Staying informed about litigation funding: a solicitor’s duty

Solicitors have long had a professional duty to act in their clients’ best interests and to consider their specific needs.  Per the SRA Code of Conduct this includes a duty to proactively advise on the suitability of litigation funding and ATE insurance as part of their duty to inform clients about costs and risks.

Litigation is by nature expensive and can carry significant financial risk. That means solicitors should be actively considering whether alternative funding structures could help a client pursue or defend a claim in a more effective way, and be able to provide clear and accurate information about the options available to them.

Historically, litigation funding might have been seen as something to explore only in certain circumstances. Today, however, it is increasingly something that should be considered as a matter of course. The market has evolved significantly, and clients themselves are becoming more aware of the different ways litigation can be financed.

At the same time, many businesses are approaching disputes in a more commercial and strategic way than they might have done in the past. Rather than viewing litigation purely as a legal exercise, they are increasingly looking at how the financial risks can be managed or transferred. For some clients, that may mean using external funding so they do not have to commit their own capital to a dispute. For others, it may mean exploring portfolio arrangements where the risks and costs of multiple claims can be managed collectively.

Because of this shift, solicitors need to be comfortable discussing litigation funding early in the life of a dispute. In practice, the most effective time to raise the possibility of funding is usually once the factual background and potential claims are clear - but      before significant costs have been incurred.  This will likely be at or around the time an initial letter before action is sent.  At that stage, the claimant should have a reasonable      view of the merits of the case and will therefore be able to consider whether a funding arrangement might be appropriate.

If funding is only explored once a dispute has progressed into formal proceedings, it can become more complicated. Costs may already have been incurred and the strength of the case may have shifted, which can make it harder to structure funding on attractive terms. Issues such as adverse costs risk may also have become more significant by that stage. As a result, raising the issue early generally gives clients a broader range of options.

Encouragingly, awareness of litigation finance within the legal profession is growing. Legal developments, case law and wider coverage in the legal press have all contributed to bringing funding arrangements more firmly into the mainstream conversation. At the same time, clients are increasingly expecting law firms to adopt more flexible and commercial approaches to pricing and dispute management, which naturally leads to a greater focus on funding solutions.

However, as the market continues to evolve and there is still a need for      solicitors to deepen their understanding and ensure they stay abreast of the full range of funding models available. Such knowledge is vital to ensure solicitors can properly discharge their duty to advise on funding options.   Failure to discharge that duty could result in sanction from the SRA, professional negligence claims from clients or challenges to fee structures.  Solicitors should treat s     taying informed about funding options and structures in the same way as they stay up to date with legal developments and case law.           

Solicitors should be asking the right questions about how their clients want to pursue a dispute, what their commercial objectives are, and how the financial risks of litigation might best be managed so that they can advise accordingly.     

In many cases, litigation funding can play a valuable role in helping clients access justice or pursue legitimate claims that they might otherwise have been reluctant, or unable,      to bring. For that reason, having a working knowledge of the available options is increasingly an essential part of a solicitor’s toolkit.

How litigation funding models are evolving 

The litigation funding market has grown significantly over the past decade and has become far more sophisticated in the types of arrangements it can offer. While traditional third-party funding remains an important part of the market, it is now just one of a number of models that can be used to finance disputes.

One of the most notable developments has been the growth in both the number of providers and the diversity of the cases that attract funding. A decade ago, funding was typically associated with very large commercial disputes. Today, funders are supporting a much wider range of matters.

At the same time, the ways in which cases are funded have become more creative. In addition to the traditional model, where a funder provides capital to pursue a case     in return for an agreed return on that capital      if the case succeeds, there are now other options such as portfolio arrangements where a group of claims is funded together. This can allow risks to be spread across multiple matters and can make funding viable for claims that might not make commercial sense on a standalone basis.

For example, there are situations where a collection of similar claims can be bundled together into a portfolio structure. While each individual claim might be relatively modest in value, taken together they may represent a meaningful recovery opportunity. Portfolio funding can therefore unlock claims that might otherwise go unpursued.

Another area of development is assignment-based funding models. Under these structures, the claim itself can be assigned to a funder, who then effectively steps into the claimant’s shoes to pursue the litigation. Typically     , assignment structures have been most commonly associated with insolvency-related claims, where legislation provides a clear route for liquidators or administrators to assign certain claims in order to maximise recoveries for creditors.

However, the use of assignment models is beginning to expand beyond the insolvency context. Increasingly, similar approaches are being explored in areas such as shareholder       disputes, insurance claims, contractual claims      and      debt claims. This reflects the broader trend towards innovation within the litigation finance market as providers develop new ways of structuring funding arrangements.

Clearly, litigation funding is becoming more diverse, more flexible and more commercially focused. That development helps to           improve      access to justice. Bringing or defending a claim can be extremely costly, and without external funding many individuals or businesses may simply be unable to pursue legitimate claims.

To note, funders themselves must have access to significant capital and must carefully manage the risks associated with litigation, including the possibility of adverse costs orders if a case is unsuccessful. 

Alongside these structural changes, there has also been a growing amount of legal and regulatory attention on litigation funding arrangements. Developments in case law and ongoing policy discussions are helping to shape how funding agreements operate and how they fit within the broader litigation landscape.

Looking ahead, it is likely that the market will continue to expand, particularly in areas where there has historically been a funding gap.      Complex claims that do not fit neatly within traditional funding categories may increasingly attract innovative financial structures. As courts and policymakers continue to engage with the sector, the framework governing litigation finance is also likely to evolve.

For solicitors, the key takeaway is that litigation funding is a rapidly developing market with new participants, new structures and new opportunities emerging on a regular basis. Keeping pace with those developments will be essential if lawyers are to ensure they can properly discharge their duty to advise clients on the full range of options available to them when pursuing or defending a dispute.