Unfortunately in such instances investors in the case are likely to lose the majority, if not all, of their investment. In addition, under UK law, the loser in a litigation is required to pay the legal costs of the other side. We require that the claimant purchases insurance from an investment grade insurer against this risk.

Under the Arkin principle the maximum liability that a litigation funder can incur is equal to the amount that he has invested. As an illustration, if an investor had invested £10,000 in a bond or share, then in addition to losing his investment (which would be used to pay for the claimant’s own legal expenses), he could be asked to contribute a further £10,000 to the costs of the defendant in the event that the claimant loses the case and is unable to pay their opponents costs.
In reality, ATE ("After the Event") insurance cover will have been put in place to offset this risk. Therefore this liability would only arise in the event that the insurance company providing the cover were to refuse to pay, or had become insolvent. Where possible we endeavour to source Non-Avoidable ATE cover which eliminates the risk that the insurance company refuses to pay. Insolvency of the insurance company is likely to be a remote event since we will only secure cover from investment grade insurance companies.

In summary, any investor in litigation funding needs to recognise the potential for loss of capital in excess of the amount invested and assess whether the risk and return possible from this asset class are a good match for their own investment objectives. 

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