Do litigation funders need to be more flexible?

A fairly standard view from the commercial litigation world about litigation funding is that litigation funders are too inflexible.

The general belief in the corporate litigation arena is that litigation funders want a perfect case and are not prepared to compromise. They supposedly lacked flexibility. Obviously, it is true to say that any litigation fund is going to be more interested in the case with excellent prospects of success, with a small fee budget and a large damages claim against the liquid or insured defendant. An admission of liability and an offer to settle or even more attractive but in reality, those cases do not need funding and litigation fund really sees those opportunities. However, that is not to say that there are not excellent cases which need litigation funding, quite the contrary.

One of the key ways for litigation funders can promote themselves in the corporate litigation arena is to be more flexible than they have historically. They can do this is a number of areas: the criteria of the cases they accept, the change in use of exclusivity periods, considering funding at various stages and for specific items only, their returns.

Commercial litigation lawyers want to know that the funders are responsive and open to a variety of options. Litigation funders have historically had no need to advertise, rarely promote themselves and have (and continue to) a large selection of cases that fit their strict criteria so they have had no reason to look for different ways to approach cases.

Additionally, the majority of litigation funding is done using a vehicle set up as a litigation fund. It is an investment vehicle which takes investment for a promised return over a period of time. These litigation funds will only invest in those cases which fit the criteria that they laid down for their investors and which they cannot depart from.

Some of the newer entrants into the litigation funding market are not constrained by such restrictions as they are not investment funds.

Something else that is important to commercial litigation lawyers want to know that they can approach a funder at any stage of the case. For example, they may need some financial clout at a particular stage in proceedings or expert report or other disbursements paid for.

A number of litigation funders look for exclusivity period. The reasons are purely commercial-and litigation fund has to spend time and effort researching a case with its due diligence and obviously they do not want to do that to be told halfway through the process that the client has funding elsewhere. However, can solicitors realistically allow clients to agree such terms? Is that best advice?

The other area where flexibility of litigation funders may need to change is that of the returns that the funders seek. It may be that currently, and historically, they can ask for excellent returns which reflect their risk (which is often substantial) but, as the market opens up and more new entrants arrive, competition will increase and the returns will reduce. The standard model adopted by most litigation funders of a percentage of proceeds or a multiple of their investment may continue but with reduced rewards.

Litigation funders may have to review their offerings and consider a little more flexibility in the future.





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