Confidentiality in Litigation Finance

13th June 2022 by Miko Burzec

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Litigation finance, also known as litigation funding, is the mechanism or process through which claimants of law firms may finance their litigation or other legal costs through a third-party funding company. In return, the litigation funder receives a portion of what the claimant recovers.

In recent years, the litigation finance industry has grown immensely generating numerous analyses and opinions. Various professional associations of lawyers have focused on ethical issues, particularly the duties of lawyers when their clients seek to finance litigation with outside capital.

The duty of confidentiality applies to all confidential information about a client’s affairs, regardless of how the solicitor obtained that information. There are a small number of exceptions, but generally, you must keep your client’s information confidential unless the law or your client’s consent allows you to disclose it.

The duty of confidentiality continues even after a solicitor is no longer working for a client. When a client dies, the right to confidentiality passes to the former client’s personal representatives.
If a solicitor receives information about a potential client, they may still be bound by the duty of confidentiality even if the person in question no longer engages the firm.

When funding litigation, litigation funders conduct due diligence that includes evaluating the merits of the claim, the likely damages, and the likely duration of the claim. This review typically involves the exchange of documents and information between the claimant and their counsel on one side and the litigation finance company on the other. Each of these parties has an interest in sharing information fully (to increase the likelihood of funding) and in protecting the information shared (so as not to damage the underlying claim and investment).

The first step a claimant should take to maintain confidentiality and protect against waivers is to enter into a confidentiality agreement with the potential funder. Litigation finance companies routinely enter into confidentiality agreements with claimants and typically have a standard form that they provide to attorneys. These agreements generally prohibit the litigation funder from disclosing confidential information obtained from the claimant or its counsel to third parties, and may also include language about the common legal interest of the company and the litigation funder, which can help protect against claims of waiver.

The second step a claimant should take to maintain confidentiality and protect against waivers is to consider what information it should and should not share with the litigation funder. Documents and information such as the contract at issue, correspondence between litigants or potential litigants, relevant non-privileged emails and attachments, and any available pleadings generally provide the most useful information and pose little risk of waiver (absent restrictions imposed by a protective or confidentiality order or agreement). Certain confidential information whose value depends on the claimant’s efforts to keep the information secret, such as a claimant’s trade secrets that form the basis of a trade secret misappropriation lawsuit, can generally be disclosed once a nondisclosure agreement is in place with the potential funder of the litigation.

Confidentiality is the essence of being trusted and trust is essential to litigation funding. With the above steps, each of the interested parties (claimant, law firm, litigation funder) will enhance the positive outcome of the due diligence funding process and protects shared information with ethical considerations.

 

 


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