Jesús Rodrigo Lavilla. CEO of PLA Litigation Funding.
It is excellent news that publications such as Expansión Jurídico are devoting space to analysing the growth and evolution of litigation funding in Spain.
The publication of articles on this industry helps bring the market closer to a reality we see every day: litigation funding is no longer an exceptional mechanism, but has become an increasingly used tool among companies, investment funds, legal departments and law firms.
At PLA Litigation Funding (“PLA”), we are grateful to Expansión and to Jesús de las Casas for including us in their recent article on how litigation funds analyse investment opportunities and the factors we assess before funding a proceeding.
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1. An increasingly consolidated industry.
Since 2020, the litigation funding sector has maintained a path of steady growth in the Iberian market.
At PLA, since 2020 and on average, we have been reviewing investment opportunities with a value of EUR 4.5 billion per year.
Litigation funding makes it possible to pursue complex proceedings which, in many cases, could not be brought forward without specialised funding.
Its usefulness goes beyond covering procedural costs or legal and expert fees.
Today, it is also a tool for managing legal risk, optimising finance and monetising litigation assets.
It is a tool that can generate income and cash flows for companies on an ongoing basis.
In the current economic environment, marked by macroeconomic uncertainty arising from armed conflicts, potential energy crises and inflation, more and more companies are analysing their claims, arbitrations and legal contingencies not only from a legal perspective, but also as assets capable of generating value. And not in isolation, but on a recurring basis over time.
This requires a legal, financial and strategic approach to the litigation asset.
2. Litigation funding and monetisation add value for businesses.
Litigation funding can add value in different ways.
First, it facilitates the pursuit of complex court and arbitration proceedings. Certain claims require significant resources, specialised teams and a sustained strategy over a number of years. The involvement of a funder makes it possible to align capital, expertise and risk analysis so that the proceeding can move forward without placing pressure on the client’s treasury.
Second, it enables a more efficient management of legal risk. A company may have a strong case, but may not wish to bear the costs, timing uncertainty or outcome risk on its own. Non-recourse funding allows part of that risk to be transferred to the funder, who only obtains a return if the case is successful and an effective recovery is achieved or, in certain circumstances, if the defendant obtains a favourable decision.
Third, it helps transform legal departments into units capable of managing litigation assets according to financial criteria. Legal departments are no longer limited to defending legal positions: they are increasingly involved in decisions regarding resource allocation, value recovery, contingency management and balance sheet optimisation.
Finally, litigation funding offers solutions for the monetisation of claims and disputed receivables, providing upfront liquidity and freeing up resources for other strategic needs of the company.
3. The investment methodology must be excellent.
At PLA Litigation Funding, we select litigation, arbitration and complex situations that make it possible to structure an investment with an appropriate risk-return profile for both the client and the fund.
The analysis begins with the legal basis of the case. We assess the merits of the claim or defence, the evidentiary strength, the potential arguments of the counterparty and the procedural path that should be followed. The probability of success is a central element, but it is not the only one.
We also assess the solvency of the defendant, the realistic prospects of recovery, the estimated duration of the proceeding, the foreseeable costs and the operational risks that may arise during the litigation or arbitration.
Our model is based on alignment of interests with the client. When we fund a claimant, our return depends on the success of the case and on the effective recovery of the amount claimed. When we work with defendants, the structure may be linked to the savings achieved following a favourable decision dismissing the claim.
In any event, the key lies in achieving an appropriate allocation of risks.
This alignment is essential. Litigation funding should not be understood as the mere provision of capital, but as a specialised investment in a contingent, illiquid and binary asset, where legal and financial analysis must be fully integrated.
4. Flexible structures for different needs.
Different investment structures can be designed around a litigation asset. In our experience, the most common structures in the Iberian market are non-recourse funding and monetisation.
Non-recourse funding consists of assuming the costs required to pursue court or arbitration proceedings in exchange for participating in a percentage of the economic outcome obtained by the client. That outcome may be a recovery for the claimant or, in certain cases, a saving for the defendant.
Monetisation, in turn, makes it possible to advance all or part of the economic value that could be obtained if the claim succeeds. It is a particularly useful tool when a company prefers to bring forward liquidity, reduce exposure or allocate resources to other strategic priorities.
It should not be forgotten that, in addition to non-recourse funding and the monetisation of litigation assets, there are other investment structures depending on the real needs of clients.
These solutions can also be applied both to individual litigation assets and to portfolios of proceedings. This flexibility allows funding to be adapted to the specific needs of each client, the type of case and the risk profile of the investment.
5. Companies, law firms and legal departments.
Litigation funding is attracting growing interest from companies and legal departments, as well as from law firms.
Companies have come to understand that the funding, monetisation or optimisation of litigation is a tool that differs from traditional alternatives. It can help address treasury needs, reduce risk, unlock valuable claims or convert legal assets into available financial resources.
Law firms, for their part, see this industry as an opportunity to offer additional solutions to their clients. Funding can allow them to take part in complex, high-cost matters without the client’s budgetary pressure preventing a meritorious claim from being pursued.
In this regard, law firms frequently act as qualified introducers. They know the case, they know the client and they can identify situations in which external funding makes it possible to better align the interests of all parties involved.
6. Specialised capital, independence and compliance.
Litigation funding requires patient, specialised capital capable of understanding the nature of litigation assets: contingent, illiquid and subject to legal and timing uncertainty.
At PLA, we have our own capital from institutional investors who understand the particular features of this asset class. This allows us to fund litigation in an agile, independent and stable manner. Where the size or characteristics of a transaction so require, syndications may also be structured, in a similar way to what occurs in other financial markets.
In addition, we operate through a regulated structure subject to the applicable legal, regulatory and compliance requirements. This financial and organisational strength is key to assuming long-term commitments with investors and clients and supporting them throughout the entire lifecycle of the proceeding.
7. Litigation funding is much more than a source of capital.
Litigation funding is no longer merely a source of capital. It is a business management tool.
It enables companies to analyse their litigation, arbitrations and claims as assets that can be funded, monetised, optimised or managed according to financial criteria. It also helps balance risk and return, facilitates access to complex proceedings and allows legal decisions to incorporate a more sophisticated economic dimension.
Likewise, the presence of a litigation fund can often help redress the initial asymmetry between the parties in complex litigation cases.
That is the role litigation funding should play in Spain and Portugal: contributing to a more efficient, professional and transparent management of litigation assets.
