A major negligence case that first brought third-party funding into the public eye was struck out by the House of Lords last week at a cost of around £2.5m to the litigation funder.

IM Litigation Funding admitted that the cost of losing the case, which it had originally estimated to have a 70% chance of success, would be ‘substantial’.

The Lords rejected the £89m negligence claim brought by the liquidators of insolvent grain trader Stone & Rolls against accountants Moore Stephens. In a majority verdict, the Lords found that the accountancy firm was not liable for failing to spot an extensive ‘letter of credit’ fraud by one individual who owned and controlled the firm.

Tim Strong, litigation partner at City firm Barlow Lyde & Gilbert who acted for Moore Stephens, stressed that the case highlighted the risks of litigation funding, and could have ramifications for the third-party funding industry by potentially pushing up the price or deterring funders.

Sam Eastwood, a partner at City firm Norton Rose who acted for Stone & Rolls, added: ‘This vindicates the price of litigation funding; the 25 to 40% [share of compensation which third-party funders normally take] does not seem so high.’

It is understood that IM Litigation Funding stood to gain more than £40m had the case succeeded. It did not take out after-the-event insurance to cover the legal costs of losing the case, which are understood to be around £2.5m.

Peter Horrocks, legal director of IM Litigation Funding, said the case was the first one to ‘bring third-party funding to the public attention’.

He added that the funder has a portfolio of 10 to 12 ongoing cases, with an 80% success rate. He said it was ‘not the end’ of third-party funding.