Stuart Evans investigates how solicitors, insurers and third party funders are working together to provide solutions for litigation clients.
So the recession is biting. Cash is tight. And funding a dispute can be a daunting prospect, with the risks and complexities that often brings. But disputes have been with us for centuries, and are here to stay. There are those who are waiting to press on with their disputes once more cash is available, and their opponent’s asset position has strengthened, but many who could be considering giving up litigation altogether because they simply can’t find the means to fund it. It is to those litigants that this article is primarily directed.
Two of the hardest things to say to clients embroiled in disputes is that litigation is often complex, and nearly always expensive. Traditionally, the client was on their own in terms of resourcing litigation. Any arrangements that constituted maintenance (financially supporting a claim) and/or champerty (maintenance but with a share of the spoils) were outlawed. However, in recent years public policy has shifted, and the Courts, whilst not expressly approving funding arrangements by third parties, have at least shown a greater tolerance to them.
Solicitors find themselves in a position where in addition to recommending a suitable Counsel or professional expert, they must also provide information concerning insurance and third party funders that enables the client to consider its options. The solicitor can provide part of the funding solution itself, through full or part Conditional Fee Agreements, and insurers now play an increasing role in providing tailored After the Event Insurance products, that find flexible ways to cover adverse costs awards. This goes some way to mitigating risk for clients, but there is still a missing link for the solicitor that wants at least an ongoing part return on the time taken on a complex case where the prospects of success may be in the balance, or when an ATE insurer may have declined cover.
Third party litigation funders, taken from the world of finance, hedge funds and investments, endeavour to bridge that gap by finding funding solutions to pay for Counsel, experts, other disbursements, partly funding solicitor’s fees and, if placed, the ATE insurance premium. These funders are often instrumental in putting whole packages together. Careful due diligence is carried out with the legal team, not least in relation to the financial soundness of the intended defendant, and in return for agreed cash injections the third party litigation funder will take a tiered percentage of the net proceeds recovered from the litigation. These third party litigation funders epitomise how litigation can be viewed exclusively as an investment, rather than, say, a battle, act of altruism or emotional crusade. Whilst insolvency practitioners were pioneers in this field, civil and commercial litigation cases are now being progressively funded through these means.
And there is profile too. The legal press has featured the Stone & Rolls litigation, a class action against Collyer-Bristow is still ongoing, and a royalty dispute involving members of the Status Quo band was also funded in this way. Law firms are now waking up to the marketing potential of third party litigation funding, and we are working closing with brokers and funders as and when suitable cases arise.
Some might say that it is unfair for a third party, with nothing other than a financial interest in the case, taking perhaps 50% of the net proceeds of a litigation. However, this begs the question whether a litigant, who would otherwise not have pursued the case, prefers 50% of a substantial net sum, rather than 100% of nothing. And there is no reason in principle why only the cash strapped might look at this option. Commercial organisations of substance, that have the means to fund cases through to trial, may nevertheless also be attracted by the prospect of risk free litigation.
It is likely in the short term that litigation funding will still be more popular in the US, where there is no costs shifting rule, although percentages of the judgment sums recovered under Contingency Fee Arrangements may often reduce the pot available to litigant and funder. Whilst the ultimate recommendations of the Jackson Report on reforming litigation costs may or may not gather pace after the next General Election, litigation funding is making its way towards a tipping point. With lawyers on the one hand recognising the attractiveness of this option to clients, and funders perhaps taking slightly more risks on the cases they back, there is no reason to doubt that the many “hidden non-runners” currently circulating as unprogressed claims may find the momentum necessary to secure their cases through to the trial at no risk or little risk.
Those firms who choose to be the pioneers in this area (and we would like to include Rawlison Butler LLP amongst them) will continue to work with funders, brokers and insurers to lead the way in this area. When a significant minority begins, others will quickly follow.
For further information on this or any other litigation issue, please contact Stuart Evans by emailing Stuart or by calling him on 08450 990045, or speak to your usual contact in the Commercial Disputes Team.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.