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Litigation funding matures

Third-party backing is no longer just for David vs Goliath legal battles, explains Patrick Walsh

11 April 2017

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The dispute funding industry is growing, with more options for claimants than ever before. However, there are some important factors to consider before leveraging this tool for your firm and your clients.

About five years ago, it is more than likely that funders were approaching you with a finance tool for your clients. This still occurs, but increasingly, as funding becomes more mainstream, clients are approaching funders and brokers directly.

It is important to consider this shift closely for a number of reasons – the main reason being that the relationship has changed. It is now in your interests to have relationships with funders and brokers. They can bring work to you.

Charlie Lightfoot, a partner at Jenner & Block, describes this relationship as a ‘two-way street’. ‘It’s not just me who brings opportunities to them,’ he says. ‘The market is now moving and clients are going directly to funders and asking for recommendations on law firms.’ Lightfoot feels this trend is set to continue, especially as awareness of funders increases.

Financing litigation is not only maturing as an industry but also changing how law firms think about growing their revenues. Since September 2015 Lightfoot has been growing his firm’s London office. He explains that ‘third-party funding is an important part of growing work, staying busy, and finding new work.’

The process of securing funding is lengthy. The litigation itself often runs for some time after an agreement is reached. The relationship you share with the funders and brokers is crucial to ensuring this process is smooth for all stakeholders. Having a funder or broker that you trust and have a rapport with is fundamental to a fruitful relationship.

Litigation funding is still most commonly used by SMEs in the classic ‘David vs Goliath’ scenario, but as the market has matured the instances where litigation funding is applicable have increased. Larger companies now see third-party funding as a way to hedge their risk. They can seek outside capital and thus remove the risk of litigation from their balance sheets entirely.

As Sophie Lamb, a partner at Latham & Watkins, explains: ‘I have listed companies and multinational groups as my clients and they are equally as interested in funding... They think about it in practical economic terms... and are deciding what is the best use of their capital over the next three years.’

This has led to a more mature audience who may be interested in exploring litigation funding, and a wider range of funding options. There are no generic templates and thus the process of choosing which structure to take is growing in complexity.

The presence of a third-party funder communicates that an industry professional has faith in the case and the team representing the client. Funders aren’t in the business of backing spurious litigation so their endorsement of a case can be a huge benefit.

The other side of the coin is that their refusal to fund a case can be bad news, especially if you are approaching multiple funders or brokers. If a group of well-informed peers have passed on the opportunity, it will raise serious concerns for the other funders.

As the litigation funding industry continues to mature, firms need to become familiar with the options available to them and their clients. The industry is constantly evolving and keeping up with these shifts will be a challenge. The best way to forge ahead is to build a great relationship with brokers and funders in the space.

Patrick Walsh is the owner of Funding-Litigation.com, a website dedicated to third-party funding

@LitigationFund_

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third party litigation funding