Three Things to Remember When Seeking Dispute Financing
15 June 2020
Instead of companies paying their legal costs themselves, a third-party funder can take on such costs. In exchange, the funder typically seeks a return on that investment (in the form of e.g. a percentage of the damages awarded), should the funded party win the arbitration or litigation for which funding has been obtained. In our experience, working with funders out of our offices in Helsinki and Stockholm, there are a couple of things to keep in mind when seeking this type of dispute financing.
1 Preparation Is the Key in Obtaining Funding
At the outset, funders typically expect to see certain documentation explaining the case and related earning potential as well as risks.
To start with, companies will need to obtain a memorandum, preferably drafted by outside counsel, which sets out the details of the case for which funding is sought. Thereafter, the company seeking funding can start to negotiate with the interested funders on potential funding and its terms. More memoranda may need to be drafted and further questions answered along the process. Experienced outside counsel can guide you through that process, anticipate next steps, and ultimately shorten the path towards the funding decision.
2 Obtaining Funding Takes Time
While many funders are able to prioritise cases where a decision on funding is urgent, the sooner the negotiations are initiated the better. Even in the best case scenario, the negotiations may well take several weeks or months. Many companies are currently exploring their funding options in relation to the disputes arising in the midst of the COVID-19 pandemic, which currently also affects the funders’ response times.
While it may be possible to initially discuss the case with many funders, at some point the potential funders will request exclusivity. When that fork in the road is reached, it is important to consider all relevant issues surrounding the case and to choose wisely the funder with whom to proceed. Should those negotiations ultimately fail and subsequent negotiations be initiated with another funder, valuable time will have been lost in the process.
3 Not All Funders Are the Same
Different funders have different preferences. Some may only be interested in funding very large cases, while others will also take on cases with a lesser value in dispute. Some may be primarily interested in certain kinds of disputes, while others will take on a broader scope of disputes. The terms of funding vary accordingly. Experienced outside counsel can provide added value in this respect as well, as they will be able to advise on which funder (or funders) would be particularly suited for the case at hand.
The undersigned are happy to discuss any issues related to dispute financing.