Today's General Counsel, V15 N2, Summer 2018

Page 46


Developments in Corporate Litigation Finance BY BRETT MCDONALD AND JAMES BLICK

T 44

he origins of the litigation finance industry and earliest examples of the practice lie in the distressed litigation space. Small, financially distressed or insolvent businesses that had potentially valuable legal claims, but few assets with which to fund litigation, found financiers willing to provide non-recourse capital in exchange for a share of the spoils of successful litigation. For steely-nerved investors in the mid to late 2000s, litigation funding was an exciting new enterprise, which offered the prospect of dazzling returns for backing the right cases. The relatively few funders operating had their pick of funding opportunities and were

firms. Most litigation attorneys have had at least some exposure to it. For funders, the next big frontier has been to try to unlock the treasure trove of potential litigation opportunities within big business. This is a market segment historically dominated by the hourly rate, where the default approach to funding litigation is simply to negotiate a discounted, capped or alternative fee with outside counsel, and then seek approval from the board or CFO for the budget. Much of the focus of the litigation funders in recent years has been on advertising the benefits of using external capital to those with deep pockets, and repackaging litigation finance to appeal to blue chips and multinationals as simply another form of corporate finance. Some significant inroads have been made. Litigation is a costly and inherently uncertain venture. No matter how large a company’s balance sheet, sinking capital into external legal fees for an unknown period of time, with no outcome certainty, is never an easy decision. The cost/benefit analysis will often come down in favor of not pursuing claims. In this context, the idea of “off balance sheet” litigation funding has appeal for many general counsel and financial controllers. Similarly, some businesses have recognized that in today’s market legal

Major corporations have been slower to embrace litigation finance than some funders would care to admit. often able to negotiate highly favorable deal terms on cases that passed scrutiny. Fast forward a decade, and the industry has become mainstream. The practice has generally received judicial support in many (although not all) common law jurisdictions, and there are now dozens of major funders operating around the world. Litigation finance is well understood and often used effectively by law

Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.