23 September 2014Print This Post

Size isn’t everything in third-party funding

Small but perfectly formed: new source of revenue

Posted by Christopher Deadman, sales director at Litigation Futures sponsor Augusta Ventures

Up until relatively recently, litigation financing enjoyed a public profile that would make JD Salinger look horribly exposed.

Now that litigation finance has stepped out of the metaphorical shadows by virtue of the greater interest in the concept shown by both lawyers and claimants, the myth that funders are only interested in the largest claims continues to prevail. Whilst the big-ticket cases will inevitably attract coverage in the press, it will be the ability to finance smaller claims that will define whether litigation funding finally enters the mainstream.

Augusta has categorically proved that not only is it possible to finance smaller claims, but it can also provide the key to unlocking new sources of revenue for law firms.

Small and medium-sized cases are quite simply nuggets of gold hiding in plain sight. All that is required is for lawyers to change their mind-set away from thinking in terms of big numbers and instead adopt a more flexible and innovative approach. Think High Street, not Bond Street.

The law firm that promotes finance to clients involved in small and medium-sized claims will reap significant rewards in terms of increased profitability, deeper market share and higher volumes of business. Those who stop thinking about third-party funding as a distressed purchase and instead regard it as a business development tool will quickly see the benefits in hard number terms.

Put the effort in. Go to market and tell your clients that they can now put a floor on their litigation risk. Tell them they can now litigate matters which they would otherwise have been unable to afford. Seize this opportunity to stand out from the crowd. Be the firm that welcomes the impecunious client rather than the one which turns them away.

But this is all very well I hear you mutter, what does a third-party funder regard as a ‘small’ case?

The overwhelming majority of specialist financiers set an entry limit of £3m in damages. This is because their models operate on attracting a handful of large claims each year. The way in which their returns are typically calculated also makes it impossible for financing to work unless there is a significant gap between the costs and the likely returns, hence the small number of large-value cases financed in the UK each year.

For Augusta though, ‘small’ has no precise definition; ‘small’ is whatever you want it to be. Use your imagination. Blow away the cobwebs. Get creative.

Under the Augusta model, a matter is either commercially attractive to all parties or it isn’t. We are less concerned about the damages value involved than whether the client will walk away with a fair and reasonable settlement. This means that any sized commercial claim is eligible for finance.

Augusta have successfully financed claims where the estimated damages values were just £50,000. Sure, both lawyer and counsel had to look critically at the case strategy to ensure the matters could be run as cost-effectively as possible, but even without the involvement of a funder this is a conversation that would have taken place anyway.

All parties have to be prepared to be realistic as to the amount of work involved in running a claim of this size and be prepared to share the some of the risk as well as the spoils. But we have proved that it can be done provided there is a willingness to think outside of accepted conventions.


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