Litigation Funding

Handling commercial and Financial disputes

The complexity of global commerce inevitably leads to disputes between parties doing business together across borders, cultures and time zones.

The increasing frequency, scale and complexity of commercial disputes has subsequently led to a rise in litigation and arbitration proceedings as a means of resolution. While the costs of initiating court proceedings aren’t usually prohibitive, the ongoing costs associated with litigation, such as attorney’s fees and fees for discovery and depositions, can quickly stack up. The same is true for arbitration, where administration and arbitrator fees charged by international arbitration centres can lead to exorbitant costs to see a case through to conclusion.

For claimants based outside the European Union, in dispute with European defendants, there are also other barriers to consider, such as huge security deposits designed to cover the costs of the defendant should the case be lost.

The upshot of this is that many claimants are unable to adequately fund a dispute and have to let the matter drop unless they can find an alternative way to pay for it. Third-party funding and contingency fee structures have risen to prominence in response to this need, giving plaintiffs with valid claims an opportunity to pursue expensive disputes through the courts. The US has led the way in this field, being one of the few developed countries to allow law firms to employ contingency fee structures with very few limitations.

Third-party funding is, however, more widespread and acceptable across other developed jurisdictions, particularly those using Common Law. Research carried out in 2017 by US/UK-based third-party funder Burford Capital, found that the percentage of US lawyers who say their firm uses litigation financing grew by 28 per cent between 2015 and 2017 and by 514 per cent between 2013 and 2017.

The research also found that more than half (54 per cent) of UK lawyers who haven’t yet used litigation finance expect to do so within two years. For respondents already using financing, most often to fund single matters, more than half (51 per cent) seek amounts between USD1 million and USD10 million.

The eagerness of law firms to embrace third party funding might explain why Burford Capital set up its own law firm, Burford Law, in 2016, allowing clients to take advice on enforcement, even when not receiving any funding. This move controversially blurred the lines between law firms and funders and has added to the debate about who is in control of litigation or arbitration proceedings where third-party funding is utilised.

The concepts of champerty and maintenance should address this concern, but, in reality, they mainly ensure that third party investors in litigation cannot take a controlling interest in cases. A typical third-party funding deal for 30 per cent of the recovery could, however, be enough to raise questions around undue influence.

The following IR Global discussion calls upon the expertise of dispute resolution experts from seven countries where third party funding has a presence. We will discuss the structure of court costs and assess the rules around litigation funding in each jurisdiction. We break down the constraints around the assignment of claims and cost guarantees and finally look at the rules governing arbitration agreements.