ABSTRACT
Third-Party Litigation Funding (TPLF), which is also known as litigation finance, involves a financial arrangement in which a third party provides funding to support the plaintiff’s pursuit of a civil lawsuit. The third party, in return, receives a portion of the proceeds if the litigation is successful. Like a contingent-fee agreement, this type funding model enables a party to bring a lawsuit even if it does not have the resources to pay the up-front costs of the litigation. The important difference is that the litigation funder is not counsel to a party in the case, and that TPLF essentially creates a secondary market for litigation funding. Thus, hedge funds, banks, insurance companies, and other outside investors are providing funding for the attorneys and parties in the underlying case. It is likely that TPLF has both potential costs and benefits. The most apparent benefits include providing access to justice for parties and lawyers who lack economic resources, as well as spreading the risk of bringing (or possibly defending) litigation and improving the level of information about potential claims. Drawbacks include a variety of ethical issues, as well as the potential for an increase in the amount of litigation.
This article seeks to engage in a comparative analysis of TPLF in the United States and the United Kingdom. TPLF takes place in both jurisdictions, which of course share many historical and common law traditions. Most importantly, however, the two legal systems differ in their general treatment of legal fees – the US generally follows the American rule that each party bears its own litigation costs, while the UK applies the English rule allowing the prevailing party to recover its legal fees from the losing side. Other differences include the broader availability of contingent fee arrangements, the right to jury trials in civil cases, and the scope of appellate review in the US as contrasted with the UK.
A key question is whether these differences have an impact on TPLF, and therefore whether the cost-benefit analysis changes based on this distinction. The article will examine disclosure and transparency issues, litigation strategies, and decisions related to settlements in the two nations. It will also address whether the UK experience can shed light on how American courts should treat TPLF. The UK has a longer and more extensive amount of experience with litigation funding, as well as a robust accrediting organization and extensive studies of TPLF.
Myers, Gary, A Comparative Analysis of Third-Party Litigation Funding in the United States and the United Kingdom (December 2, 2024), University of Missouri School of Law Legal Studies Research Paper No 2024-39.
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