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Why use non-recourse litigation funding?

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In the latest newsletter from The Association of Corporate Treasurers (ACT), Darrell Porter explores why litigation funding is gaining traction among corporates.

It’s an inconvenient truth that proceeds derived from litigation are usually viewed by equity analysts as a one-off gain, whereas returns from the core business receive a multiple. By transferring the liability to pay legal costs away from the company, litigation funding releases capital to be deployed where it counts.

Many assume that demand for non-recourse litigation funding comes only from impecunious claimants. However, a surprising number of companies (including FTSE constituents) who are able to cover the costs of commercial litigation themselves choose not to. For CEOs, where the valuation of their company is at the forefront of their mind, it is easy to see the attraction of non-recourse funding instead of deploying their own resources.

Litigation funders pay a claimant’s legal costs and offer indemnities against adverse costs should the claim be unsuccessful. This simple concept is also an extremely powerful tool with which to mitigate risk, as well as an invaluable source of non-recourse financing and peace of mind.

Managing risk: Many CFOs consider commercial litigation as a black hole for their cash, and the uncertainty in terms of quantum and timing makes a mockery of most cash-flow forecasts. Such issues are compounded when claims are brought in jurisdictions (such as England and Wales) where the losing party is usually ordered to pay the winning side’s legal costs (as well as their own). Transferring these problems to a litigation funder is very attractive.

Cutting costs: General counsels (GCs) frequently view litigation funding as an alternative source of funds that can assist in cutting legal expenditure budgets without compromising headcount or output.

Validation: The backing of a reputable litigation funder, such as Harbour, may also deliver peace of mind for the GC and the board, as well as a powerful message to the other side. If an organisation is new to the litigation arena, the validation and backing of the claim brought by an independent team of professional litigators who have ‘skin in the game’ can be very reassuring.

Retaining control: Some GCs can be wary of litigation funding. This is often a result of the misunderstanding that they will lose control of the claim and any settlement negotiations. If, however, they work with a member of the Association of Litigation Funders of England and Wales, this should not be an issue. Its Code of Conduct specifically precludes such interference; indeed, it is for the claimant to choose their legal team, establish their case strategy and decide whether to make, accept or reject any settlement offers.

Litigation funding is becoming increasingly popular among corporates as knowledge of its availability spreads. It can be deployed to support almost any underlying litigation or arbitration across a wide array of jurisdictions and arbitral rules around the world.

Many assume that demand for non-recourse litigation funding comes only from impecunious claimants. However, a surprising number of companies (including FTSE constituents) who are able to cover the costs of commercial litigation themselves choose not to. For CEOs, where the valuation of their company is at the forefront of their mind, it is easy to see the attraction of non-recourse funding instead of deploying their own resources.

Darrel explains how litigation funding helps corporate in four key areas: managing risk, validation, retaining control and

 

To view the original article on the ACT website, click here.