The Court of Appeal’s comments in the recent case of Excalibur Ventures LLC v Texas Keystone Inc and others  EWHC 3436 confirms that litigation funding is here to stay as “a feature of modern litigation”. Commentators believe litigation funding is becoming more mainstream and, with increased awareness of funding as an option, it is now more in demand too.
Strategically litigation funding can be an excellent choice. Disclosing a funding agreement to the other side can demonstrate that a party has the finances to fight a case. It also shows that not only the party have confidence in the case, so do their financiers. If funds or individuals are willing to risk their money you can be certain, they are fairly confident in the result. These factors may encourage parties to reach a commercial settlement earlier.
What could affect growth?
The Excalibur case enforced the risks of providing litigation funding. In this case, third-party funders were ordered to pay indemnity costs. This amounted to more of the other party’s legal costs than is usually ordered. This ruling increases the exposure of litigation funders in cases that don’t succeed.
“It also sends a clear message to funders that their fortunes will follow those of the entity they back, irrespective of the funders’ conduct.” – Joy McElroy – Senior Associate – Nabarro
The parties on the loosing side usually required to pay the winning side’s costs. This is enforced on one of two bases:
1. The Standard basis is the default and results in the loosing party paying 65-70% of its opponent’s costs.
2. Indemnity costs basis is the second outcome. This is usually enforced where the losing party has behaved badly and/or lost on all aspects of their claim. The loser must pay a higher percentage. Often 80-90% of the winner’s costs.
Regulation may have an impact on the litigation funding industry. Currently, funders can opt to self-regulate through membership of the Association of Litigation Funders (ALF). The ALF established and enforces a code of conduct for its members. At the time of writing this, there are seven members. A key requirement for members of the ALF is to maintain a minimum of £5m in capital. 3.15.1 from their Rules of the Association 2016.
It doesn’t appear there will be any immediate changes to the regulation of the industry in the UK. However, with an industry growing in size and mainstream awareness it may be to come in the future.