In his latest blog for Global Legal Post, Nick Rowles-Davies, a solicitor and consultant with litigation funder Vannin Capital, looks at the rise in third party funding for professional negligence claims.
Solicitors and clients are increasingly looking to third party funding to bring their professional negligence claims against a range of professionals - solicitors, barristers, surveyors, auditors and accountants. Over the past year the number of professional negligence cases we have funded has doubled and I don’t see this slowing at any point soon.
Typical case values that we have seen range from £5m to in excess of £100m and are being brought by solicitors and clients in equal measure for missed deadlines, poor advice on settlements, undervaluing of property and negligent audits. They make attractive cases for funders because of the indemnity insurance behind the defendants but they are usually highly complex and most certainly not a ‘slam dunk’ in terms of liability and causation.
A common misconception
One common misconception is that litigation funders are fuelling a rise in professional negligence claims and so it is important to state that the vast majority of reputable funders are not trawling the market looking for cases. These cases would have been brought with or without third-party funding using a form of conditional fee arrangement or maybe even a damages-based agreement. However, litigation funding offers an alternative that almost eliminates any financial risk to an honest claimant.
Recoverability is the biggest issue for funders in any case they look at. Litigation funders carry out extensive due diligence into the financial means of any proposed opponent. Cases where the defendant is insured against the risk they face are clearly attractive to funders. For this reason, professional negligence cases are likely to provide sufficient confidence to funders on the issue of recoverability.
Non-disclosure of information
It’s also been said that the funding process could lead to large uninsured claims against solicitors because of clients and law firms not disclosing all relevant information to a funder at the beginning of a case. I think this is highly unlikely for at least two reasons:
• Firstly, the after the event (ATE) insurance market has been around for many years and in that time very few policies have been voided for non-disclosure. This is one of the main reasons that ATE policies were held recently to provide good security for costs in the recent Murray & Anor v Neil Dowlman Architecture Ltd  EWHC 872 (TCC) case. In these situations, and the evidence also suggests, that policies are rarely, if ever, voided. The process of applying for ATE cover is similar to that of applying for funding.
• Secondly, any reputable funder is very skilled at obtaining full disclosure before making any decision whether to fund a case. More importantly the decision to fund or not is solely the decision of the funder and based on their own research and due diligence. Whilst it is possible that a situation could occur where a client has deliberately omitted to provide information, or misled the funder in some way, that situation is unlikely to be the fault of the instructed lawyers.
Get examples of success
Solicitors and clients looking for third-party funding in professional negligence claims should, as ever, ensure that their chosen funder really understands the issues and can provide references from similar successfully funded cases. Just as you should choose lawyers with experience in the appropriate field – the same applies to selecting a litigation funding partner. The market has been burgeoning in the UK for at least the past three years and so examples of success, from reputable funders, should be plentiful.