By Patrick Gearon and Gareth Mills, Charles Russell Speechlys
Growing awareness of litigation funding is making it easier for businesses to pursue disputes.
When contemplating the commencement or defence of litigation proceedings (be they court proceedings or arbitration) it is almost trite to say that the most common uncertainties/concerns expressed by in-house counsel, and the businesses they represent, relate to the costs of the litigation itself.
Cost is now ranked as one of the worst features of international arbitration and litigation, according to a survey by Queen Mary University of London, yet despite this concern the headlines in the legal and financial press during the past 24 months have shown that litigious proceedings are increasing both in terms of cost and the number of cases. The 2018 English Commercial Courts Report revealed a continuing upward trend in litigation, with the number of international commercial cases heard in the preceding year rising by 7 percent and the number of litigants by 22 percent. A similar report issued in 2018 by the Dubai International Financial Centre (DIFC) Courts revealed that the number of cases filed with the first instance courts there had spiked by 64 percent in the first half of 2018, while the overall value of claims increased by 181 percent over the same period — these increases were also reflected in enforcement actions brought to recognise foreign judgments and small claims at the DIFC Court’s Small Claims Tribunal.
The fact of an increasingly litigious global business environment has been concurrently reflected in business’s approach to litigation in recent years. According to a Thomson Reuters survey of in-house counsel and litigation lawyers in the US, the UK and Australia conducted in 2017/2018, more than 72 percent of the lawyers surveyed noted that the costs of litigation were increasingly important to the business of law.
The reasons for the increases evidenced by these statistics are various, but one important factor has been a concurrent increase in the availability and utilisation of third-party litigation funding.
Third-party funders and the role of external counsel
At a basic level, third-party professional funding is where a third party funds all or part of the cost of a dispute in return for a share of the proceeds of the dispute if it is successful. If the litigation is not successful, the funder bears the costs it has agreed to fund. Increasingly litigation funding can be deployed in innovative ways and via the efficient use of technology: this area is predicted to significantly increase its use in the near future.
Although most of the recent articles and promotional literature surrounding litigation funding intimate that it is a novel phenomenon, in fact the availability of third-party funding (of one form or another) has been permitted in the UK since 1967. What has changed, however, is the awareness of the availability of these options.
An Ipsos Mori survey commissioned in 2008 found that half the FTSE 350 executives interviewed knew nothing about options such as “after the event’’ insurance or “third-party funding”.
By contrast, by March and April 2019, The Lawyer surveyed more than 200 companies and law firms to gauge their opinions and attitudes towards litigation funding and found that:
- most respondents say that the future of litigation funding looks bright, with it set to increase in volume and value;
- one-third of survey respondents reported that they have already worked with a litigation funder; and
- of those who had used litigation funding, 77 percent said that it was the partner from external counsel in charge of their case who was responsible for
- driving the use of litigation funding in their organisation (as opposed to the GC, managing partner or other individual).
The research therefore shows that third-party funding has not only increased in availability and awareness, but is also generally viewed positively by the market place — although businesses continue to rely on their external lawyers to recommend and negotiate appropriate agreements with the funders.
The role of counsel and the potential pitfalls
It would be easy, therefore, to assume that the issues of costs that have been the historic stumbling block to substantive litigation for some institutions have been alleviated by recent developments. To make this assumption would, of course, be to conflate all of the third-party funding industry into an amorphous body that offers the same standard of service and who approach case management and case oversight in the same manner.
This is clearly not the case and it is crucial when exploring the option of third-party funding that the parties funding the case and the lawyers prosecuting the case have a working relationship that serves the ultimate client’s best commercial interests (in conjunction with those of the funder). As with all dispute matters, the main role of external counsel is to lead and prosecute the case in the best interests of the client: when a third-party funder is involved, this means that the external lawyers must maintain a tri-partite/multi-partite dialogue with regard to case management and settlement.
More proactive firms, including Charles Russell Speechlys, have taken an additional step (in the interests of clients) of forming a panel of preferred litigation funders, each of which is best suited to various case types and sizes. The additional expertise of such law firms ensures that clients secure the most appropriate type of litigation funding and are able to obtain the maximum cost-benefit from the way in which such funding is deployed. This partnering therefore allows the benefits of third-party funding to be realised by the ultimate client, whilst at the same time ensuring that a close relationship between counsel/funder is maintained.