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Third Party Litigation Funding - why you need it
The increased discussion over third party litigation funding is hardly surprising. The concerns over Jackson its implementation coupled with a recession where even law firms have had their cashflow dented mean that any sensible managing partner is looking for a means to pay bills.
Litigators are having to be innovative to survive and to gain work from their competitors. Even traditional institutional clients are looking for ways to reduce their legal fees - with costs capping, and fixed fees and the use of CFAs. The world has changed and only those who adapt and offer alternatives to standard retainers will survive.
So, what options are available? The immediate and obvious solution is to use someone else's money, hence the rise is discussion over and assessment third party funders.
The latest edition of Litigation Funding magazine lists more than fifteen funders. How many of these so called funders are anything more than brokers and actually have money, remains to be seen. Whilst there has been an awful lot of talk, only a few of those listed are doing any real business.
This is primarily down to lack of awareness in the legal marketplace. The same scepticism that surrounded the use of conditional fees by solicitors (and especially counsel) in high value commercial disputes, is evident in the use of funding. The lawyers have been slow to adapt and to embrace a scheme that could help them grow or even just to survive the economic downturn.
Funders could provide the perfect solution. The use of funding gives the client the ability to minimise risk, does not have any negative effect on their cashflow, keeps the lawyers happy and their overhead (or more) paid.
In these harsh economic times, where clients are being very careful how they spend, or even if they spend, their legal budget, the dispute resolution teams need to use all the options available them. CFAs are great for the clients' cashflow, they are not so good for the law firms.
Everyone has overheads to cover so the use of a discounted rate CFA has grown. The lawyers receive something as the case goes along and the client feels that everyone is feeling some of their pain.
Although different funders have different methods of operation, the usual requirement is that the lawyers operate on a discounted CFA with insurance at the very least for opponent's costs. Some funders go with 'both sides' cover, so even if they lose they are reimbursed their outlay.
Of course, 'discounted' rates can be abused. Yes, really. Additionally, one of the biggest issues faced by funders is the lawyers' ability, or maybe unwillingness, to estimate fees accurately. So the use of a case funding limit, or facility level based on a pre-agreed 'full rate' budget, solves the problem, in most cases. The solution with the combination of funding, a discounted CFA and after the event insurance, is an elegant one.
Litigators are having to be innovative to survive and to gain work from their competitors. Even traditional institutional clients are looking for ways to reduce their legal fees - with costs capping, and fixed fees and the use of CFAs. The world has changed and only those who adapt and offer alternatives to standard retainers will survive.
So, what options are available? The immediate and obvious solution is to use someone else's money, hence the rise is discussion over and assessment third party funders.
The latest edition of Litigation Funding magazine lists more than fifteen funders. How many of these so called funders are anything more than brokers and actually have money, remains to be seen. Whilst there has been an awful lot of talk, only a few of those listed are doing any real business.
This is primarily down to lack of awareness in the legal marketplace. The same scepticism that surrounded the use of conditional fees by solicitors (and especially counsel) in high value commercial disputes, is evident in the use of funding. The lawyers have been slow to adapt and to embrace a scheme that could help them grow or even just to survive the economic downturn.
Funders could provide the perfect solution. The use of funding gives the client the ability to minimise risk, does not have any negative effect on their cashflow, keeps the lawyers happy and their overhead (or more) paid.
In these harsh economic times, where clients are being very careful how they spend, or even if they spend, their legal budget, the dispute resolution teams need to use all the options available them. CFAs are great for the clients' cashflow, they are not so good for the law firms.
Everyone has overheads to cover so the use of a discounted rate CFA has grown. The lawyers receive something as the case goes along and the client feels that everyone is feeling some of their pain.
Although different funders have different methods of operation, the usual requirement is that the lawyers operate on a discounted CFA with insurance at the very least for opponent's costs. Some funders go with 'both sides' cover, so even if they lose they are reimbursed their outlay.
Of course, 'discounted' rates can be abused. Yes, really. Additionally, one of the biggest issues faced by funders is the lawyers' ability, or maybe unwillingness, to estimate fees accurately. So the use of a case funding limit, or facility level based on a pre-agreed 'full rate' budget, solves the problem, in most cases. The solution with the combination of funding, a discounted CFA and after the event insurance, is an elegant one.
Take the life practical example of a mid-sized company deciding whether to embark on a piece of litigation, or not. They have been wronged three years ago by a much larger competitor. They have a claim with good prospects of success worth, if they are successful, around £3m.
Their legal fees to bring the claim will be £1m. On a traditional basis, if they lose they will have spent £1m on their own lawyers and will be looking at paying out another £1m to their opponent's lawyers.
They have survived the recession, with some cuts and some downsizing, but they are in good shape. However, they do not have the cashflow to risk £1m on legal fees with the risk of another £1m if they lose. Should they put it down to experience and move on, or is there an alternative?
Their lawyers believe in the case, but cannot take it on at full risk. It may be a long and hard battle and they need to be paid as they go along, at least in part.
A third party litigation funder can offer them the ability to fund the litigation so there is no cashflow burden to the client. The funder will insure against the prospect of an adverse costs order - alleviating that burden and risk for the client and the client will pay to the funder between 15 %and 40% of their damages if successful, in return.
So, the up side for the client is that they win and receive no less than £1.8m. They have spent nothing, they have had no cashflow burden whatsoever and have had no risk. The down side is their time and effort (which may be considerable, but would be the same in any litigation) but they have had no financial risk.
Given those parameters, surely that is an easy decision for the client to make? Surely it is an easy solution for the lawyer to offer?
The reality is that whether Jackson is implemented or not, the use of litigation funding is inevitable. It provides a simple, cost effective and risk free alternative for the funding of litigation (for the client and lawyer - not the funder).
It may be that the biggest firms can still demand standard fee paying retainers, but not all dispute resolution departments can rely upon that luxury. That said, even those firms have clients with cases that fit the profile of the 'real' funders. These clients who operate in the harsh commercial world of overheads and cashflow restraints are where the funders will find their regular customers. Lawyers are beginning to see the huge benefit that litigation funders offer them and their clients.
Nick Rowles-Davies
Their legal fees to bring the claim will be £1m. On a traditional basis, if they lose they will have spent £1m on their own lawyers and will be looking at paying out another £1m to their opponent's lawyers.
They have survived the recession, with some cuts and some downsizing, but they are in good shape. However, they do not have the cashflow to risk £1m on legal fees with the risk of another £1m if they lose. Should they put it down to experience and move on, or is there an alternative?
Their lawyers believe in the case, but cannot take it on at full risk. It may be a long and hard battle and they need to be paid as they go along, at least in part.
A third party litigation funder can offer them the ability to fund the litigation so there is no cashflow burden to the client. The funder will insure against the prospect of an adverse costs order - alleviating that burden and risk for the client and the client will pay to the funder between 15 %and 40% of their damages if successful, in return.
So, the up side for the client is that they win and receive no less than £1.8m. They have spent nothing, they have had no cashflow burden whatsoever and have had no risk. The down side is their time and effort (which may be considerable, but would be the same in any litigation) but they have had no financial risk.
Given those parameters, surely that is an easy decision for the client to make? Surely it is an easy solution for the lawyer to offer?
The reality is that whether Jackson is implemented or not, the use of litigation funding is inevitable. It provides a simple, cost effective and risk free alternative for the funding of litigation (for the client and lawyer - not the funder).
It may be that the biggest firms can still demand standard fee paying retainers, but not all dispute resolution departments can rely upon that luxury. That said, even those firms have clients with cases that fit the profile of the 'real' funders. These clients who operate in the harsh commercial world of overheads and cashflow restraints are where the funders will find their regular customers. Lawyers are beginning to see the huge benefit that litigation funders offer them and their clients.
Nick Rowles-Davies
