Why claimants should engage a litigation funding consultant before appointing a lawyer and funder.
During the whole litigation funding process claimants often find that protecting their financial rights and obligations can be daunting. They have limited understanding of the process. By its very nature, arrangement of litigation funding and related processes creates uncertainty and stress. The first step for any inexperienced claimant should be to appoint a litigation funding consultant. In our experience incentives matter, even when dealing with highly professional people (lawyers, litigation funders, insurers and brokers alike). Having a capable consultant in place at the outset who is exactly aligned with the claimant interest increases the likelihood of a good outcome for the claimant.
The Funder – Claimant - Lawyer Relationship
The effective management of tripartite relationship between funder, claimant and lawyer are integral part of the litigation funding process. This may be of particular significance in multi-party proceedings, where the claimants could be more vulnerable to both, the funder taking control of the proceedings and to lawyers who fail to sufficiently protect and promote the claimants’ interests above their own.
This includes the lawyer giving advice on the benefits and risks of the funding proposal which might be seen to be an ethically perilous undertaking if the lawyer is financially dependent on the funder for the litigation to proceed.
Further, not only does the lawyer face potential conflicts between the funder’s and the claimants’ interests, there is also a potential conflict between duties owed to different claimants if the lawyer is retained by the funder and not directly by the litigants. It is in the interests of the funder that experienced and competent lawyers act in the proceedings – the funder will have little chance of earning a return if corrupt or incompetent lawyers are retained. The funder can also be expected to improve the efficiency and cost effectiveness of the lawyers through the funder’s imposition
of budgets on the lawyers and general experience in managing litigation and lawyers can foster the development of the funding industry and its competitiveness by advising their claimants of the options available for funding litigation. As has been argued above, many conflicts of interest which are thought to be inherent in funded proceedings can be avoided or resolved by ensuring that the lawyers’ fiduciary and professional duties to the litigants are given precedence over any duties or contractual obligations the lawyer may owe to the funder. A properly drafted Litigation Funding Agreement will do just that.
Appointment of Relevant Lawyers
Frequently claimants find themselves having to make key decisions with limited information. Perhaps the most important decision is choosing a relevant lawyers / law firm. A claimant’s urgent need for good litigation advice may lead them to select a lawyers without a rigorous process. Having an experienced consultant in place before selecting lawyers is generally likely to produce a better outcome.
Therefore. a slight increase in overall costs due to the consultant is likely to be greatly outweighed by the improvement in strategy and relevant team configuration.
Lawyer’s Conflict of Interest
Once lawyers / law firm is in place, the claimant is benefitting from the advice of an experienced operator. However, there is a key conflict of interest. The lawyer’s own fees are the fundamental expenditure of the claimant in the litigation. Typically, the lawyer advises the claimant in determining the optimum financing strategy to finance their case. However, one of the essential levers in that financial planning involve the lawyer themselves, in particular, the lawyer’s hourly rate and whether any proportion of the lawyer’s fees will be contingent on a successful outcome. Furthermore, key to the planning process is weighing the cost versus the benefit of selecting a more specialized lawyers / law firm and/or one more willing to work on a contingent basis vs. the cost solution being offered by the original lawyers. Understandably, a relatively expensive lawyers may be reluctant to advise his claimant that he should switch to a more cost-effective alternative lawyers.
We work with claimants and their solicitors, if appointed, to find the best cost / reward solution.
Selection of a Relvant Funder
Claimants should always do their homework when establishing a relationship with a funder. Here are some decisive factors we believe should be considered by claimants when evaluating litigation financing providers. Has the litigation funder a successful track record of consistently invested in successful cases? Does it know how to evaluate matters to determine their potential value and chances of success? Though the most established dispute resolution funders adhere to legal ethics standards and sound business practices. However, an ethical lapse by a funder can jeopardize the cases it has financed, to the detriment of both the claimants and their counsel.
Every legal case is different in its own nature, jurisdictions and complexities. The funders that strive to develop bespoke and creative funding solutions for claimants can provide far greater opportunities to maximize claimants’ interests than funders focused on single-case investments. Can we rust on the reliability and transparency of the funder to deliver on its promises? Claimants should be wary of funders whose financing terms look too good to be true, and should do their homework about the funder’s financial position. Claimants should carefully consider the funder’s reputation and experience in the marketplace.
It is important for claimants to conduct due diligence through an independent consultant / advisor before partnering with a litigation funder. They should exercise careful judgement in evaluating the funder’s track record, reputation, and financial position. Such diligence should lead them to the most reliable funder, one that offers a history of success and conducts itself in a fair, transparent and ethical manner.
Funder’s Conflict of Interest
A major potential area of conflict of interest between the funder and the claimant is in relation to settlements / amicable early settlements. While both funders and funded litigants have broadly the same interest in maximizing any settlement or damages award and they will share the proceeds of the litigation, funders can find themselves in conflict over whether or not to settle.
This conflict can best be dealt with by providing that any irreconcilable difference over settlement be referred to counsel in the proceedings for a binding expert opinion.
Engage a Litigation Funding Consultant
Advantage of a Litigation Funding Consultant
We believe that before selecting their legal team, insurer or funder, claimants should get input from a litigation funding consultant who is commercially aligned with the claimant and only gets paid a small percentage of fee by the claimant.
On several occasions funders has seen many cases where they are unable to proceed because the solicitor running the case was too expensive, because for example they were not prepared to operate with a sufficiently high proportion of their fees being on a contingent basis, or where the claimant was continuing the litigation despite a relatively attractive settlement offer being on the table. A litigation funding consultant can often help claimants to avoid these value-destroying outcomes.
With a litigation funding consultant engaged, these checks and balances (against potential conflicts) give claimants the best chance of a good net outcome.
Get in Touch
If you would like to learn more about Litigation Funding and what we can do for you, please contact us.