Among the most frequent questions lawyers ask Burford is how to talk to their clients about legal finance. Since its 2009 founding, Burford has worked with thousands of lawyers and reviewed 12,000 commercial litigation and arbitration matters. We have found that the most effective way to talk to clients about legal finance is to demonstrate the benefits of legal finance models.
Below we provide a hypothetical scenario that compares the impact of using outside third-party legal finance versus self-financing.1
Case study: ACME Co. competition claim
ACME Co. is a company engaged in the manufacture, distribution, and sale of widgets. Several of the company’s suppliers are acting as a cartel and have infringed on antitrust laws. As a result, ACME Co. considers whether to bring a competition claim against its suppliers. Given the type of case and the jurisdiction, ACME Co.’s general counsel estimates the total cost to litigate the claim to be $5 million spread over the course of five years, with an estimated potential recovery of $70 million in damages. ACME Co. has a viable, NPV-positive legal claim with strong legal merits, substantiated damages, defendants that can afford the judgment awarded, and sufficient cost-to-damages ratio given the expected duration.
ACME Co.’s general counsel recommends moving forward with the claim. However, the general counsel’s budget is already under considerable stress and ACME Co. also needs to consider the negative impact of litigation spending on ACME’s P&L and market value. Thus, ACME Co.’s external counsel recommends the company consider using litigation finance. The litigation finance provider will pay the entire cost of the $5 million budget. In exchange, the litigation finance provider receives its outlay back and 25% of the net proceeds from the lawsuit if successful.
Impact of legal finance
Legal finance eliminates the need for ACME Co. to choose between sacrificing company profits or foregoing a valuable legal claim that will potentially bring a significant sum of cash into the business. Instead, ACME Co. can pursue a profit-generating legal claim while enabling the company to realign budgets so that more cash can be allocated to value-increasing activities—effectively turning the legal department from a cost center to a profit center.
For more information about Burford's litigation finance solutions for firms and clients, download Legal Finance 101.
1 The data and application scenario in this example are fictional and offered for illustrative purposes only.