City investors are to be offered the prospect of generous returns if they put money into a litigation fund designed to help the less well-off pursue claims through the courts.

The fund is the brainchild of Brian Raincock, of Litigation Protection. The company offers insurance to litigants to protect against the risk of losing an action and having to pay costs.

Now Raincock wants to attract litigants who baulk at the size of insurance premiums, which can be up to 35 per cent of the value of claims.

He plans to set up an arms-length offshore fund which would lend money to litigants to take out insurance. The scheme would suit the less well-off who are not entitled to legal aid.

City investors would be asked to find an initial £1-2 million to get the fund going. Returns would come from shared pay-outs where legal action went in favour of the litigant.

Raincock said: “This fund would be very much in the spirit of the Lord Chancellor's stated desire to make justice available to all.”

But Reynolds Porter Chamberlain solicitor Robert Hogarth, who is helping to set up the scheme, admitted the fund was “a high risk investment”.

Raincock said the fund could invest in claims owing to insolvent companies which might not otherwise have the means to pursue them. “This could be immensely beneficial to creditors,” he said.

He admitted that in a worst case scenario, investors could lose out if too many claims went against the litigant.

Consequently, litigants' claims would require “due diligence” to make sure they had a reasonable chance of success, before funds were granted.

Raincock said about 90 per cent of claims by litigants are settled, either in court or out.

Hogarth added: “At the end of the day this is another way to allow people resources to purse legitimate claims.”