What does litigation funding mean to you?
Mark Beaumont dispels the myths around funding insolvency litigation.
Litigation funding means different things to different people. It’s a catch-all term that includes conditional fee agreements (CFAs), after-the-event (ATE) legal expenses insurance, damages based agreements (DBAs), work in progress (WIP) funding, disbursement funding and of course non-recourse third party funding. In addition to these options, there are also funds that take assignment of claims for an upfront fee or a share of recoveries made, or a combination of the two.
This means that there are options for virtually any claim arising from insolvency.
Options for funding litigation
You have choices whether you are seeking to close an appointment and want to release value from a series of small claims (of just tens of thousands of pounds) or need funding to pursue large scale and complicated actions across multiple jurisdictions. There are funding options for investigations, counsel opinions, forensic work and just about anything else. Cases can be funded from day one or just weeks before trial.
There’s more than a dozen ATE insurers in the market, and well over thirty funding providers – including the eight members of the Association of Litigation Funders, a voluntary body with its own code of conduct.
With such a wide range of options, and such strong competition for cases from funders, there is bound to be an awful lot of price competition in the market. Despite this, I hear far too often that “funders want 30%”.
In my experience, the 30% figure doesn’t reflect the reality of the market.
Is the funding deal structured for your best interests?
It is far more common for the funders’ return to rise over time, reflecting their increased investment and the higher risk should a case run all the way to trial. As well as changing returns on the actual investment amount, funders will also usually have a share of damages.
When a funder is entitled to a percentage share of recoveries the benefit to the client is that the funder’s interests become aligned with those of the client: Everyone wants as large a settlement or award as possible. If the funder’s returns are instead a fixed multiple of their investment, they might be keen for a case to settle at a lower level than the client might like: because a low settlement might be enough to meet the funder’s expected returns.
Structuring a funding deal at the outset to align all interests as best as possible is crucial.
Get litigation funding options that align to your needs
The percentage return to a funder does not have to be fixed. It can change over time and it can also move in relation to the recovery made: For example, it may on occasion be preferable to have a funder take a larger share of a bigger settlement. This could be used to motivate your funder to play the long game rather than be willing to accept a low offer made early in the process.
There are vastly different approaches taken to deal structures, and the impact on returns can accordingly be just as large. Despite this, many lawyers only submit cases to one or two funders rather than seeking the best possible deal.
I do wonder at times what this approach might mean for future professional negligence claims…
Getting the best litigation funding options
I find IPs are generally very open about their thinking when it comes to choosing law firms to instruct. It is no secret that reciprocal relationships are important, alongside many other factors. It will therefore come as no surprise that lawyers have similar considerations when choosing funders to work with. Does this approach get the best deal for creditors? Does it ensure that the IPs fees are considered too, or is it just the lawyers that will be funded? Will it be the best deal for creditors? Is there any way of showing that the market has been tested, should creditors enquire?
It can also be helpful to have options to put to creditors. For example, a package could be put together that allows creditors to part-fund the claim to a fixed level. This would give creditors certainty over their investment, whilst also minimising the need for third party funding. It may be much easier to access funds from creditors if at the same time you can show how the case can be funded through to conclusion without asking them for further funds in six months’ time.
To summarise, the market for funding (in all its guises) is evolving rapidly and creating better and more affordable options for insolvency disputes of all descriptions. This creates opportunities to pursue cases that might have previously withered on the vine. But a wider range of options brings its own challenges and insolvency litigators may not be best placed to navigate the funding market on your behalf.
To put it another way, do you instruct an insurance lawyer to broker your professional indemnity insurance renewal?
Mark Beaumont is co-founder of Annecto Legal Ltd, an FSA regulated, full market broker accessing litigation funding and ATE insurance for a wide range of insolvency related disputes.
This article originally appeared in Recovery Magazine in May 2017.