What Are Some Risks Of Litigation Funding? | The Just Blog

The Risks Of Litigation Funding

By focusing on Litigation Funding, Just ISA has ensured that a number of insurances are in place and works with their Litigation Advisory Council to help reduce risks – so what should you be aware of before you invest in Just? What risks are involved in the field of Litigation Funding? Continue reading to find out.

 

Diversification

Diversification means spreading your investments across different asset classes and sectors. Litigation funding is a singular investment in a litigation case, reducing the diversification of your funds – and multiple investments into the field of litigation funding can reduce diversification further. A lack of diversification of funds, and concentrating investment into the same sector (or the same asset class) can be considered to be increasing the risk of your investment – always seek independent advice when are not sure if an investment is suitable.

Returns Rely On Success Of Lawsuits

Prospective litigation funders must consider the likelihood of success for the cases that they are considering investment in, so as to mitigate the chance of an unsuccessful outcome. As return on investment will only be achieved if the lawsuit is successful, the funder must be reasonably sure that it will do so. The underlying lawsuit should also have the potential for a high recovery amount – without which the recovery may not be enough to satisfy the investment amount.

Recovery Of Costs Against Funders

In English litigation, a third-party funder of an unsuccessful litigant may be liable to contribute towards the costs of the other side, though currently such contribution is limited to the amount of funding provided. In the context of arbitration, the outcome is not quite as simple – the tribunal may not have jurisdiction to make a costs award against a funder, given that it is unlikely to be a party to the arbitration agreement. Whether the tribunal has jurisdiction will depend on the procedural law and rules governing the particular arbitration. Either way, if an unsuccessful party is unable to meet an adverse costs award/order, the successful party may find itself unable to recover the full amount from the funder (or indeed any of the sum owed). A party whose opponent is funded should therefore consider whether to make an early application for security for its costs.

Conflicts Of Interest

Third-party funding arrangements may result in undisclosed conflicts of interest – perceived or actual. This can occur, for example, where there is a prior relationship between the funder and a party or law firm involved in the proceedings or between the funder and an arbitrator. Such conflicts can result in costly satellite disputes, including challenges to the arbitrator’s appointment and applications for disclosure of funding arrangement. Parties seeking third-party funding should consider whether they should disclose those arrangements (and if so, how and when).

Due to the potential risks mentioned above, Just ISA has created a seven point checklist which must be adhered to before the funder ultimately uses funds raised by the Just Bond to support a case that the claimant would otherwise be unable to afford. At every stage of its process, the prospective case is checked by its in-house experts alongside the Litigation Advisory Council, and professional advisers Praxis IMF & Knights.

The litigation funder seven point checklist is designed to ensure that only the highest quality cases are being funded. Cases must:

1. Be carefully selected.
2. Not be funded without the strong probability that it will be settled within 24 months.
3. Have undergone due diligence.
4. Have passed the Quantum of Damages Test.
5. Only fund cases being heard in the UK.
6. Have passed the Quality of Defendant Test.
7. Only fund cases where ATE Insurance can be obtained.

 

To start your journey with Just, follow these simple steps:

1. Read all of our information on this website, we’ve made it as simple as possible.
2. Submit an enquiry to our team to show your interest in the Bond and ISA.
3. Our team will be in touch for further information.

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