What are The Key Deal Terms of a Litigation Funding Agreement?

The key document that governs the relationship between a third party litigation funder and a claimant is a litigation funding agreement (“LFA“).

Litigation Funding Agreement

LFAs are complex legal contracts, which are customised to the facts of each individual claim, but the following are the main key elements:

Termination rights

It might seem counter-intuitive to list termination rights as the first key element, but in practice this is one of the most important aspects of the LFA.

As a claimant (or the claimant’s solicitors) you need to be comfortable that once you have entered into a LFA, your funder will provide the agreed level of third party litigation funding until the conclusion of the claim and only pull out if certain objective tests are met.

Vannin Capital abides by the Association of Litigation Funders’ (“ALF“) Code of Conduct which provides that a funders may only pull out of a LFA if the funder:

  • Reasonably ceases to be satisfied about the merits of the dispute; or
  • Reasonably believes that the dispute is no longer commercially viable; or
  • Reasonably believes that there has been a material breach of the LFA by the funded party.

In addition, the ALF Code of Conduct does not permit a discretionary right for the funder to terminate a LFA in the absence of the circumstances described above.

In the event of a termination related dispute between the funder and the funded party, the ALF Code of Conduct prescribes the appointment of an independent Queen’s Counsel to ensure such dispute is resolved in a timely and satisfactory manner.

Budget plan/funding limit

The amount of funding to be provided under a LFA is tied to an agreed budget plan. It is vital to ensure that the budget plan reflects the real costs of the dispute through its various stages as any additional funding required in excess of the budget plan will require re-negotiation with the funder leading to delays.

An experienced funder will be able to guide you as to the appropriate level of costs to ensure that the budget plan is as accurate as possible.

Scope of the funding

A standard LFA will typically exclude some actions (for example, defending a counter-claim brought by the other side). It is, therefore, important at the outset to map out the likely path of the dispute to ensure that all eventualities are covered by the LFA or, alternatively, that actions which fall outside the scope of the LFA can be funded from other sources.

Adverse costs

As part of a litigation funding package, ATE insurance should be provided to cover any possible adverse costs exposure. ATE insurance can be provided by way of a separate agreement with an ATE insurer (which will entail a separate due diligence process and negotiations) or be included in the LFA itself.

Vannin Capital is able to provide ATE insurance as an integral part of a LFA saving the claimant time and money.

Waterfall

The outcome of a funded claim has several permutations – lose, win with insufficient funds, win with sufficient funds – which can be complicated by the arrangements a claimant has with its advisers – full fee paying, partial CFA, full CFA, etc. The waterfall clauses in a LFA reflect how monies are to be distributed on the conclusion of a claim.

Client’s responsibilities

The smooth running of a funded cases depends on establishing a solid working relationship between client, client’s solicitors and litigation funder.

The client’s responsibilities section of a LFA sets out the minimum standards required of a client when working with a funder and includes, amongst other things, ensuring an appropriate flow of information to the client’s solicitors to enable them to pursue the case effectively and to the funder to allow it to monitor the case appropriately.

Find out more about Vannin Capital and litigation funding at http://www.litigationfunding.com/

Photo credit: toridawnrector

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