Benefits of sharing your business litigation risk with a funder
Litigation funding has traditionally been used by claimants with little or no means to finance meritorious claims they may not have been able to afford to bring. It has also been used by small and medium sized businesses to “level the playing field” against larger, highly capitalised defendants. Funding allows them to instruct their first choice of legal counsel and pay for expert reports and other litigation expenses that may be necessary to pursue the claim successfully.
These days, funding is increasingly being used by better-resourced claimants who, nevertheless, wish to transfer some or all of the risks associated with litigation to a funder. The risk of having to pay “adverse costs” - the other side’s legal costs if the litigation is unsuccessful - are usually assumed by the funder as part of a funding package. These costs can run into hundreds of thousands and in some cases millions of dollars in large commercial disputes. Therefore, the ability to spread and share these risks with a third party is attractive, even to claimants with strong businesses and cash flows.
In addition to sharing the risks of the litigation, litigation funding has a number of other benefits for businesses:
Flexibility
Funding packages are flexible and can be tailored to the specific needs of the business, the lawyers and the nature of the dispute. Usually the funder pays for some or all of the legal costs of pursuing a claim, including counsel, expert and court fees and agrees to cover any security for costs and adverse costs orders. In return, the funder receives a fee which is negotiated with the claimant and is usually a percentage share of any damages or settlement recovered by the claimant or a multiple of the amount of costs the funder has invested in the litigation.
Non-recourse
Funding is non-recourse, meaning that the claimant pays nothing if the claim fails and the funder is only paid if there is a successful recovery (whether by way of a settlement or judgment).
Off balance sheet
By using the funder’s money to pay for the litigation, businesses can take the litigation expenses off the balance sheet. They become the funder’s expenses. On the other hand, if the claim is successful, revenue can be recorded (typically as an exceptional item) without having incurred any downside risk along the way.
Second opinion
Businesses will have the assurance that, before agreeing to fund a claim, the funder will usually undertake extensive due diligence on the case. Some funders will conduct due diligence by retaining external counsel (in some cases at the funder’s own expense). Other funders conduct due diligence predominantly “in-house”, relying on the skills and experience of its investment staff.
Project management
Experienced funders are able to assist the lawyers and claimant in managing the litigation, where required, including assisting in strategic and tactical decisions. A litigation funder brings a highly commercial and objective perspective to assessing a claim. This can provide real benefits to claimants and can help to shape how a claim is pursued. The funder’s role can assist in the efficient management of a claim by ensuring that the focus is kept clearly on the real issues in dispute and by seeking to avoid time and costs being spent on the pursuit of claims that are weak or unnecessary. In some cases, the fact that a funder has agreed to fund a claim may increase the chance of the claim being settled.
Additional capital
In addition to funding the litigation, some funders also provide finance to be used as additional working capital for the business, using the value of litigation assets as collateral. Funding packages are also available for businesses facing claims against them, and across portfolios of matters, for example, flexible facilities for a corporate group to pursue and defend multiple claims. In these circumstances, the risks are spread across a litigation “book” – the greater the spread, the more cost effective the funder’s fee will be.
Funded claimants have the opportunity to achieve a successful recovery, without having to pay legal fees and other costs as the claim progresses, or having to provide or allocate funds to deal with the consequences should the claim fail.
If you would like to discuss a potential matter for funding with one of IMF Bentham’s Investment Managers, please contact us by visiting IMF's website for contact details.
These days, funding is increasingly being used by better-resourced claimants who, nevertheless, wish to transfer some or all of the risks associated with litigation to a funder. The risk of having to pay “adverse costs” - the other side’s legal costs if the litigation is unsuccessful - are usually assumed by the funder as part of a funding package. These costs can run into hundreds of thousands and in some cases millions of dollars in large commercial disputes. Therefore, the ability to spread and share these risks with a third party is attractive, even to claimants with strong businesses and cash flows.
In addition to sharing the risks of the litigation, litigation funding has a number of other benefits for businesses:
Flexibility
Funding packages are flexible and can be tailored to the specific needs of the business, the lawyers and the nature of the dispute. Usually the funder pays for some or all of the legal costs of pursuing a claim, including counsel, expert and court fees and agrees to cover any security for costs and adverse costs orders. In return, the funder receives a fee which is negotiated with the claimant and is usually a percentage share of any damages or settlement recovered by the claimant or a multiple of the amount of costs the funder has invested in the litigation.
Non-recourse
Funding is non-recourse, meaning that the claimant pays nothing if the claim fails and the funder is only paid if there is a successful recovery (whether by way of a settlement or judgment).
Off balance sheet
By using the funder’s money to pay for the litigation, businesses can take the litigation expenses off the balance sheet. They become the funder’s expenses. On the other hand, if the claim is successful, revenue can be recorded (typically as an exceptional item) without having incurred any downside risk along the way.
Second opinion
Businesses will have the assurance that, before agreeing to fund a claim, the funder will usually undertake extensive due diligence on the case. Some funders will conduct due diligence by retaining external counsel (in some cases at the funder’s own expense). Other funders conduct due diligence predominantly “in-house”, relying on the skills and experience of its investment staff.
Project management
Experienced funders are able to assist the lawyers and claimant in managing the litigation, where required, including assisting in strategic and tactical decisions. A litigation funder brings a highly commercial and objective perspective to assessing a claim. This can provide real benefits to claimants and can help to shape how a claim is pursued. The funder’s role can assist in the efficient management of a claim by ensuring that the focus is kept clearly on the real issues in dispute and by seeking to avoid time and costs being spent on the pursuit of claims that are weak or unnecessary. In some cases, the fact that a funder has agreed to fund a claim may increase the chance of the claim being settled.
Additional capital
In addition to funding the litigation, some funders also provide finance to be used as additional working capital for the business, using the value of litigation assets as collateral. Funding packages are also available for businesses facing claims against them, and across portfolios of matters, for example, flexible facilities for a corporate group to pursue and defend multiple claims. In these circumstances, the risks are spread across a litigation “book” – the greater the spread, the more cost effective the funder’s fee will be.
Funded claimants have the opportunity to achieve a successful recovery, without having to pay legal fees and other costs as the claim progresses, or having to provide or allocate funds to deal with the consequences should the claim fail.
If you would like to discuss a potential matter for funding with one of IMF Bentham’s Investment Managers, please contact us by visiting IMF's website for contact details.