Among a company’s assets, commercial claims may be very valuable assets, though illiquid. Today, many companies fail to receive compensation because of financial barriers: corporate claimants are obliged to finance their lawsuits out of corporate cash. In financing claims themselves by paying lawyers hourly fees to litigate a case, corporations must manage several layers of risk such as legal fees exceeding budgets, unfavorable judgments, and unforeseen events.
Furthermore, the economic crisis puts increased pressure on internal legal budgets, and corporations are becoming increasingly more cautious before initiating arbitral proceedings. Some are even likely to withdraw from the proceedings due to the costs.
Such environment has led to a situation where the decision to litigate is taken in consideration of other elements than the mere meritorious character of the legal claim. Considering that the right to receive compensation for an injured party was granted in Europe a fundamental value, it is effective access to justice which is at stake.
Litigation financing enables corporations to unlock the value of their commercial claims that are otherwise too expensive or risky to pursue. As a result of funding, the risk profile of pursuing litigation changes significantly and the short-term cash flow position is improved, thereby enabling a more strategic use of capital to create shareholder value. For a funded claimant, a funded case becomes a true valuable financial asset.
This explains why third-party funding (TPF) is growing and will continue to grow, even more so in Europe and in France where French lawyers are being forbidden from offering “no win no fee” arrangements.
TPF is well developed in many countries such as the United States, United Kingdom, Germany, and Australia. Until very recently and the launch of Alter Litigation in January 2013 it had received very little attention in France.
Arbitration: Costs are a Catalyst for the Shift
Even though major corporations continue to affirm the benefits of arbitration to resolve transnational disputes, they are increasingly focused on getting value from the arbitration process, which costs and delays have increased. Still, the cost involved in arbitration proceedings can be detrimental for those less inclined to afford it or for those who are no longer willing to take such a financial risk.
I see the development and success of arbitration in Europe and worldwide as a great avenue for the development of Alter Litigation.
However, even though TPF of international arbitration has been a growing phenomenon, receiving increasing attention from the international arbitration and litigation communities, it still remains relatively uncommon, as recent surveys show. Clients need to know about TPF and lawyers have a duty to tell.
This guest blog post was written by Frederic Pelouze of Alter Litigation, a French third-party litigation finance company. They fund a wide spectrum of claims throughout France and Europe, including commercial disputes, cartel damage claims, and international arbitration.