Does your claim have merit? How to access litigation funding
Your case needs litigation funding, but does it qualify for litigation funding? That’s the question we ask of any client who comes to us with a claim
Investing in only good claims benefits everybody – the claimant has the funds to continue their case and access justice which is then more likely to lead to a successful outcome. The legal team are also then more likely to see the benefits of their time and investment. The litigation funding industry also benefits – the growth of this area relied upon the ability of professionals like us to identify and fund only good claims.
Conversely, investing in bad claims is very damaging for everyone involved. The interests of the claimant have not been served, investors stand to lose and it reflects badly on the litigation funding industry.
We deal in good claims, and we undertake a great deal of due diligence to come to the conclusion that a claim is worthy of funding. Contrary to some beliefs, litigation funding is not about throwing good money after bad – at least not for the professionals in our industry.
What is useful if you’re about to embark upon commercial litigation, is knowing what distinguishes a good claim from a bad claim. This knowledge is particularly helpful if you are a law firm or insolvency practitioner taking on a number of cases, knowing which one to put forward for funding can save you time and resource.
Identifying a bad claim
Claims come to us at various stages. Your legal team may have been handling the case for some time and now need to call upon a litigation funder for additional support. Or, the case may be brand new and you have been advised to approach a litigation funder immediately.
Poor legal documentation
One of the biggest warning signs of a bad claim is the lack of supporting legal documentation, or reams of unsorted documentation which a litigation funder is expected to extract a legal case from. It is very difficult to build a successful case against a defendant if the groundwork has not been done by your legal team first.
Good and bad claims can be mishandled. The latter because of a lack of faith in a successful outcome. In some cases, though, good claims are mishandled because of a lack of funding. Senior litigators will pass these cases over to junior colleagues to take on until the client’s fortunes improve or funding materialises via a third-party funder.
Some indicators of a mishandled claim include:
- Wrong counsel
- Inadequate pleadings
- Unsuitable experts
- Deliberate cost-cutting for no benefit
When time is running out
Time is a large factor when deciding whether a claim is good or not. We may class a claim as being bad when the claimant or their legal team come to us for funding just before the trial. Claimants may also seek funding just before the limitation period is about to expire – often they have been in correspondence with the defendant for years without issuing any proceedings.
The lack of time is a factor in whether a case is successful, but our suspicions are also aroused as to why it has been left this late. Often it is because the case has little merit, and the chances of success are poor.
Good claims: what meets our investment criteria?
“A good claim is one where we can clearly understand and evaluate duty, breach, causation and damage suffered by the claimant”
It’s important to say here that there is no one-size-fits-all. Every single case has a different set of circumstances – from the reason the claim came about to the way it has been handled thus far. This means that we need to look at several factors to come to the conclusion that a claim is worth funding.
An excellent first sign is whether the claim is referred to us by a professional, like a lawyer or insolvency practitioner. This gives us an indication that the case has legal merit, which means that it is more likely to convince a court too.
When we first look at a case we look out for the following positive signs:
- The claimant has spent money to have the claim assessed by lawyers, who have in turn sought advice from specialist counsel. In some cases, the law firm will accept a deferred fee, a good sign that they have faith in a successful outcome.
- A fully documented claim with supporting evidence shows the quality of the legal team. This means the case is not dependant on oral evidence from a key witness – it is strong enough to withstand attack by the defendant.
- A claim accompanied by opinions from counsel and solicitors’ summary. Preliminary investigation and advice like this are enormously helpful, and goes back to what we said about having good legal documentation.
These factors allow us to understand the claim and make reasoned judgements – after all, if the funders don’t understand the claim, why should a judge be expected to understand it? The case needs to stand up at trial.
Once we have established good supporting evidence and a quality legal team, we then move on to the financial aspects of the claim. One of our key questions is – what is the likely return on our investment? We assess this in three ways:
- Likely size of damages at mediation, trial or arbitration
- The size of the actual spend or investment in the case*
- Time it will take to bring the claim to resolution
*Size of investment: monies paid to solicitors, counsel, experts plus ATE insurance premiums and the need to provide security for the defendant’s costs in certain cases. Accurate budgets must be provided by the legal team, we insist on contractual protection in the funding agreement if they are exceeded.
Alongside this we establish duty, breach, causation and damage. We also assess what’s likely to happen in practice, for example – will the defendant be solvent by trial time, and what will the claim settle for?
Assessing this depends on the funders’ experience, careful analysis and, to be honest, a bit of luck.
We do not replace legal teams
Our role as litigation funders is to predict successful outcomes for the claimant as well as ourselves. Once we have agreed to fund your case we do not replace your legal team. Some lawyers are concerned about this, we are a relatively new industry after all, but we do not believe in the so-called ‘enhancement approach’ of hiring and firing lawyers or deciding on the strategy of the case. We will provide support, advice and recommendations if you require it, but our main role is to provide funding and confidence in your claim.
The benefits of litigation funding
Apart from financial backing, there are a number of additional benefits to litigation funding, which we’ve covered on our blog before.
Mainly, we often find bringing a litigation funder on board refocuses the attention of the defendant. They know the claim has merit because it is strong enough to warrant investment by a third party.
The defendant may now be willing to settle early, knowing they will get a significant discount and avoid court costs. A funded claimant won’t run out of money in the long-term, so it may be in the defendant’s interests to settle the case and reduce lasting impact on their business.
Read more about this in our related blog – litigation funding for business owners.
Investing in merit
These are the main criteria we use to assess claims presented to us, there are many others and each funder will have developed their own techniques. These techniques allow us to manage risk, support access to justice and predict good return on investment.
The litigation funding industry is maturing, and with it comes increasingly sophisticated analysis of claims. This is only good news – it minimises investment (and risk) in bad claims and increases the chances of a successful resolution in meritorious claims.
To learn more about planning a successful legal claim, one that will catch the eye of a funder, download our free guide to the process.