What is Litigation Funding? Can it Work for You?

by Kaitlin Edleman | May 09, 2014

The high cost of litigation has often been lamented as the both the cause of strike suits filed with the intent to force defendants to settle and as a barrier preventing plaintiffs from pursuing meritorious claims. Litigation funding is unique new way to potentially resolve this problem. Essentially, a third party finances the litigation and receives a portion of the winnings, if any, in return.  I recently had the opportunity to learn more about this exciting new industry by interviewing Iain McKenny, an international lawyer who gave up BigLaw for a career in the growing field of litigation funding.  Mr. McKenny works at Vannin Capital, the world’s largest private equity backed litigation funder and the most active in the U.K. market.

Q: What is litigation funding?

Mr. McKenny: At Vannin, litigation funding, or third party funding, is the science of investing in disputes to create a win-win situation.  Liability is assessed, causation is considered, quantum is calculated and from this, a risk profile of the investment is developed. If successful, the investor and the claimant win, and if the dispute is not successful, the investor covers the claimant’s costs. 

Q: How can litigation funding help attorneys and their clients?

Mr. McKenny:  There are quite a few ways that third party funding helps, but to list the main ones:  meritorious claims don’t have to be turned down due to a lack of funds, strategic and tactical assistance, timely payment of fees and disbursements, uninterrupted cash flow, de-risking in the event that the claim is unsuccessful and taking the costs of the dispute off the balance sheet.  Furthermore, funding eliminates the need for borrowing, and with larger clients, it helps convert a legal centre into a money generating part of the business.  At Vannin, the focus is on long term relationship building.  We offer custom-made packages for claimants and extend our portfolio insurance to cover them.  For attorneys we have a variety of DBA proposals and other packages that have been very successful.  Third party funding ultimately helps attorneys and their clients to help themselves.

Q: Who can take advantage of litigation funding?

Mr. McKenny:  Claimants and attorneys of all sizes and all means can benefit from third party funding.  Increasingly, at Vannin, we are seeing large commercial clients that elect to use funding in order to de-risk a dispute or to just remove it from their balance sheet.  SMEs elect funding options primarily in order to prevent disruptions to cash flows that are more usefully employed to grow their business.  At its core, the traditional benefit of third party funding is that it prevents respondents with deep pockets from denying claimants with meritorious claims access to justice.  These are the claimants for whom third party funding was created and to whom it continues to provide the greatest benefit.

Q: Do you think litigation funding will impact the way in which attorneys choose and try cases?

Mr. McKenny: The legal landscape is evolving.  Third party funding is a significant part of that change, but it’s only one part.  Courts and arbitration centers are introducing expedited procedures and strong guidelines for costs and fees.  Entrepreneurial attorneys are creating lean international teams willing to challenge existing business models and legal fee arrangements.  Combined with third party funding, these changes become powerful tools that allow attorneys access to a reservoir of meritorious claims that for a variety of reasons have been denied access to justice. At the same time, third party funders help keep the costs of running cases proportionate.  Attorneys will continue to adapt to these changes and those attorneys that adapt faster will thrive.

Q: Will litigation funding be as effective in the United States as it is in the United Kingdom?

Mr. McKenny:  There is a lot of debate in the U.S. over whether third party funding encourages frivolous claims.  I’ve never understood that argument.  There seems little to gain from investing in a bad claim.  The U.S. system is more contentious for a number of reasons, but a significant one must be that claimants in the U.S. seldom face the risk of a significant costs burden if they lose.  The U.S. system is inherently more contentious than the U.K. for that reason.  Arguably third party funding could significantly benefit the U.S. by providing an additional filter to help weed out ill conceived claims.

Q: How did you become involved in litigation funding? 

Mr. McKenny: Like most senior associates in private practice at a large international law firm, you either make the commitment and sacrifices necessary to get on the partnership or counsel tracks or you leave.  At this time in my life, the sacrifices simply outweighed my commitment.  I was looking for an in-house counsel role that would use my contentious law experience, when I stumbled on third party funding.  It seemed like a good fit.  It still does.

Q: What advice do you have for attorneys or other entrepreneurs who would like to start their own litigation funding businesses?

Mr. McKenny:  I’m not sure that I would give them any advice – is that mean?  But I would be very interested in talking to them.  Like most modern businesses, Vannin’s strength and value is derived from the collective efforts of its people and its investment in technology.  We work with sophisticated and bespoke monitoring and assessment software that helps to keep us on top of the issues without burdening the attorneys we work with.  Furthermore, we’ve pulled together an exceptional team, and we’re always on the look out for talented individuals with drive and ambition to join us.  So if I was pushed I guess my advice would be, if you want to invest in cases, invest in your people and your systems first.

Learn more about litigation funding and Vannin Capital here.

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Filed Under: Law


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