The last few months have seen much activity in the field of litigation funding. This has been driven, in part, by the uncertainty that the impact of the Jackson reforms will have on the funding market resulting in solicitors wanting to get their funding in place ahead of the reforms.

However, I think it also shows that funding is coming of age in the UK. We recently conducted some research amongst commercial litigation lawyers about their attitudes towards litigation funding. In particular, we were keen to discover how the Jackson reforms may or may not impact the funding market. 

More attractive

Around half predicted that the reforms – and particularly the end of recoverability for success fees and after-the-event insurance premiums – will make litigation funding more attractive, with those who have yet to use it more likely to think so than those with experience of funding. More than eight in ten solicitors are likely to consider using funding in the next 12 months.

As the availability and prominence of funding grows in the UK, lawyers are thankfully becoming increasingly savvy about its use. Our survey showed that solicitors are cottoning on to the rise in so-called ‘funders’ masquerading around the market without the funds to back up their promises. The ability to demonstrate that funds are readily available was the most important factor to lawyers when choosing a third-party litigation funder.

Asking questions

I am glad to see that lawyers are starting to ask the right questions of their potential funding partners as it is key to know how the case is being funded and any issues which might arise regarding the funding.

As well as wanting to know the money was available, lawyers equally looked for strong personal relationships, followed by the ability to provide an answer at speed. The main difficulties encountered when using funding were unrealistic terms/difficult negotiation (cited by 67%) and the inflexibility of the funder to respond to changes in the case (47%).

Almost three-quarters (72%) of solicitors were required to sign up to a conditional fee agreement, most commonly on a ‘no win, some fee’ basis that saw them paid between 25% and 50% of their usual fee come what may. After-the-event insurance was taken out in 56% of cases.

Aligning all parties

Despite the changes to the recoverability of success fees, I would expect this to remain the same in the next two years. Funders are keen to align the interests of all parties and will look for ways to mirror the way lawyers work on a contingent basis. The likely changes to the Damages Based Agreements regulations, which will provide clarity on the hybrid DBA position, means a combination of a DBA and funding is also a good alternative. At the very least we will see a combination of hybrid DBA, CFA or fixed /capped fees.

‘More favourable terms’ was, perhaps unsurprisingly, the one factor that would make solicitors increase their use of funding, or make those who have not used it to date embrace the concept. The existence of the Association of Litigation Funders’ code of conduct was widely welcomed – although many recognised that it was too early to judge the impact of the code. Solicitors were split on whether there needed to be statutory regulation of funding.

Main areas for funding

Of those who had used funding in the past two years, general commercial litigation (39%), professional negligence (28%), breach of contract (17%) and arbitration (11%) were the main areas. I expect this to remain consistent. Funding requires certain key basic elements, namely a claim of a high enough quantum to costs ratio and a defendant who can pay or is insured. These areas are the sort of cases that typically meet these requirements.

As for the future, the message to funders from lawyers is clear: “Show you have the money in the bank ready to go, make rapid decisions, and develop a genuine partnership with me and my client.”

Nick Rowles-Davies is consultant with Isle of Man-based litigation funder Vannin Capital.