The litigation funding company is relatively new in the UK, whereas is has been in effect since the 1990s in Australia. The USA’s industry has also taken a little while to grow, but all three of these countries have seen a steady increase in the litigation funding sector.
The introduction of contingency fees and ban of referral fees in the UK will have a small impact on litigation funding companies. It should work to level the playing field slightly, in litigation funding companies’ favour.
Litigation funding Down Under
Australia’s industry is very similar to the one found in England and Wales, as it too has disallowed contingency fees and follows an adverse costs regime. Litigation funding in Australia has made a significant change to the Australian legal system, as found in the study conducted by David L Chen and David S Abrams (A Market for Justice: The Effect of Litigation Funding on Legal Outcomes) into the effects of the third party funding industry.
The results showed that the courts saw greater activity as a result of cases that were funded. It also found that cases with funding got many more references than those that weren’t – almost double the amount in the end.
This study clearly shows that litigation funding companies can help claimants to settle out of court. This is because defendants notice the increased backing and resources that funding can give to claimants, and they are intimidated by this.
Litigation funding in the USA
In the USA, things are a little different. Contingency fees are allowed and there isn’t an adverse costs regime in place. The damages that are awarded in jury cases are often considerably higher as well, when compared to those in Australia. This could be linked to the fact that litigation funding companies in the USA take a larger portion of the proceeds.
What’s the future of litigation funding?
It’s thought that litigation funding will increase in popularity as law firms begin to understand it better. At the moment, it is still relatively unknown, and some law firms are still wary of using it. However, as third party funding can help to reduce the risk that law firms are exposed to when taking on cases; it could be very beneficial to them.
Litigation funding will continue to be profitable, although many believe that the huge awards seen by some litigation funding companies will reduce as the industry grows.
What are your predictions for the third party funding industry?