Are Litigation Funders opening up to lower value claims?
Litigation Funders have generally been involved in providing funding to meet the legal costs to pursue large multi-million pound commercial claims. The Litigation Funder meets the legal costs as the claim progresses, saving the Claimant from having to pay out for these, and in return, if the claim is successful, the Litigation Funder takes a share of the Claimant’s damages. If the claim is unsuccessful the Litigation Funder does not recover the funds it has paid out. Usually a Claimant would also have an After-The-Event (‘ATE’) insurance policy (that may also be provided by the Litigation Funder) which would cover its liabilities in the event the claim was unsuccessful. As such the Litigation Funders have been interested in the highest value claims in order to maximise the return on their investments.
This does however leave a problem for smaller businesses which may have lower value claims where substantial sums, but not millions, are involved. These Claimants in particular may not have sufficient liquid capital to fund a case, particularly if they have suffered a substantial loss already and so are out of pocket. A new service, Sparkle Capital Lite has been launched by the co-founder of Betfred, Fred Done which aims to fill this gap. It is aimed at commercial claims that are valued at less than £1million, and can provide funding for a sum from £10,000 to £200,000. This arrangement must be accompanied by an ATE policy from Acasta Europe which in the event the claim was unsuccessful would re-pay the loan and cover the Claimant’s liability to pay the other sides costs. The premium for the ATE policy would be self-insured and so the Claimant would only be required to pay this if the claim was successful.
Unlike other Litigation Funders, if the claim is successful Sparkle Capital Lite does not take a share of the damages. Instead where a claim is successful the Claimant has to re-pay the amount loaned plus interest set at a flat fee. If the claim is unsuccessful the Claimant pays nothing and the outstanding sums owed to Sparkle Capital Lite are settled from the ATE insurance.
This is another viable funding option for Claimants to consider as it could enable what could be a substantial claim to be proceed, in circumstances where a Claimant simply does not have sufficient resources available to fund it. This is particularly so given the enhanced court fees which came into effect on 1st April 2015. The new court fees mean that in order to issue a claim worth £200,000 a Claimant must pay a fee of £10,000, up from £1,515 (this equates to a 576% increase).
In many cases this funding option may even be a more cost effective way of funding compared to the more familiar ‘no win no fee’ arrangements. This is because the flat fee for the interest may be significantly less than Success Fees that would be payable under a ‘no win no fee’ agreement. Since April 2013 Success Fees are not recoverable from Defendants like they used to be and so Claimants have to pay these from the damages they recover. Whilst the ‘no win no’ fee sounds attractive to Claimants, they should consider whether it is in fact the best way of funding a claim.
We shall have to wait and see whether Claimants are interested in funding cases in this way but in any event having more options and choices cannot be a bad thing for anyone wishing to pursue claims.