Are you up to your eyeballs in legal expenses and just can’t see the way forward? Do you have a case but not the means or risk appetite to pursue it? Can your funds weather a lengthy litigation or arbitration process? Litigation finance can help you.
We’ve all heard the stories. Legal fees are expensive, and litigation biases the party with more funds. So how do you budget for legal costs so that the process doesn’t drain your business or personal cash flow?
When you make use of litigation finance, you no longer have to worry about the cost or uncertainty involved with a litigious claim or that your opponent will outspend you as a litigation strategy. Using litigation finance instead creates equality between the claimant and defendant.
Let us look at how litigation funding can help you, why it’s attractive to claimants, and how litigation funding differs from a commercial loan.
What is litigation finance?
Litigation funding involves a third party financing some or all of your legal expenses, including litigation and arbitration. The third-party funder, otherwise unconnected to the dispute, will usually enter into an agreement with you or your law firm to provide funds for your legal costs. What does it cost? A share of the proceeds recovered from the dispute/s, if the claim is successful.
The investment by the funder is typically non-recourse, which means that if your claim is lost, you are not liable to reimburse the funder’s investment. In essence, the third-party funder will shoulder the risk of the costs in a dispute.
What are the advantages of litigation funding?
The most obvious advantage is that you are sharing the financial risk of your dispute. However, an article in the Harvard Negotiation Law Review shares another less obvious advantage – that litigation finance can improve the quality of legal settlements. How so? “Because litigation funders use their capital and experience to reduce bargaining imbalances during pretrial negotiations, settlements in cases backed by litigation funders are more likely to reflect the merits of claims than economic disparities between the parties.”
Let’s look at a few other advantages of litigation financing:
- You only pay if you win: What is important to know about litigation funding is that these transactions are non-recourse. As we mentioned above, if you lose your legal dispute, you won’t need to repay the litigation funder its advance or even a return on its investment.
- You get your day in court: If you’re up against a defendant with vast resources, you can afford to be heard in court without a substantial economic burden hanging over your shoulders.
- Your bargaining power increases: When the defendant realises you too have the funds and resources to pursue your matter to completion, your bargaining power rises along with the tone and scope of settlement talks.
- Your third-party funder will assess your claim: By having a funder look at your case, you will be getting a fresh set of eyes looking at your claim and, often, helpful expertise at no cost to you should you not go ahead with funding.
Will the third-party funder be involved in the running of your matter?
No. Funders should remain passive regarding the matter they are funding. Along with your attorney, you will retain control of the decisions in running your matter, and a litigation funder does not have the right to make the claimant accept or decline a settlement offer.
The Funder will designate an attorney from their Monitoring Team to keep in touch with your legal team and monitor the investment. These attorneys can also be a valuable resource for the claimant and the legal team during the dispute. The legal team will be asked to complete a brief, monthly online questionnaire, provide the Funder with copies of the vital correspondence and documents, keep the Funder updated on the progress of the claim, and provide copies of all of the invoices so that the Funder can track the budget.
So how is non-recourse funding different to ordinary commercial financing?
A traditional bank loan is recourse funding. It requires a borrower to repay the loan, regardless of the outcome of a dispute. Banking institutions do not have the litigation expertise to underwrite the merits of a claim, so they ask for collateral or personal guarantees – whereas litigation funders see litigation rights as an asset that can be funded without collateral support. That’s how we can structure transactions as non-recourse investments.
If you want to stay up-to-date with what is going on with non-recourse litigation funding, Wild Dog serves as a trusted advisor to attorneys and their clients, who are exploring litigation financing. So follow our Linkedin Page for the latest updates on https://www.linkedin.com/company/wild-dog-mu or visit our website https://wilddog.mu for more.