Litigation Funding: Infiltrating the Construction Industry

What is litigation funding?

Enabling a party to litigate or arbitrate without having to pay for it is called litigation funding, also known as legal financing and third-party funding. Essentially, a third party provides the financial resources to enable costly litigation or arbitration cases to proceed. The litigant obtains all or part of the financing to cover its legal costs from a private commercial litigation funder, who has no direct interest in the proceedings.The business of litigation funding is growing exponentially, and litigation funders see a bright future in construction, an industry already busting at its seams with claims and conflict.

How does it work?

A commonplace litigation funding agreement would be structured so that the lender agrees to pay the legal costs and fees, win or lose. Should there be any winning settlements or damages paid, the financing firm gets the lion’s share. In essence, financiers are betting that they can earn a considerable return on their investment. “Litigation financing firms are looking for out sized returns, with the potential to make $10 for every $1 put at risk,” claims Mark Crane, a partner in the advocacy department of attorney WLG Gowling’s Toronto office.

What is the downside?

For starters, the availability of capital will most certainly result in more lawsuits. David Silver, a Los Angeles based public-relations executive says, “If the plaintiffs can fund their fees and expenses throughout their entire litigation portfolio with someone else’s money, they will often push ahead where they may not have before.” Paul Barrett of Bloomberg writes, “In terms of dollars spent, litigation finance increasingly empowers corporate law firms and their clients.” Secondly, there are no laws or requirements for plaintiffs or defendants to disclose that they are receiving investor funding. “It’s a huge disadvantage,” Silver stated. “You talk about dark money-this is dark money. They could be funding it to the tune of $100 million, and no-one really knows.”

What is the up-side?

If risk is the ally to the underdog, then the aid of litigation funding should be good news. John Pierce of Pierce Burns, a boutique Los-Angeles law firm says, “It sends a message to deep-pocketed defendants and their law firms that we can go up against the biggest and best. It levels the playing field.” More and more potential litigation funding firms are pursuing interests in a portfolio of legal actions. Christopher Bogart of Burford Capital, the titan of litigation finance says, “There are new players in the market, and existing players are getting bigger.” With many construction firms today having to budget for litigation, some even hiring in-house lawyers, litigation funding could be a viable option in many cases. Whatever the case, prevention is always the best medicine. The best way to prevent litigation is to surround yourself and your organization with elite talent. It’s important to remember, especially in the boardroom, “If you’re the smartest guy in the room, you’re in the wrong room.” -Confucius

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