While many companies have yet to discover the benefits of “off balance sheet” litigation funding arrangements, others are beginning to embrace them, particularly in jurisdictions such as the United Kingdom where cost-shifting occurs between the parties. General counsel have long sought the objective of knowing “what you are in for” in dispute work, but hitherto they have not often successfully achieved it. The lack of predictability in keeping to a budget in litigation or arbitration can be attributed to a number of factors, including:
- The fact that the client retains control or certainty over how the case is run including how many issues are pleaded and the way in which they are pleaded, which applications or motions to pursue and how to respond to those which the client is opposing
- The extent and volume of the documentary evidence (electronic or otherwise) that needs to be reviewed
- The number of witness interviews, witness statements, depositions and witnesses that need to be called at trial
- Defendants (there can be many in a complex case) naturally have their own strategies, one of which is often to make claimants spend lots of time and money on a case in the hope that they will quit, or to soften up the claimant for settlement discussions. An estimated cost for such counter-strategies can be factored in, but ultimately it’s a “guesstimate” and can increase the cost of the funding unnecessarily.
It’s difficult to accurately predict many of these factors at the outset of the case which is when funding arrangements are usually negotiated.
If the client’s portfolio of cases involves many jurisdictions and/or is international in its scope, it will need to ensure that the funding and insurance arrangements satisfy local regulatory requirements, which are different in each jurisdiction. The alternative funding arrangements that exist in the U.S. do not, unfortunately, work in the U.K., not yet anyway. English courts have been slow to embrace or even accept the concept of modern third party litigation funding arrangements. Recently, English jurisprudence has demonstrated that the judiciary has not fully understood that the economic climate has changed and that clients and the legal industry must adjust, in order to find other ways of funding legal cases, generating opportunities for both clients and lawyers.
It may well be that clients and law firms alike are waiting for the promised contingency funding arrangements which have been outlined in Lord Justice Jackson’s Review of Civil Litigation Costs and for which legislation is promised in the next year or so.
Such a move will certainly assist international law firms’ ability to deliver greater certainty to in-house legal teams over the billing and retainer arrangements for cross-border disputes. It can be frustrating for in-house departments when they have to grapple with the different retainer models deployed in different jurisdictions due to variances in domestic laws. Should the U.K. permit the introduction of contingency fee models, similar to those available in the U.S., it will greatly simplify the retainer options for clients engaging in both the U.K. and U.S. litigation.
Once the client, funder(s) and insurer(s) have agreed on the terms of their arrangements in principle, they must coordinate with one another as well as with the retainer arrangements with the principal law firm, any other external counsel such as barristers and possibly foreign lawyers.
Experience has shown that funding arrangements are most successful when proper thought has been given not only to funding the case fully and with adequate contingencies for the whole life of the case, but that all organizations involved are happy with the deals they have struck, given that the case may last several years or more.
To have a successful externally funded arrangement (where so much is at stake), it is essential to have lawyers, brokers and litigation funders with solid experience of putting together funding schemes for complex cases and for clients who may have portfolios of cases to be funded. Clients engaging with law firms without prior experience could find themselves incurring significant bills from their lawyers who are essentially obtaining an education of the litigation funding market at the client’s expense. Good brokers can reduce the cost for the client and speed up the process of securing funding, but the law firm still needs to be on pace with the process and understand its way around the various funding instruments, agreements, priority deeds, assignment documents, etc.
Alternative funding arrangements are not for everyone, but they are increasingly becoming an attractive option for clients who are under real budgetary pressures and for law firms that are trying to increase their work flow. During the tender process, companies are increasingly likely to challenge the law firm’s knowledge and experience in engaging with external funding and insurance companies as they seek to secure the right team not only from a legal analysis perspective but also a team capable of protecting their financial interests so far as the legal spend is concerned.
James Delaney, a specialist litigation funding broker and director at TheJudge, provides a broker perspective.
The choice of law firm can be decisive with regard to the client’s ability to secure external funding. The litigation funding market is quite narrow and reputations (good or bad) are quickly earned. Law firms have to tread a careful line between managing the interests of their clients while being bona fide and transparent with the market of litigation funders. If the first case a firm recommends to the funding market is the most distressed and speculative type of case, with little or no case preparation to assist funders in understanding the risks, it can paint a negative picture of the fee earner, but also potentially the entire firm.
Firms who invest the time to fully understand the market, products available and how to achieve the best outcome for their clients have a material advantage over those that have not. After all, as the demand for funding increases and the cost continues to fall, firms could well be engaging with the market with increasing frequency. Clients will expect their law firms to be up to speed, which could influence their selection.