Out-Law Analysis | 06 Sep 2019 | 3:02 pm | 2 min. read
Initially a very expensive product only suitable for the largest cases, the market for litigation funding is developing and refining and it is now available to legal departments at an increasingly reasonable price to help them cope with unexpected demands on their legal budget and obtain access to justice even when their own resources are committed elsewhere.
Pinsent Masons, the law firm behind Out-Law, has now entered into a preferred supplier agreement with third party funder Augusta Ventures. In short, Augusta has in exchange for Pinsent Masons referring its clients on agreed to give those clients better TPF terms.
Litigation is a risk business, and inherently unattractive to most businesses. Recent political, economic and accounting developments are only making things worse, and the trend looks likely to continue. Businesses today are faced with many calls on their resources, and we often see perfectly solvent businesses which have suffered grievously, walking away from claims worth millions of pounds because of the costs and risks of those claims.
Partner, Head of International Arbitration
For many businesses the price is worth paying, as they can avoid diverting their own funds onto unexpected and unpredictable litigation and worrying about the costs associated with a failed claim.
The basic idea of arbitration and litigation finance is to take the burden and risk of funding litigation away from the end client. Funders cover the costs of lawyers, barristers and experts, as well as after-the-event (ATE) insurance to cover the client's costs if the case fails. Funding is offered on a non-recourse basis: if the client loses its case, the funder shoulders the burden. If the client wins, the funder recoups its costs and takes a profit.
There is, of course, a price to be paid for accessing non-recourse funding for litigation. It is considerably more expensive than corporate borrowing, and if the business has available unallocated budget and an appetite for risk then TPF may not be suitable. However, for many businesses the price is worth paying, as they can avoid diverting their own funds onto unexpected and unpredictable litigation and worrying about the costs associated with a failed claim.
Companies are also attracted to TPF as a means of transferring costs liability off-balance sheet and receiving a financial benefit should a successful outcome be the result. For general counsel, TPF allows them to expand the spending capacity of the legal department. When budgets are already fully committed to existing cases, in-house teams can use TPF to pursue additional meritorious cases which would otherwise be let go.
Selection of a third party funder is best carried out by the client in conjunction with its lawyers. It is important to be sure that funds come from a reputable source. Reputable funders will usually be happy to explain the source of their capital, and to indicate which law firms they work with. Clients and lawyers also need to be comfortable with the approach taken by the funder, which can vary quite considerably. Personally, I value working with a funder that is conservative and has a high win rate.
A good third party funder will ask intelligent and perceptive questions which will help to deepen its appreciation of the strengths and weaknesses of the client's case. Other funders take a more aggressive, less rigorous approach, and will usually seek to recover a greater portion of successful claims to offset those investments that did not succeed.
A transparent approach from a funder is also important. Some TPFs are more opaque than others as to charges and sources of funding. Good funders generally offer clear terms which allow clients to quickly understand the charges they face when a claim is successfully resolved. And the best make their capital position clear, so those wishing to receive funding can usually be assured that the funder itself has the backing required to be a partner for the duration of any action.
Mark Roe is a third party litigation and arbitration funding expert at Pinsent Masons, the law firm behind Out-Law.
19 Jul 2018
21 Sep 2017