1. What is Litigation Funding?
Litigation funding provides financing for your client’s case. If your client has a meritorious case, they wish to pursue but do not have the funding they can raise the investment to do so.
Funders will assess the case and decide on the likelihood of success. Usually, if this probability is above 60%, they will look into taking on the case and providing financing.
2. What type of clients are most likely to be interested?
Businesses or individuals who are looking to bring plaintiff cases or would do so if they had adequate funding. The profile of the business ranges from small businesses and medium-sized corporates right through to large corporate firms. For the smaller firms, they do not have the funding to pursue the claim.
With much larger firms they wish to balance their risk and keep their cash on hand for other business requirements. It allows their CFO to manage company finances effectively.
With time, companies of all sizes will expect law firms to offer litigation funding as an option for financing any case, in the same way, that firms now routinely offer other alternative fee arrangements (e.g., flat fees, blended rates, hybrid fee arrangements).
3. How does offering litigation funding benefit you and your firm?
Clients are increasingly demanding alternative fee arrangements and are looking for outside counsel to share in the risks and rewards of litigation. Litigation funding allows firms and clients to share the risk of litigation and better control and predict costs. General Counsel, have budgets they must adhere to throughout the year.
Additionally, they must answer to senior executives regarding money allocated to pursuing litigation. This pressure is then pushed your way as clients demand more predictability and value for less money. Litigation funding allows your clients to litigate and win cases, compete more effectively in the marketplace, and even generate profits through litigation.
Clients who may not have been able to afford the cost of your services can now seek funding for this expense. If they secure funding for their case, you do not have to share in the risk of the litigation outcome.
Larger corporations will find funding advice valuable for many reasons. It demonstrates you understand not only their legal options but the financial ramifications for their business. Making them aware of this option will ensure their business runs smoothly throughout the litigation. Not having to use their own resources ensures their core business is not under threat. Ensuring your valuable client stays in business and continues to remain a client going forward.
You can provide them with the war chest to pursue meritorious claims that previously they would not have been able to.
A client may not appeal a judgement they are unhappy with if they do not have the appropriate funding. Providing them with funding to finance the appeal allows them to continue pursuing their claim.
4. Can the funding only be used for litigation costs? What about other associated expenses or business capital requirements?
Clients can use the funding for a variety of related expenses. Working capital for their business is one area to which litigation funding applies and most are unaware. Fees and costs associated with litigation are of course the primary use. Clients can also leverage favourable judgements while appeals are pending by releasing capital early.
5. Will seeking funding add extra work for law firms and their clients?
The answer is no. Funding firms or brokers looking at a potential case for investment must conduct their own in-depth due diligence. This offers you and your clients a free independent review of the case and may often provide points that strengthen your legal arguments. Many of the major funds and brokerages work with top legal talent when reviewing possible cases.
6. How much of a success fee do funders take?
The success fee will vary dramatically from one funder to another. This is largely based upon how risky your client’s case is. However, other factors may come into play. If specific experts need to be hired to assess certain aspects of the case the cost of funding will increase.
7. Should I use a broker?
A broker knows the market well. They have seen a wide variety of cases and have strong relationships with funders and after the event insurers. Brokers know the process well and will improve your chance of securing funding.
There are drawbacks to pursuing funding without the help of a broker.
Some of the errors lawyers can make are as follows:
1. Forgetting about enforcement
2. Not contacting funders simultaneously & entering into exclusivity too early
3. Preparing for questions about risk/reward alignment
4. Failing to consider the importance of quantum
5. Abusing funders and insurers – the reputation problem
More information can be found in the original article here on LexisNexis.