How do you secure funding for your claim or your portfolio of claims?
Litigation funders such as Woodsford, only fund a small percentage of the opportunities they review – as you can imagine, for us to get comfortable with a 6 or 7 figure investment on a non-recourse basis we need to be confident of a successful recovery. There are 6 key factors that we look at when deciding whether to invest in a claim:
1. The merits of the claim: We carefully review the strength of the claim and the evidentiary support, along with the anticipated defenses and counterclaims to predict the probability of the action being successful. The extent of our review will depend largely on the case type, the status of the action, the complexities of the issues involved, the organization of the diligence materials and litigation counsel’s ability to succinctly articulate its case.
2. The claimant: We will seek to understand the claimant’s motivation for seeking funding, including if the claimant lacks the required resources to bring the claims or desires to shift risk and/or free-up cash flow. The funder will also examine the claimant’s prior litigation history to understand its mindset towards litigation.
3. Claimant’s Legal Representation: The reputation and experience level of the claimant’s counsel is another threshold issue for a case to advance through our initial screening. If we are not familiar with the litigation lawyers (and/or counsel) proposing to prosecute the case, the initial diligence will include a review of the legal team’s experience with the claim type and their track record in similar actions. We will also need to review the firm’s engagement agreement with the claimant to understand the economics of the arrangement and evaluate if the interests of the claimant and its law firm are appropriately aligned.
4. The litigation budget: We provide a fixed commitment of capital to pay for fees and expenses associated with the litigation. Woodsford will review the proposed budget to understand both the types of expenses that are forecasted to be incurred as well as the expected timing of these outlays. And, unless we have included a commitment extension for the facility, it will rely on either the claimant or the law firm to take responsibility for any budget overruns.
5. Expected damages: The size of a potential award will need to be sufficient to provide Woodsford with a return to match the investment risk and cover the cost of running the opportunity through our rigorous diligence and transactional processes. We must be comfortable that if the case is successful, there is likely to be a recovery adequate enough to make for an economically rational investment.
6. Respondent and recovery: We are fully aware that litigation is a two-party affair, with the respondent playing a critical role in how efficiently the litigation will proceed, and whether a sizeable judgment or award will convert into a recovery for the claimant and the funder. The worst-case scenario for a funder (as well as the claimant and a legal team acting on a contingency fee basis alike), is to fund a litigation that proceeds through to trial, ends in a successful verdict with an attractive judgement or award, but the recovery cannot be made because the respondent is insolvent or judgment-proof.
For a more detailed look at the litigation funding process, read out whitepaper, A Practical Guide to Litigation Funding.