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Commercial Litigation Funding Is Not for the Faint-Hearted!

Third party commercial funding is a feature of modern litigation and, if it did not exist, many would be unable to afford access to justice. However, the risks involved are not for the faint-hearted, as a Court of Appeal decision has strikingly underlined.

A number of individuals and corporations had provided £31.75 million in funding to support a company’s claim that it was entitled to an interest in a number of oil fields in Kurdistan. The company was nothing more than a brass plate, in that it had no assets, but its claim had been valued at about $1.6 billion.

In the event, however, every aspect of the company’s claim was rejected following an immensely expensive 60-day trial. The defeat was not a narrow one and the trial judge ordered the company to pay the defendants’ legal costs – which were said to exceed £20 million – on the punitive indemnity basis.

The judge went on to direct that all those who had funded the litigation should be jointly and severally liable for all those costs, their liability arising on the date on which they had first contributed to the company’s fighting fund.

In rejecting the funders’ challenge to that ruling, the Court noted that due diligence that had been carried out before they agreed to back the company had been inadequate. They did, however, have the opportunity to inform themselves of the risks involved in investing in the litigation. They would have earned handsome rewards had the company’s case succeeded and there was no error of law or principle in the judge’s decision.