Third-party litigation funding is where a third-party who is not privy to your dispute funds your litigation costs. In return for their funding, the third-party usually receives 20% to 45% of the winnings on top of their initial investment.
Third party funding also involves indemnity insurance. This means if you lose, the funder will pay the insurance and lose their investment. Then, they are no longer liable for any further costs in proceedings.
Third party funding was previously considered to be an abuse of process and banned in the Australian jurisdiction. However, in 2006, the High Court handed down a judgment that third-party funding for a class action was not an abuse of process and did not oppose public policy.
As of 2015, the third-party litigation funding market is worth $3 billion. Almost half the cases filed in Federal Court in 2017 being funded by third parties.
Third-party litigation funders fund cases in:
- Tort
- Shareholder claims
- Product liability claims
- Consumer claims
- Intellectual property claims
How does it work?
A litigation funder will assess your case prior to providing funding with their own legal team. The agreement you sign with your litigation funder is different from your legal representative’s retainer. This is because a third-party litigation funder would have a conflict of interest if they were funding your case and providing legal services. The funder may still require you to engage legal services from a specific lawyer, but that’s all the legal control they will have.
The major role they play in your proceedings is to fund the day-to-day running of litigation, lawyer’s fees, and project management. Although this gives rise to a conflict of interest between the client and funder- winning the case vs financial costs- the client’s instructions will overrule the funder’s. Your lawyer also follows your instruction and they have no contractual relationship with the funder.
Will you be protected from unfair terms?
The Law of Contract will apply to all agreements including the one you sign with a funder. The contract cannot contain any terms that are unfair or would deceive the client in any way. Other than that, currently there are no laws on how the terms of the contract must be set out, fee regulation or licensing requirements.
The Australian Law Reform Commission recently released a report recommended further regulations for third-party litigation funding. The recommendations look to improve transparency in class actions and include court-ordered cost assessments.
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Access to justice?
Third party funding increases access to justice by allowing matters to be heard. Often a lack of funding stops small businesses and individuals from pursuing legal action. The court can hear more cases when a third-party helps fund the cost of litigation.
However, this also means that you will be losing a significant portion of your winnings to the third-party.
Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.
