The disputes in which litigation funders often invest are complex and involve the establishment of a medium to long term relationship between the claimant, its legal advisors and the litigation funder.
In a relatively new industry such as litigation funding, it is essential for companies and law firms to familiarise themselves not only with the solutions that litigation funders can provide, but also with the most relevant criteria to be taken into account when choosing a litigation funder as a partner.
The following is a brief and simple overview of the main criteria which, in our view, are key in making this decision.
(i) Own capital to invest
This criterion probably makes the difference. It is essential for the party seeking to finance or sell its lawsuit to know whether its interlocutor has its own capital to invest, or whether it is an entity that has to go to the market to raise such capital to invest in each specific case, such as intermediaries or brokers.
The investment vehicles of Procurator Litigation Advisors (PLA) have their own capital to invest, which ensures the confidentiality of the potential transaction and facilitates from the outset the understanding of the parties, the approach to the transaction and the internal resources that the parties have to devote to it.
(ii) Investment strategy
Each litigation funder has its own investment strategy. There is no one strategy that is better than another, but rather different alternatives or business models. In any case, it is important for clients and law firms to be aware of at least the following issues:
- Typology of claim: does the funder invest in any type of litigation or does it have any restrictions as to countries, jurisdictional orders or subject matters? Does it invest only in individual cases or also in portfolio arrangements?
- Type of investment: does the funder simply fund the litigation or arbitration, or does it also consider purchasing the claims or hybrid models such as a partial monetization of the claim? Can the funds be used for the client’s operational needs?
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