Litigation Funders Turn to Big Data for an "Unfair Advantage"

How Data Analytics Is Transforming The World Of Litigation Finance

Commercial litigation is an expensive, deeply unpredictable, resource-intensive and risky business, so much so that a significant number of companies and individuals shelve the idea of pursuing a claim before even investigating the options. 

There is a solution to all of this, however. Third party litigation finance allows you to bring good quality commercial claims at little or even no financial risk, in return for giving up a pre-agreed percentage of the resultant damages or a percentage/multiple of the money loaned. It can be used by claimants who simply cannot fund the costs of litigation themselves or by claimants who do have the ability to pay but prefer to deploy their cash into other more lucrative projects.

Litigation finance — to use a generic term — is a young but evolving market. Whereas 10 years ago there were just a handful of providers of litigation finance, there are now many more, and this number is increasing. Quoted funds, private funds, crowdfunds, family offices, high net worth individuals — these are just some of the players on the pitch. Expect that number to increase as the market matures.

With the maturation of the market comes an increasing range of funding options and structures which, quite frankly, would test the technical proficiency of any corporate financier or accountant. Whilst there are some similarities in the way funders price their finance, there are also many differences. For example, some funders price on the basis of a multiple of funds that have been committed — this may or may not be coupled with an interest charge — and that multiple will then increase the longer the matter takes to reach a conclusion. Other funders will charge on the basis of a percentage of the proceeds of any win — which may or may not be after the costs of running the case. 

Then you have to take into account a funder’s “sweet spot” in terms of type of case. Most funders will look at commercial cases and professional negligence cases but not many will consider clinical negligence cases. Some are very UK-focussed, whereas others prefer international matters.

As regards quantum, again this varies enormously depending on which funder you are talking to. Some will fund amounts in the tens of thousands of pounds, whilst others will not look at requirements of less than a few million.

As indicated earlier, there are also differing attitudes to risk, some funders making it a pre-requisite for the law firm (and possibly Counsel as well) to defer a significant portion of their fees and make these contingent on success, whilst other funders prefer the legal advisors to be fully paid throughout the case.

Remember also that a funder will want a diversified portfolio, which means that although you may have a very strong case which ticks all of a funder’s boxes, if s/he is “overweight” in a certain type of claim or industry sector, there may be unwillingness to add to that exposure. 

The issue is compounded by the fact that there are so many variables in litigation that predicting what the claimant actually ends up with is an art form in itself. Of course, any tools that can be used to improve the chances of the litigation succeeding are invaluable, so the breakthrough analytical metrics being provided by Premonition are transformational and disruptive in this ever-changing landscape. Litigation funds are waking up to this, as it is clearly fundamental that a credible and competent legal team is used for funded disputes and Premonition gives the funder information that enables the right advisors to be chosen to improve chances of success.

All of this means that the litigation finance landscape is complex and difficult to navigate, which is where a broker/consultant such as 4 Rivers can add significant value. Brokers spend time regularly with funders, discussing specific cases, monitoring criteria, debating legal merits and much more. This means that a broker is in an excellent position to advise a claimant objectively as to which are the best funds to talk to on specific cases. A broker can also establish competitive tension between funders to deliver the optimum result for the claimant; most funders do have some flexibility in their structures and a broker will know how best to tap into this flexibility. 

Ultimately this is a very complex game and no lay client can be expected to know its rules. Seek advice early in order to give yourself the very best chance of reaching a successful — and deserved — result.