning to use data analytics and AI tools to compare claims with historic outcomes, improving risk modelling and prediction of success.
Conclusion
Litigation funding and ATE insurance are now firmly embedded in the English litigation landscape. Used separately or together, they provide claimants with a way to manage the costs and risks of complex disputes. For claimants, they open the door to claims that might otherwise be unaffordable. For funders and insurers, they represent a growing market that continues to adapt in response to regulation and technology.
