A New Approach to Litigation Funding for Small Businesses

An Australian company has developed a new model for litigation financing that could be especially attractive to small and medium-sized businesses.  Under this model, funders, attorneys, and litigants make structured contributions to litigation costs and benefit from a similarly structured allocation of any recovery.  Through this method of risk spreading, litigating valuable claims becomes a more reasonable proposition for everyone involved.

This model of litigation finance was developed by Steve Harris of the Logie-Smith Lanyon firm in Australia.  His inspiration was the fact that many small and medium-sized businesses were prevented from pursuing all of their potential litigation claims, even valuable ones, because of the high cost of attorneys’ fees and other costs.  As Harris put it, “[t]hose cases that are sitting in the cabinets can now be dusted off, this process applied to them, the costs then stack up and they can be run straight away.”

The objective of the model is to create more cost certainty in business litigation.  According to the model, for any particular litigation matter, the litigant would pay a monthly fixed amount towards costs, up to a cap that is agreed upon in advance.  The litigation funder would contribute in the same way.

If costs exceed the amount the client and funder have contributed, the attorneys agree to fund the rest on a contingency fee basis. If the case wins, the lawyers are then entitled to a 25 per cent bonus, which is calculated on the portion of the recovery that exceeds the amount contributed by the litigant and the funder.

This arrangement gives attorneys a “skin in the game,” which is a benefit for both litigants and funders because it creates incentives to keep attorneys’ fees and other costs down.  In Harris’ model, attorneys do not benefit by simply running costs up as high as possible. Thus, the model allows the business litigant to both reduce litigation risk and reduce litigation costs, decreasing their downside risk and increasing their upside potential.

Topics:  litigation finance, legal reform, third-party funding, litigation costs, commercial litigation, small business

 Works Cited:  Ben Butler, Logie-Smith Lanyon Floats New Litigation Funding Model for SMEs, Australian Business Review (July 10, 2017) available at http://www.theaustralian.com.au/business/legal-affairs/logiesmith-lanyon-floats-new-litigation-funding-model-for-smes/news-story/3bc97876cec83c13a302a57be5918eaa