Litigation funding: third-party funders come to the aid of finance directors seeking to reduce the risk of litigation and control the costs.
| Author | Spiteri, Mark |
| Position | Technical notes |
What is litigation funding? Litigation funding is the financing by one party of litigation brought by another in return for a percentage of any benefits received by the litigant.
What is the problem?
Litigation is a risky business and can seriously damage a company's balance sheet. Some companies consider the management of litigation to be a core competence and dedicate significant resources to it. The pharmaceutical, tobacco, energy, insurance and banking sectors are well-publicised examples of litigious industries, and companies in these sectors often have large in-house legal teams and significant budgets dedicated towards the pursuit (and defence) of litigation. Claim sizes often run into tens of millions, and in some rare cases the outcome of the judgment may threaten the very survival of the company. It is therefore not surprising that the management of companies in these industries make it a priority to develop litigation as core skill.
However, for directors of companies operating in a less litigious environment, and where significant actions are infrequent, the prospect of pursuing litigation, either as a claimant or a defendant, can be daunting, particularly given that management may lack the experience to deal with such actions. Litigation can be a real headache for the finance director, who is expected to manage the financing of what is an inherently uncertain and difficult-to-control expense. The English legal system is world-renowned for the impartiality of its justice, but it has become one of the most expensive jurisdictions in which to resolve a dispute. In a 2007 Sunday Times article, the late Sir Hugh Laddie, a British High Court judge, lawyer and professor, attributed the high litigation costs (said to be three to ten times the cost in Germany and the Netherlands) to the labour intensity of cross examination, oral argument, disclosure of documents and witness preparation. To make matters worse, the English legal system is particularly weighted against the loser, who generally has to pick up the costs of the winner, known as an "adverse costs" award. This can make the system doubly expensive for the losing party.
[ILLUSTRATION OMITTED]
[ILLUSTRATION OMITTED]
What is the solution?
Before the case of Arkin v Borchard Lines Ltd & Others (2005), there was considerable uncertainty over the effect of the medieval laws of "champerty" and "maintenance", or in common parlance "buying into someone else's lawsuit". However, in this...
To continue reading
Request your trialCOPYRIGHT GALE, Cengage Learning. All rights reserved.
