Developments in Corporate Litigation Finance

The origins of the litigation finance industry lie in the distressed litigation space. Now the industry has become mainstream, and litigation funders have been increasingly focused on advertising the benefits of using external capital to blue chips and multinationals. Major corporations have been slow to embrace the concept, possibly due to a lingering sense that a well-capitalized business with a strong balance sheet may have available more cost-effective ways of handling litigation.

Funders have had to look at creative ways to attract business in what is an increasingly competitive sector. An example of this (and, generally, a notable trend of 2017) has been the push by many funders for portfolio financing opportunities. Under the portfolio model, the funder spreads its capital and return across multiple cases, enabling it to commit a large chunk of capital under one deal. A key development of 2018 is the increasing use of litigation insurance. If the case is unsuccessful or the award cannot be enforced, the insurance reimburses the claimant for legal fees. In exchange, the claimant pays a premium to the insurer, either when the insurance is taken out or upon successful resolution of the case.

The litigation risk-management market is evolving rapidly, offering a wide range of ways for a business to finance, control, monetize or take the risk out of litigation. When analyzing the cost/benefit of pursuing litigation, these options should be a routine consideration for general counsel and financial controllers.