The funder will then review a legal opinion from the lawyers, covering the key facts and legal issues of the dispute, quantum, and an indicative budget for conducting the claim. If the claim meets the funder’s criteria – generally, whether it has a good chance of success and whether both the client and funder will be happy with the prospective financial return – the funding will be agreed in principle.
The funder then carries out legal diligence on the claim. The lawyers may at this stage be required to provide additional information or clarification on certain issues, including preliminary reports on quantum and detailed budgets.
Once the claim has also been approved by the funder’s investment committee, a funding agreement can be executed and funds released.
Clients may have to (or choose to) disclose the fact that they have taken third-party funding during the running of a case. For example, the new International Chamber of Commerce arbitration rules require disclosure, as do the new DIAC Rules, and cases before the High Court of England and Wales. This can send a strong signal to the other side, since the fact of funding is indicative of a case with good prospects of success and one that has been independently reviewed.
Demystifying common misconceptions about funding
Those unfamiliar with third-party funding may have concerns about the funder’s level of involvement in the case. However, the funder treats the claim as a contingent asset and does not exercise any control over the law firm’s practical management of a case, although it will track spending and monitor key updates.
The funder will know and trust the legal team involved. While a funder will generally prefer that a claim settles amicably, it leaves it up to the lawyers to provide advice to the client on strategic decisions.
Regular reports to the funder on the progress of the case is not an onerous requirement for the lawyers, so long as communication between the two is effective and collaborative. It can be useful for clients to have another sounding board in maintaining a sensible and commercial approach to the dispute.
Co-written by Seema Bono of Pinsent Masons.