Litigation funding, also called third party funding, is slowly creeping into Scotland. It is not a new idea, the origins date back to the 1960’s. Since then, it has gradually gained traction and spread around the world as people become more familiar with the potential benefits. As well as reducing the financial risk, it crucially improves access to justice for meritorious cases.
According to The Civil Justice Statistics of Scotland, [1] there were 81,200 civil cases initiated across the Scottish Court system during 2017/18 – a drop from the 131,600 cases during 2008/09. There are many reasons for that, one of which is likely to be the expense. There are no comparative figures available in Scotland, but a study by The English Law Society [2] estimated that the average cost for a day in court is £2692.
How it works
The concept is simple - a litigation funder with no direct interest in the case, provides the capital to cover all or part of the the legal costs and outlays throughout the whole litigation process. The investment is made in return for repayment and an agreed success fee in the event of recovery. If unsuccessful, the funder walks away, loses its investment and will not seek repayment. This can make it an attractive proposition for those involved with the case.
The success fee agreed will vary depending on the case itself, the expected duration and the budget anticipated. This typically will be a percentage of the award obtained, a multiple of the initial cost or some combination of both. The funder will not normally accept the adverse cost risk, but may cover an ATE insurance premium.
The solicitor conducting the case will provide the funder with the key documents to give a good overview of the factual background, what finance is required, realistic and likely return. The funder will carry out due diligence on the case including looking at the merits, the financial standing of the defender and how a judgement will be enforced. If approved, the funder then drafts and enters into an investment agreement with the solicitor and their client.
Who uses litigation funding
For pursuers, whether individuals, companies, Insolvency Practitioners or other entities, there can be substantial financial risks of raising an action, and puts the prospect of a hearing beyond some pursuers reach. They may either lack the risk appetite or resources to cover the costs, want to manage costs and offset risk or want to keep the cost off their balance sheet. This often means that despite having good cases, claims are written off and pursuers are deterred from raising an action. The funding can help businesses turn legal problems into commercial investments and remove the risk from the balance sheet.
In addition, as is quite often the case, if the defender has deep pockets or there are insurers involved, the presence of a funder can even the playing field.
Law firms are attracted by the certainty of payment. It allows firms to drive growth and reduce the financial pressure on their businesses. Funders don’t always insist on contingent fee arrangements. Using litigation funding allows them to attract and retain clients with comprehensive fee agreements. The financial backing from a funder can provide an extra layer of comfort in the chance of success, as litigation funders will clearly only provide funding for cases they believe are meritorious.
How it has can help property disputes
Litigation funding can we obtained for commercial litigation, mediation and arbitration cases. We learned about arbitration as a means of resolving property disputes in Issue 160 June 2019. The funding is generally not restricted to any specific sector, so is equally available for property disputes.
Funding can be obtained and tailored on a case by case basis, or for portfolios. For the latter, this may be provided by way of a fund which can be drawn down on by law firms.
Cases don’t necessarily have to be pre-action, they can be funded at any stage to meet the individual needs of the case as it progresses.
The case of Carlyle v Royal Bank of Scotland plc. [2015] UKSC 13 highlighted the benefits of litigation funding in Scotland. The case involved an individual, Mr Carlyle, a property developer in dispute with his bank. It went all the way to the Supreme Court, with an eventual successful outcome for Mr Carlyle. The not unsubstantial cost of litigation in the Supreme Court was met by a litigation funder, and justice was achieved.
Another more recent and unreported case involved a Scottish businesswoman who successfully pursued a case regarding a shareholder’s dispute in relation to her family business, which ran a property portfolio. Were it not for the funding available, the case would not have started. [3]
The future
Litigation funding is an industry expected to continue to grow and evolve within Scotland and the rest of the world. There are numerous funding options available on the market. Care should be taken to ensure the funders are credible and have immediate access to funds. It absolutely will not suit all cases, but it is, without doubt yet another tool in the box for dispute resolution solicitors.
This article was published in Greens Property Law Bulletin (by Thomson Reuters).
BIBLIOGRAPHY
[1] “Civil Justice Statistics Scotland 2017-18,” Scottish Government, [Online]. Available: https://www.gov.scot/publications/civil-justice-statistics-scotland-2017-18/pages/1/. [Accessed July 2019].
[2] “Cost of a day in court - New analysis by the Law Society,” The Law Society, [Online]. Available: https://www.lawsociety.org.uk/support-services/research-trends/cost-of-day-in-court-new-analysis-by-law-society/. [Accessed July 2019].
[3] “Litigation funder Restitution Ltd secures win for businesswoman,” Scottish Legal, [Online]. Available: https://www.scottishlegal.com/article/litigation-funder-restitution-ltd-secures-win-for-businesswoman.