Do you believe that all third party commercial litigation funders charge the same for funding a case?
A recent survey report commissioned by one the largest litigation funders suggests exactly that. The report commentary says that, by and large, funders are charging the same success fee.
That conclusion is squarely at odds with our own practical experience when broking third party funding for clients involved in litigation and arbitration. Our experience has been and continues to be that there are large variances between the cost of litigation funding between providers in the market.
When we broker funding, we typically approach between 3-6 of the leading funders whose risk appetite most closely matches the funding opportunity in front of us. Our experience is that there is very often a difference in price generated by some or all of the following:
1. The inherently subjective nature of case assessment
Lawyers considering and assessing potential funding opportunities on behalf of third party funders will inevitably all have different backgrounds, skills and experiences which may influence their thinking. Whether the price is set against a matrix or formula, there is generally a degree of individual interpretation in relation to some of the key inputs (e.g. the chances of success, realistic value and likely stage and level of settlement)
2. The price offered is dependent on the source of the funder’s capital and risk appetite of the fund at time in their funding cycle
Sometimes funders will feel more urgency to close a deal than others and will therefore price accordingly.
3. The price structure
This probably produces the largest variance. Whilst one funder might target the same ROI as another funder, their decision over whether to use a multiplier against capital committed or drawn, or a percentage of proceeds (whether staged or flat) and whether to integrate caps and tranches all effect the final amount the client will pay. This routinely produces a delta of millions or tens of millions in terms of the net cost of the funding arrangement, depending upon when and at what value the case concludes.
In summary, it is clearly preferable to funders not to have to compete for business on price. However, in a maturing market with an ever larger number of credible and established litigation funders, every client should consider and compare the cost of multiple funding offers before entering into a litigation funding agreement.
Have a case in need of funding or insurance?