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In today’s corporate landscape, managing the financial aspects of large cross-border disputes is becoming increasingly complex. Picture this scenario: a multinational corporation seeks your firm’s legal expertise for a substantial case with strong merits. It’s an exciting prospect until the client raises concerns about the costs and risks associated with such litigation. While they possess the financial means to cover legal expenses, internal pressures to limit legal spending and justify expenditures to shareholders loom large.

 

Exploring funding options

One apparent solution is to suggest shifting the case “off-balance sheet” by securing funding from a third party. Funding is often seen as a ‘silver bullet’ as this approach frees up the client’s cash for business investments and transfers the financial risk of loss to the funder. However, well-informed attorneys will recognize the importance of exploring alternative approaches to meet client objectives and alleviate internal pressures.

Funders may indeed offer to finance the case if its merits and economics align. Yet, the terms of such offers vary, often including structures that may raise eyebrows among management and shareholders. For instance, a typical arrangement might entitle the funder to a return based on a percentage of damages or a multiple of their investment. While this mitigates financial risk for the client, it can create challenges in justifying costs, especially if damages fall short of expectations.

 

Could insurance provide relief?

While funding grabs the spotlight, insurance can quietly offer a viable alternative. Unlike funders, insurers don’t provide upfront cash for legal costs but instead, indemnify the client against the risk of losing those costs should the case go awry. This “own-costs insurance” model allows the client to offload some risk, making it easier to justify ongoing legal expenses. With premiums typically deferred and contingent upon case success, this option often appeals to corporates seeking a more favorable justification for legal spend.

 

Law firm participation in risk mitigation

Clients may also look to their legal counsel to share in the risk through partial contingencies. . Law firms, more willing to embrace risk when their downside is minimized, may find comfort in knowing that insurance or funding arrangements can be put into place to safeguard their fees. This shared risk approach not only strengthens the client-firm partnership but also offers increased flexibility in fee structures.

 

A Funder’s Perspective

Erso is alive to the merits of litigation insurance that covers a plaintiff’s own legal fees, seeing it as complementary to our services. Understanding that each case is unique, we recognize the value of working alongside insurers to provide clients with comprehensive risk management solutions. By offering a more limited investment, it can enable clients to manage their risk while maximizing the potential rewards, fostering a collaborative approach to dispute resolution.

 

The Bottom Line

In today’s dynamic corporate environment, financial pressures and uncertainties are ubiquitous, even among well-resourced international corporations. Consequently, we anticipate a growing trend of corporations actively collaborating with attorneys and their clients to explore innovative financing solutions for disputes. Law firms that adeptly navigate these options, educating clients on funding and insurance possibilities, will undoubtedly stand out in the competitive legal landscape while fulfilling their professional obligations to provide comprehensive counsel.