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Why small can be beautiful

Size isn’t everything in litigation funding

Posted by Chris Deadman, director of operations at Litigation Futures Associate Invicta Capital Funding [1]

Until recently, litigation finance enjoyed a public profile that would make Thomas Pynchon nod with approval. But acres of copy over the past couple of years has brought the industry into the limelight.

The idea that funders are only interested in the largest claims, however, endures like the myth that Joseph Kennedy made his fortune bottlegging (he didn’t, he sold legal medical alcohol). Whilst the big-ticket cases will continue to attract the press coverage, it is the ability to finance smaller claims that shows litigation funding finally arriving as a mainstream option for claimants.

The smart lawyers know that 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. Don’t think Bond Street, think High 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.

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 Invicta 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 Invicta model, a matter is either commercially attractive to all parties or it isn’t. This means that any sized commercial claim is potentially eligible for finance provided the costs involved are rational. It is all too easy to blame a funder for being unable to finance a matter whilst conveniently overlooking the fact that legal fees account for 75% of the damages sought.

All parties must be prepared to be realistic about the amount of work involved in running a smaller claim and be prepared to share the some of the risk as well as the spoils. But it can be done provided there is a willingness to think outside of accepted conventions.

So the next time a client presents you with a ‘small’ claim, consider whether finance might be appropriate. Pick up the phone or drop us an email. This information will make it easier for your client to make an informed choice on how or indeed if they wish to proceed with a matter.