Australian companies are leaving valuable claims on the table
Litigation funding in Australia originated as a tool for class actions and insolvency disputes, used by a few local funders and plaintiffs law firms relatively free from market competition.That history explains the wide divergence of views among the Australian business community about what legal finance is and the value it offers. Burford’s experience working with companies around the world, including in Australia, suggests that Australian companies, their boards, and the top-tier law firms who serve them, will leave real value on the table if they presume—incorrectly—that legal finance is a tool reserved for companies who cannot afford legal fees. At a time when cash constraints are top of mind, we see increased interest in how companies can reduce the risks and costs of litigation and arbitration and view existing claims as assets.
Unlocking value in corporate claims
Businesses want to focus on their core function of delivering services or products to the market. For anyone other than a dispute resolution lawyer (full disclosure, I used to be one), the resolution of legal claims is rarely a core business function. This observation is trite, yet many Australian companies continue to take the view that affirmative claims must be funded and case managed using internal resources (and external law firms and counsel) or not pursued at all. That approach leaves value on the table.
At its simplest, legal finance is non-recourse capital that can be used to fund a single claim—the funder is only paid upon successful resolution of a case. Not only is the cost and risk of litigation reduced by a funder covering legal fees and expenses, but also the funder’s resources can be utilized to perform case monitoring functions that free up the time and resources of a company’s in-house team. By protecting its balance sheet from legal costs and risks, a company can signal confidence to lenders and investors.
In instances where a company has a strong case but does not want to wait years for a successful judgment or award to access litigation proceeds, Burford’s monetization product can be used to obtain working capital in the near term. Burford’s ability to offer clients an accelerated and guaranteed financial result before the resolution of the underlying case can be game changing for many companies. Judgments pending an appeal or arbitral awards pending enforcement can be monetized in a similar way as collateral for working capital.
For companies seeking to finance multiple disputes or offset defense costs, portfolio financing can be used to obtain better terms and realize even more ambitious budget, cash generation, or risk management goals when compared to single case financing.
Unlocking valuable claims for companies in Australia
Given Australia’s cost-shifting regime, companies assessing potential claims must consider the potential added exposure associated with adverse costs orders. This is different to jurisdictions where parties routinely bear their own costs absent of any statutory provision or judicial ruling stating otherwise. Another unique characteristic of the Australian system is that damages-based contingency fees are not permissible for law firms. A byproduct of this system is that many Australian law firms forgo close consideration and assessment of anything but the largest claims that a company has already decided to bring.
Australian companies often overlook the value in potential corporate claims because the associated costs and risks are deemed too great. The downside of this phenomenon is compounded further when a counter party with greater resources deploys that fact to discourage any potential claims against it. Legal finance is designed to level the playing field between corporate counterparties; remove the barriers to companies investigating and pursuing meritorious claims; increase the control a company has over the timing associated with monetizing a claim; and offer a way for companies and their legal departments to see potential claims as assets rather than liabilities.
Picking the right funding partner
Litigation can be costly and protracted. For that reason, it is critical for companies to only engage with a funder that has the resources and experience to see a case through to conclusion. Companies must also look for a funder with a proven track record of working with clients on diverse commercial disputes including international arbitration, construction disputes, energy and project disputes, insolvency-related disputes, merger disputes, IP and patent cases and investor claims. The largest disputes also often involve counterparties in multiple jurisdictions, which can add further complexities to both how a dispute is resolved and how any judgment or award is enforced.
As the largest funder globally, Burford has a reputation for working with global corporations to investigate and successfully resolve their largest corporate claims through single case financing, portfolio financing, award or judgment monetization and pre-settlement monetization. Burford’s global operations, expertise, and relationships mean that it is well-positioned to help companies or joint venture partners with complex commercial disputes that are multi-jurisdictional in nature.
To learn more about how legal finance can help Australian companies register for our upcoming webcast: Reducing Legal Risks And Costs During A Downturn Down Under, Thursday, June 11, 2020 at 11 am AEST. Register here