The legal world is evolving. Now, hiring a lawyer doesn’t have to be about them billing you as they go along, implementing the strategy they developed, without any risk to them if it doesn’t work out.
Recently, there’s been a surge in third party, or litigation, funding. This means that a financier – usually a large hedge fund – who has no investment in the proceedings, funds the cost of pursuing your claim, in return for a share of the winnings.
But, what are the benefits of this – and why might you want litigation funding?
Litigation funding is an attractive option for businesses, for many reasons. Claims are assets. You normally have up to six years to pursue them. There’s no need to leave cash due to your business ‘on the shelf’, when it’s possible to pursue claims without cost and risk.
Here are some common reasons for getting a third party to fund your claim – along with examples of cases that’ve done so successfully.
You’ve got the money – but want to spend it elsewhere
Sometimes, even though you’ve got the money to fund a claim, it makes sense to save it, and keep your capital for other uses in your business. After all, why spend your business’ hard-earned revenue – when you could get a funder to back it, and pursue it for free?
Celebrities sometimes take this approach, too. Noel Edmonds recently announced that he’s secured litigation funding in his £300 million dispute with Lloyds Banking Group. This is a shrewd move.
Few claims reach the court room, but driving a favourable settlement beforehand often depends on your ability to convince your opponent. Not just about the merits of your claim, but also that you have the financial clout to see it through.
Telling your rivals that your claim is so strong that a third-party financier is prepared to back it certainly sends them a powerful message.
Your opponent has bottomless pockets and expensive lawyers – and you can’t afford to take them on
If you’re claiming as an individual, against a large corporation or big business – like your former employer – you might be put off spending (and risking losing) your money on taking them to court. Large firms often have deep pockets – and expensive lawyers – and have a huge financial upper hand. It can be a bit of a David and Goliath situation.
But, with litigation funding, there’s no need to gamble any of your own money. You don’t pay anything if your claim is lost.
I once worked for a group of trustees of an employee benefits scheme. Their millionaire boss had misappropriated trust shares – at the workers’ expense – and they had no money to pursue him. Litigation funding ‘unlocked’ their claim – paying for all the legal and court fees that were necessary to pursue it. The trustees got access to justice, and we obtained a recovery which, without funding, would not have been possible.
You’ve faced financial ruin as a direct result of your claim – and can’t pay to go to court
One of the first clients to use Capital Law’s own litigation fund, Capital Dispute Finance, was a small training company. They had a contract with the Government to provide various services. But, the government kept putting off payment – and our client, as a small business, became starved of cash. They couldn’t afford to take the government to court (they were essentially waiting for the government to pay them, to be able to do so), but, that’s where litigation funding came in.
Long-running disputes can lead to financial ruin – litigation funding can be a way out.
You’re a big business looking to offset the time, risk and cost of litigation onto a third party
All businesses, irrespective of their financial circumstances, can benefit from litigation funding. Few businesses have the resources – both human and financial – to pursue claims.
Litigation funding allows businesses to recover their assets without cost or risk (of losing and having to pay the opponent’s costs). You can have a more strategic view about claims that you might’ve written off because you didn’t have the management time, or money, to pursue them. If you can get a law firm or funder to put up the costs of the claim, your decision’s much easier.
But, what about big businesses that can clearly afford to win or lose?
Last year, the media announced that BT had apparently signed up to a landmark £31.6m deal with a third-party funder. This was designed to fund the cost of their large portfolio of claims and defences.
Time will tell whether BT, or any other large corporates, routinely use third-party funding. Much will depend on amount the funder takes for backing the claim(s). There’s a natural tipping point where some of the larger funders – asking for up to five times their spend – will put businesses off.
You and several others have low level claims, and you want to join up to share cost and risk
If you have a smaller sized claim, it can be difficult to get funding for it. Most funders work on heavy multipliers, and won’t take claims that have a potential win of less than £5million. But, if you – and several others – have the same, or similar, claims against the same opponent, you’ve got a better chance of persuading a court that they should all be managed together. This is commonly referred to as a ‘class action’, but the courts refer to it as a Group Litigation Order.
If you had 70 or 80 individuals, for example, who’d all been victims of mis-selling from the same financial advisor, a lawyer could join the claims up, and bring them to court all as one.
Hunting as a pack in this way can be a form of crowd funding. It gives you the chance to bring a claim – on an equal footing to your opponent – in circumstances where you might not have been able to do so.
Andrew Brown is a Commercial Disputes expert at Capital Law.