For those of you who believe you have good claims that should be pursued, but either would prefer not to invest your own funds in those claims or simply don’t have the funds available to pursue the claims, this article may provide a solution for you.
One of the major developments in the management of disputes in recent years has been the growth in disputes funding.
Disputes funding is, at its simplest, an arrangement whereby the commercial client enters into an agreement with a disputes funder; the funder covers the ongoing costs of the dispute, including expenses and, if the case is successful, the funder recovers the value of its investment, plus an uplift recognising the risk value of that investment.
Importantly, the funder’s investment is non-recourse, so if the case is unsuccessful, the client will bear no legal costs. This is usually tied in with ATE insurance, so that in jurisdictions where costs are awarded to the successful party, if the case is lost, then the insurance pays out and covers the successful party’s costs.
Before COVID-19, we were already seeing a significant increase in interest in disputes funding and, recognising the economic impact of COVID-19, that increase in interest has unsurprisingly accelerated.
So, the important point is that, if you have a good claim which you are keen to pursue, but either don’t have the funds available, or prefer to invest those funds in your core business, do take some advice as to whether funding might be available to cover the costs.
If you have already heard about disputes funding, but perhaps reached the view that it is not for you, make sure your knowledge is up to date because, over the last two or three years, there have been some material changes in the market which we would like to share with you.
First, there have been a number of regulatory changes around the globe, which mean that disputes funding can now be carried out lawfully in a large number of jurisdictions, and the direction of travel is towards opening that market further.
Second, the disputes funding market has matured. There are now considerably more funders offering funding, ranging from the larger ‘blue chip’ funders, private equity investors, and newer entrants focussing on particular niches in particular markets. In short, what was impossible before may now be possible.
Third, portfolio funding has taken greater prominence in the market. Historically, funding tended to be restricted to larger single cases, where the funder’s risk was entirely dependent on the outcome of one case. With portfolio funding, the funder funds a series of cases, and spreads its risk across those cases, which both lowers the risk for the funder, and reduces the cost because the risk is lower.
As a team we are now involved in a number of these arrangements for clients, ranging from large portfolios of cases where the cases are very similar, in the same sector under similar or identical contracts, to smaller portfolios of cases, where the cases themselves may be very different (albeit usually from the same industry segment). Portfolio funding can also be used to fund the defence of proceedings, where the circumstances of the particular portfolio can support that.
Fourth, there are funded cash flow management or debt recovery solutions. This is where the law firm typically manages cash flow collection for a client, from the pre litigation stage right through to legal proceedings and enforcement, if necessary.
Fifth and last, in the early days of funding the market was typically focussed on clients, often individuals or classes of individuals, who on their own would be unable to fund the disputes they wished to pursue. However more recently, much greater focus has been given to the support of corporate clients, who may well have the necessary funds to pay for their disputes themselves, but who may choose their own funds to invest in their core business, and use a funders money, to pay for the costs of their disputes.
In conclusion, particularly where you are a claimant, you should definitely ask your advisors whether funding might be appropriate for your particular case (or indeed portfolio of cases). We would be more than happy to give you a preliminary view on whether a case, or cases, are suitable for funding.
If you would like to discuss any of the points or issues raised in this article please contact us.
As a firm, we have a non-exclusive arrangement with LCM, a London listed funder, which focusses particularly on funding corporates and they have experience in operating in many of the jurisdictions in which we operate. But we are a able to steer you in the direction of the right funder and give you advice on the pros and cons of working with different funders, and our experiences of them.