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A deed of priority is an agreement that regulates the waterfall of payments in the event that the claim recovery proves insufficient to pay all interested stakeholders their expected returns.  Stakeholders in such an agreement could include a litigation funding company, litigation insurers, the law firm (where the firm is operating with some form of alternative fee agreement) and, of course, the claimant.  These agreements typically provide a ranking order to determine who gets paid in what order if the recovery is insufficient.  Such agreements are often the last negotiated item of any deal but their importance should not be overlooked.

While most firms will have had some experience of litigation funding arrangements, few can say they have significant experience.  At TheJudge, we’ve witnessed both the good and bad in the market as it has developed over the past 6 or 7 years.  We’ve seen far more executed deals and concluded cases backed by litigation funding and insurance than most if not all others market participants.

This insight has made us sensitive to how leaving the client last in line in the pecking order can prohibit the settlement of a case. If something does occur during the litigation causing an implosion of the damages valuation, all stakeholders will be looking for the best possible exit. If that exit means the client will receive none of the recovered damages, discussions between the stakeholders can become turbulent.  In most instances where this has occurred a deal is normally negotiated (e.g. where everyone higher up the ranking order takes a hit to ensure the client receives something and therefore has sufficient incentive to settle).  However, relying on all concerned acting “commercially” in such a situation is a risk.

In more recent examples we’ve been successful in negotiating structures that ensure the client recovers a certain proportion of damages higher up the priority order (e.g. by having the client ranking in multiple tiers alongside other stakeholders).  This gives the client the confidence that they have some protection over their recovery.

It’s important to remember that at the outset of a deal everything typically appears ‘rosey’, but when events don’t go according to plan (as is often the way with litigation) contract terms get dusted down and discussions can quickly turn defensive.  Trying to pre-empt unfavourable scenarios at the outset can save much stress later in the process, but identifying the issues only comes with experience and insurers/funders won’t want to weaken their position at the outset if they don’t need to.