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Sourcing Competitively Priced Litigation Financing
Much of the capital in the litigation funding market is sourced via family offices, private equity, hedge funds and listed investment companies. All of these entities share one thing in common; their duty is to maximise the return to their investors. Litigation funders themselves will not advise on whether better terms are available elsewhere or that another structure completely might be the best option for the claimant. Their interest, understandably, is in their return and protecting their investors’ interest.
The level of a funder’s ‘success fee’ or ‘contingency fee’ can vary enormously. Typically, funders will calculate their price as an agreed percentage of the recovered damages, an agreed multiple of the amount they’ve invested (or committed to invest) or a combination of the two. This success fee cannot be recovered as part of a costs award and is therefore payable by the client in the event of a successful outcome, usually from the claim proceeds.
The fact that a funder’s remuneration is only payable in the event of success should not detract from the need to look closely at the price from the outset. After all, if the case succeeds, the cost of funding will directly impact on the amount the client receives. Therefore, the difference between a success fee of say 2.5 x the capital invested and 3.5 x the capital invested, which isn’t at all uncommon between funders, can be significant, particularly where the funding requirement is substantial.
Without seeking multiple offers of litigation funding, the client may well have accepted the offer at 3.5 x the capital invested, without being aware that a significantly cheaper deal was also available.
Shop around for the best funding deal
It is strongly advisable to undertake a thorough search of the market to ensure that the best third party funding terms are secured at the earliest stage possible. We recommend this approach regardless as to whether we are appointed to broker the case on the client’s behalf.