Editor’s Note: During the course of your small business’ life, there are always a chance for legal disputes to happen. When you were hit with a lawsuit, you need to respond in timely manner. Unfortunately, litigation is costly – and not many small business owners are either willing or having the fund to pay for the costs. Third-party litigation funding often comes out as a solution. A solicitor representing the small business owner will need to look for the right third-party funder. This article will explore the consideration factors from a solicitor’s perspective.
Best, briefly defined as the’ financing of litigation by an independent person(s) not party to the litigation, in return for a share of the winnings where the outcome is successful’, third-party litigation has grown rapidly in the past five years. So some advice for solicitors considering third-party funding:
Why do they need third-party funding?
The best answer here is that their clients need it. Without third party funding many would-be litigants would simply have to abandon any hope of pursuing their claim to justice. With the best interest of their clients at heart the solicitor must then do his upmost to secure the best funding deal available. Initially they must explain to their client the pros and cons of funding: if the case loses the client will have incurred no costs but if it wins, a proportion of the success must be yielded to the funder.
What do they see as the outcome of third-party funding?
Again the answer is client-led. They must secure the best deal possible for their client. This leads onto the crucial question.
How do they choose the best third- party funder?
Perhaps they should start by imagining the worst case scenario: a funder who runs out of money mid-way through the case and pulls out of the deal, accompanied by acrimonious relations with both funder and unhappy client.
So firstly, solicitors should build up good relationships with funders based on trust and honest communication. Negotiating and securing the funding deal is the key starting point, so here they should look for funders who can make quick decisions and who actually have the funds and ready access to them. They need to research the funders, for some are brokers, themselves looking for commission on introducing cases to funders , and therefore best avoided.
Also to enable funders to make quick decisions, they need to ensure their case is a suitable one for funding. Most funded cases arise in commercial disputes, professional negligence, breach of contract and arbitration cases. Also the cost of the claim has to be sufficiently high to bear the necessary quantum-to-costs ratio. Also the defendant must be capable of meeting the damages, or insured to do so. Since funders will only finance cases after doing careful due diligence on them, the solicitor can help by doing much of this prior to requesting funding. It will save time, help the funders to make a decision and help establish a transparent and open relationship with the funder.
Having secured funding, the solicitor should satisfy themselves as far as possible on the clarity of the funding arrangement; it should be in writing and be as exact as possible on percentages to be paid and whether the agreement is a conditional fee arrangement. (The 2013 Act will see important changes as it introduces Damage Based Awards and new rules on recoverable costs). The canny solicitor needs to keep abreast of these changes. This leads onto another factor in the funding agreement. It should ideally allow for flexibility and this goes back to having a good relationship and open communication with the funders.
Rogue funders are unlikely to be members of the Association of Litigation Funders; its code of conduct covers ethical and practical standards that should give solicitors confidence if they chose only funders who are members. The requirements on capital adequacy are stringent and rules on written agreements provide the bench mark for what solicitors should be looking for.
The above is only a guideline. However, solicitors must get the funding option right. Solicitors’ Regulations now demand they inform their clients of all funding options available. It follows that they must know the third party funding options as fully as possible. (They themselves could find themselves being sued by dissatisfied clients.) To do their best for their clients and secure their own financial future they will certainly be working increasingly with more third party funders. In short, they must choose funders with available funds, ready to make quick decisions and with whom they can develop excellent communication and trust.
About the Author: This article was written by Anne Evans, a legal consultant for Vannin Capital. You can find out more about the company on their website – www.litigationfunding.com