These are tricky times for general counsel.
As businesses come under more pressure, they are more likely to resort to litigation – which also means they are more likely to get sued.
Meanwhile high levels are inflation are bound to start feeding through into lawyers’ fees – meaning that it will become even more expensive to both bring and defend litigation.
Rising litigation costs will undoubtedly make the option of using litigation finance to fund a case more appealing to claimants. But what about for defendants?
Litigation funding of defence costs is something that has been talked about for a while; but the current economic conditions mean it could well be something that general counsel now start thinking about more seriously. Where they are facing a large number of lawsuits, the prospect of letting a funder take care of their defence lawyers’ bills as they arise could be very appealing. And as more businesses face the potential threat of insolvency, for some defence clients it might solve a critical cashflow issue that could even be make or break for the business.
Providing litigation funding for defence costs does require careful thinking, however. Probably the most difficult aspect is for the defendant client and the funder to agree on what should be regarded as a ‘successful’ outcome, which will entitle the funder to payment. For example, depending on the case – or indeed the portfolio of cases – the defendant might decide that if it ultimately pays, say, 35% of the damages sought against it, that will constitute a success. This will vary according to each case and will no doubt be keenly negotiated between funders and defendant clients.
Of course a big difference between funding for claimants and defendants is that, for claimants, a successful outcome will usually mean there is a nice pot of damages from which to pay the litigation funder. For defendants, unless there is a successful counterclaim, that won’t be the case, and the funder’s fees on a successful outcome will need to be met by the business. But with the potential to offload some risk and solve immediate cashflow issues, using litigation funding for defence costs, particularly for a portfolio of cases, is something that many general counsel are likely to start looking at a lot more closely.
Watch this space.
July 25, 2023
Insights
