New ways of funding litigation

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Verity Jackson-Grant

15 Aug 2018 04:49pm

For several years litigation funding has been a hot topic for discussion. There have been many “big news” stories about funders posting record profits and much has been written about the flow of new money into the market

This has caused some law firms to consider seeking a piece of the action through launching a fund of their own. However, comparatively little is said about the diverse and innovative products that are being developed to make use of the additional capital now available and the willingness of funders to treat a dispute as collateral for a loan to fund expenses above and beyond the legal fees incurred in bringing the case.

When a big dispute arises, it can have serious implications on a company’s ability to maintain its every day operations. Even the slam dunk cases take time and money to resolve and can leave the claimant company struggling to make ends meet whilst the dispute runs its course. A number of funders are now providing assistance to companies involved in a dispute by offering recourse and non-recourse capital not just to pay the legal fees but also to pay for general operating expenses to effectively keep the lights on during the life of the case.

In its simplest form, the funder is providing an advanced payment in respect of all or a portion of an actual or prospective award. Monetising the claim in this way enables the claimant company to access the proceeds of the dispute at the point of the agreement with the funder – rather than waiting for the money to come from the opponent, which could be several years down the line.

The funder provides the capital on the assumption that the case will be successful, and that they will ultimately recoup their investment and make a profit. Should the dispute prove unsuccessful, the funder loses its investment. Needless to say, such an arrangement is only available where the case enjoys good prospects of success and where the opponent is based in an enforcement friendly jurisdiction and is likely to have the means to pay the award.

The capital does not necessarily come cheap. The funder’s fee must be calculated to account for the risk that the case could ultimately be unsuccessful or that they may be unable to enforce the award against the opponent. But the ability to monetise their actual or prospective award rather than wait for a recovery from the opponent can be the difference between the company surviving or failing.

The cost of such an arrangement depends upon the case in question but a funder will often either pay an upfront sum to the company and retain any money recovered from the opponent or pay a down payment at the outset and share any money recovered with the company as and when it comes in.

There is a growing trend towards building alternative finance options for companies with a single claim or a portfolio of disputes used as collateral to raise funds for legal fees and other operating costs.

The funders offering these types of arrangements, whilst sizeable and well established, are not limited to your “go to” litigation funders and not all heavily market their appetite in this area above their appetite in other asset classes.

We frequently see a carpet-bombing approach to the mainstream litigation funding market, often led by a company’s external lawyers and without full consideration being given to the client’s ultimate objectives. This rarely yields favourable results.

We strongly recommend focusing the initial discussion on the core concerns for the company and most desirable outcomes in order to identify the most appropriate product. Taking an objective approach to identifying the right product and keeping an open mind on the provider is likely to lead you to the most commercial solution.

There is a risk that some external lawyers could lose objectivity or have a partial conflict when seeking financial instruments that include funding for their legal fees, especially given that their engagement might, in itself, be dependent upon securing finance for their client. But that’s a separate discussion…

Verity Jackson-Grant is the director of Business Development at TheJudge


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