Corporates are making increasing use of litigation funders to help them finance legal proceedings

Syed Rahman, of commercial litigation experts Rahman Ravelli, considers the potential benefits of this approach.

As legal disputes can be lengthy, complex and costly, some companies have struggled to finance their claims. Faced with defendants who may be wealthy and well represented, many are also reluctant to commit to such action as there is no guarantee of victory.

But many companies, including those with strong finances, are now seeing the benefits of using litigation funding. Seeking someone to fund a company’s litigation involves the company then sharing the proceeds of any successful litigation with the funder. But this approach enables some of the company’s funds that would otherwise be tied up in the litigation to be used for other purposes.

Issues such as whether the company itself or the litigation funder instruct the legal representatives and how the amount paid in settlement of the case is shared between the two need to be addressed when the terms of the funding arrangement are agreed. In many cases, the funder is likely to leave the company to instruct legal counsel, although they will have been briefed about the facts and legal issues relating to the case. 

To prevent any later fallings out, the funding agreement between the two parties can include an amount that they will accept from the defendant if and when it is offered. This is usually agreed between company and funder after considering the amount required to fund the litigation, the likely length of it and the type of litigation being brought. How any conflicts of interest between company and funder would be resolved should also be included in the funding agreement.

Such agreements should not be rushed into by either side. But there is little doubt that a well-constructed litigation funding agreement can bring benefits for both sides. The company can keep money that would otherwise be tied up in the case free for other purposes, while the funder that is brought on board can view the arrangement as an investment that can prove to be financially rewarding.