How a Litigation funding deal comes together:
Litigation funding is essentially an outsider, a third party, providing the finance in a legal case for the (usually) claimant to press ahead and litigate. The third party will pay for all or some of the costs involved, either because the claimant can not afford the fees, or because they don’t want to fund the case themselves.
In exchange, the funder receives a share of the damages, should the claimant be successful.
The success fees themselves are typically expressed as a percentage of the damages awarded or a multiple of the original investment – whichever is larger, usually.
There are two types of litigation financing:
- Consumer financing
- Commercial financing (whereby attorney costs and litigation costs are typically covered, thus requiring much larger sums of money).
The products that are available for those seeking funding are as diverse as the third party funders themselves – funding is typically available for single claims, a portfolio of cases or simply to cover working capital.
But just how does a litigation funding deal come together?
Deciding whether to back a litigation – selecting a case
Case selection is not an exact science, but generally, these questions are asked:
- Does the case warrant being brought to trial?
It is important to determine the type of case, the strength of the claimant’s claims and what evidence exists. Why back a case that is likely to lose, and lose you money?
- Who is the claimant?
More importantly, the claimant will be awarded the damages, are they trustworthy enough to divide up the reward equally?
Also the best clients are the ones who are prepared to settle on reasonable terms, not fight it out to the bitter end. Not taking a case to trial is the much cheaper route, and settling means there will be some financial recompense.
- Which counsel will handle the case?
This is vital to know because there has to be trust between all parties involved in the litigation.
How CFS Capital selects cases
- All cases are introduced by carefully selected, skilled law firms who specialise in commercial litigation with particular emphasis on professional negligence cases.
- Extensive due diligence is conducted by our solicitors, Knights PLC, underwriters and members of the Advisory Board.
- Cases must have a high probability of success within an acceptable time scale (typically >24 months).
- Cases must pass the “Quantum of Damages” and “Quality of Defendant” tests.
- Principal Protection, usually via AA Rated ATE insurance, must be available to secure funders capital.
Once a case has been selected, the funding requirements have to be established.
- At the outset, one must also ascertain how much funding will be required to see the case through to conclusion. Not just parts of it, the whole thing.
- Next up is determining how the damages will be divided, should the case be successful, between the funder, the claimant and the legal team.
- And what the realistic value of the case is and whether it makes financial sense to see it through and will it yield a healthy return on investment?
Quite simply, if the cost of pursuing the litigation outstrip or equal the potential financial reward of damages or settlement, it is not considered a good candidate to receive litigation funding.
- And even if the overall potential damages clearly outweigh the input costs, if the majority of the monies are then due to go towards covering legal costs and the funder’s return, it should still not be considered a good candidate, as the claimant will receive very little compensation.
Determining the amount of funding
How much funding a funder is prepared to invest in the case is usually determined by the type of case it is: single case or portfolio and the estimated costs for litigating.
In a single case, funding is typically on a 10:1 ratio – whereby the third party funder will put in 10% of the likely damages received.
For a portfolio of cases, the funding tends to be more flexible.
Invest in CFS Capital
CFS are experts in legal finance, supporting individuals and corporations in the successful resolution of high-value commercial litigation disputes.
Through our stringent case selection process, we are targeting a 90% success rate and in the event of a loss, through the compulsory ATE insurance, your capital is assured and any loss is confined to the return or profit you might have otherwise earned had you invested elsewhere.
So if you are an investor, seeking to achieve a high potential return on your deployed investment capital, without placing your principal capital at risk, contact us for further information.