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Will funders start bypassing solicitors?
Monday 11 June 2012 by Rachel Rothwell
There is quite a buzz about third-party funding at the moment. Media coverage has spread well beyond the legal press, with recent articles on the topic in the FT and now even the Guardian.
But much as funders like to suggest every now and then that the sector has entered the main arena, in reality it is still very much on the edge, peering in.
Harbour Litigation Funding, one of the bigger funders which has just raised another £120m to invest in cases, recently estimated that only one-in-10 litigators has ever used funding. But I would guess that the figure is actually even lower than that. At a recent Butterworths conference on third-party funding (covered in the June issue of Litigation Funding), it was interesting to see that even though more than 30 delegates put their hands up to say that they were lawyers, only three of these then said that they had experienced third-party funding. And that was a group of lawyers who were actually attending a conference on the topic.
So why is take-up so low? The easy answer would be that clients don’t like having to give up a cut of their winnings, and would rather finance their cases in the normal way. Plus, it’s true that funders want high prospects of success and tend to be more interested in the bigger cases. But I think there is another factor.
I have no doubt that there are a lot of clients out there who would actually be quite interested in using the funding route. Not only the little Davids fighting big Goliaths, who can’t afford to bring the case without a funder’s deep pockets, but also the risk-averse corporate, which has the readies in the bank to pay the normal way, but actually would prefer to give away a cut of damages in return for the assurance that they won’t be facing a large bill if they lose.
So why doesn’t this sort of corporate use funding in practice? Partly, I suspect, because these clients don’t really know that funding might be available. They rely on their solicitor to tell them it is a viable option; but for a solicitor unfamiliar with the funding world (as most are), the temptation is to stay within their comfort zone, concentrate on advising on the legal issues, and not get involved in messy funding arrangements where their own lack of experience and knowledge may be exposed.
That will not be true of all lawyers, of course, but it may be a factor for some - whether or not they want to admit it.
As far as funders are concerned, they are beginning to see that if their sector is to ever truly become mainstream, they need to get their message out directly to in-house counsel. For many general counsel, having a means through which they can assure their chief executive that they have got rid of the whole of the risk attached to a piece of litigation will be quite attractive.
Taking it a step further, what funders really dream of is for in-house clients to begin recognising that some of the legal actions they currently choose not to bring could actually be transformed into a revenue stream. For example, companies whose patents are infringed around the globe, but which might not want to take on the risk of litigating where the infringement does not really affect their business to any great extent, could turn those potential claims into hard cash (at no risk) by using a funder to finance them. Funders are particularly keen on claims in patent courts or the International Court of Arbitration (ICC) in Paris because of their streamlined and predictable timelines.
Third-party funding will really enter the mainstream only if it is driven by demand from clients, and at that point, solicitors will soon begin developing the required expertise. Once clients start asking about it, solicitors will be able to carve out a pivotal role as savvy and well-connected fixers to help their clients obtain the best funding they can, on the best terms possible.
Rachel Rothwell is editor of Litigation Funding magazine, providing in-depth coverage on costs and the financing of litigation.
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