It wasn’t so long ago that litigation funding was regarded with a degree of suspicion by some lawyers. The notion that a piece of litigation could be treated as nothing more than an investment proposition from which a third party could derive profit, was an anathema to lawyers used to dealing with clients willing and able to pay hourly rates for their services. 

Fast forward to 2023. Litigation finance is a mainstream option not only for commercial clients unable to finance the cost of their claim, but also for those forward-looking companies who wish to remove that risk from their balance sheets by using other people’s money to turn a contingent liability into a contingent asset. 

A common misconception is that the litigation funding market had focussed almost exclusively on the largest claims. Funders with significant war chests gravitated towards the often stratospheric gains offered by large cases and the potential that these had to become vehicles for the deployment of large amounts of cash. But for the vast majority of claimants and their lawyers running considerably smaller claims, external funding had never been a viable option. This is ironic in that those who were in most need of funding, were disqualified because they required too little cash. 

Funders quite rightly argued that small cases invariably cost as much to assess as the largest claims but crucially without the attractive upside. In addition, many such smaller claims are also unable to sustain the traditional return model that requires a ratio of 10:1 as regards damages sought and the funding required. The application of this ratio allows for circumstances where the damages realised may be the less than anticipated, and/or the cost of running the claim may greater than originally budgeted. 

The net effect of the above has served to ensure that a significant proportion of the litigation market has been neglected by third party funders. Firms like Apex Litigation Finance recognise that this sector of the market requires a more flexible approach to funding, where return models must reflect the unique economics of each case. Aggressive pricing structures and lengthy due diligence processes are unsustainable and serve only to reinforce the view held by many that third party finance is suitable only for very large cases. 

But the tide is turning. It is now perfectly possible to fund claims requiring as little as £25,000 whilst still ensuring that the claimant receives an equitable share of the proceeds. In addition, many law firms are gradually beginning to embrace the notion that access to finance can provide a powerful marketing opportunity to attract clients with good claims which would otherwise be abandoned. These firms no longer view external finance as a harbour of last resort, but rather as a way of creating a USP and building their businesses.

Chris Deadman