Small Claims Funding Taking Off - Minimising Risk for both Claimants and Practitioners
IMF Bentham re-introduced funding for small claims due to the continuous amount of enquiries it was receiving from claimants with meritorious small claims but a lack of funds to pursue them. Find out more about how small claims funding can help to minimise litigation risk for both claimants and practitioners.
Where small claims funding fits in
There have been historical difficulties with funding smaller claims because of the disproportionate amount of legal costs needed to pursue them. The size of a claim is often uncoupled from the size of the legal spend and the amount of unrecoverable expense incurred in assessing and managing the claim.
A claimant without sufficient funds is often left at best with the difficult choice of choosing less experienced counsel or experts, despite the complexity of the issues in the case. Whilst the commercial imperative of any action from a claimant perspective means that due regard must be had to the level of expense incurred in pursuing its rights appropriately the claimant should not have to put itself in a position of lowering its chances of a “successful” outcome.
In addition, whilst the estimated commercial return is a paramount imperative for a funder there is the additional consideration that any funding must meet a claimant’s needs. A circumspect estimate needs to be made at the time of funding that the structure of the funding offered will ensure the best possible chance of a return to the claimant that will be appropriate and reasonable. To achieve that outcome, history has taught IMF that it needs to be flexible in the manner in which it structures its funding products.
Creating flexible funding for Small Claims
IMF re-examined its approach to smaller claims and how it might add additional flexibility to its funding products – particularly in relation to insolvency funding. Products such as a Public Examination Funding were developed to meet the needs of insolvency practitioners in the investigative phase of their administrations.
In relation to commercial small claims the claimant does not always need a full suite of funding to pursue its rights appropriately. Sometimes it requires funding only for outlays such as expert and counsel’s fees. In those circumstances smaller commission rates can be negotiated which reflect the lower risk being taken on by the funder. These lower rates in turn lead to estimates of better outcomes for the claimant.
The baseline of funding requests could be regarded as coverage only for the potential adverse costs of a matter. Such a request however would be unusual and rather the baseline is more likely to be the payment of some specified outlays of the matter in addition to adverse costs coverage. The next level up is a hybrid of a standard fee arrangement with the solicitors representing the claimant where the solicitors are prepared to accept an element of the risk of the outcome of the action. This can be anything from speccing their fees totally up to being paid a percentage of their fees which cover their overheads with the balance recoverable on a successful outcome.
This flexibility in funding terms allows law firms to consider taking a meritorious claim forward for a client without exposing their own firm to risk and cashflow considerations which are normally the purview of the client.
To deal with small claims funding requests in a quick and efficient manner IMF established its Australian Small Claims Committee (ASCC). The ASCC has a smaller panel of three senior representatives overseeing funding requests up to $1m in estimated funding as opposed to the actual size of the claim.
Want to know more
If you would like to know more about litigation funding for a small claim, get in touch with one of our Investment Managers www.imf.com.au/contact.
Where small claims funding fits in
There have been historical difficulties with funding smaller claims because of the disproportionate amount of legal costs needed to pursue them. The size of a claim is often uncoupled from the size of the legal spend and the amount of unrecoverable expense incurred in assessing and managing the claim.
A claimant without sufficient funds is often left at best with the difficult choice of choosing less experienced counsel or experts, despite the complexity of the issues in the case. Whilst the commercial imperative of any action from a claimant perspective means that due regard must be had to the level of expense incurred in pursuing its rights appropriately the claimant should not have to put itself in a position of lowering its chances of a “successful” outcome.
In addition, whilst the estimated commercial return is a paramount imperative for a funder there is the additional consideration that any funding must meet a claimant’s needs. A circumspect estimate needs to be made at the time of funding that the structure of the funding offered will ensure the best possible chance of a return to the claimant that will be appropriate and reasonable. To achieve that outcome, history has taught IMF that it needs to be flexible in the manner in which it structures its funding products.
Creating flexible funding for Small Claims
IMF re-examined its approach to smaller claims and how it might add additional flexibility to its funding products – particularly in relation to insolvency funding. Products such as a Public Examination Funding were developed to meet the needs of insolvency practitioners in the investigative phase of their administrations.
In relation to commercial small claims the claimant does not always need a full suite of funding to pursue its rights appropriately. Sometimes it requires funding only for outlays such as expert and counsel’s fees. In those circumstances smaller commission rates can be negotiated which reflect the lower risk being taken on by the funder. These lower rates in turn lead to estimates of better outcomes for the claimant.
The baseline of funding requests could be regarded as coverage only for the potential adverse costs of a matter. Such a request however would be unusual and rather the baseline is more likely to be the payment of some specified outlays of the matter in addition to adverse costs coverage. The next level up is a hybrid of a standard fee arrangement with the solicitors representing the claimant where the solicitors are prepared to accept an element of the risk of the outcome of the action. This can be anything from speccing their fees totally up to being paid a percentage of their fees which cover their overheads with the balance recoverable on a successful outcome.
This flexibility in funding terms allows law firms to consider taking a meritorious claim forward for a client without exposing their own firm to risk and cashflow considerations which are normally the purview of the client.
To deal with small claims funding requests in a quick and efficient manner IMF established its Australian Small Claims Committee (ASCC). The ASCC has a smaller panel of three senior representatives overseeing funding requests up to $1m in estimated funding as opposed to the actual size of the claim.
Want to know more
If you would like to know more about litigation funding for a small claim, get in touch with one of our Investment Managers www.imf.com.au/contact.