The Golden Rule of Applying for Litigation Financing: How to Avoid Having Surprise Revelations Derail Your Prospects of Qualifying for Litigation Funding

November 07, 2018

The Golden Rule of Applying for Litigation Financing

Previous posts in this blog–including how to get your case financed, key questions on the economics of single-case funding, and the strict criteria commercial funders use to assess investments–detail the types of information funders need and will ask for as part of the investment approval process. While these posts are essential reading for anyone seeking litigation funding, the general guidelines they offer may not always identify the information that will make or break a specific financing deal.

That information ultimately depends on the facts of the case. Too often, though, claimants or their counsel approach funders with a “zealous advocate” frame of mind: one in which they present the key strengths of their claims while minimizing important weaknesses. The “zealous advocate” approach can delay or even derail the funding process, and in some cases hurt the claimant’s credibility and trustworthiness from the funder’s point of view. A better approach to funding follows the “Golden Rule” of applying for litigation financing: tell your prospective funder everything that you would want to know if you were in the funder’s shoes.

While the impulse to advocate in a potential funding deal is understandable, we believe that funding relationships are stronger–and better–when funders are treated as a trustworthy partner in the case. First, a frank and honest discussion about the claims at issue is the most efficient way to proceed. If the claims are too weak to be appropriate for funding, it’s better to know that off the bat rather than spend weeks discussing terms with a funder who will ultimately reject the deal once those weaknesses come to light. Indeed, an immediate “no” from one funder is beneficial in that it frees claimants to search for and focus their time on funders that are willing to proceed.

Second, Bentham structures its financial terms around the strengths and weaknesses of the claims in which it invests. If a claim is presented as particularly strong–but ultimately is not–too often the funder and claimant have to return to the drawing board on financial terms. In a best-case scenario, this results only in delay. In a worst-case scenario, the parties might be unable to find common ground, or the relationship might suffer from frustration.

Third, funders are experts in litigation claims valuation. Not only do all Investment Managers and Legal Counsel at Bentham have firsthand litigation experience as former trial lawyers, but as funders we see a vast number of claims every year. Even if Bentham opts not to invest in a case, claimants and their counsel stand to gain from getting our take on the merits and strengths of claims and strategies we suggest to optimize their value. In fact, there have been cases in which Bentham has invested where it proposed strategies in the funding application process that ultimately strengthened the case. In other words, an open and robust conversation in the application process can actually result in useful problem-solving, even increasing the value of the claims.

Finally, because Bentham relinquishes control over litigation strategy and settlement decisions, it needs assurances that the claimants it funds will be open and honest partners moving forward. When claimants or counsel “hide the ball,” it unnecessarily destroys the all-important trust and communication that a successful funding relationship relies upon. 

When questioning whether to share a piece of information with a litigation funder that might hurt the prospects of securing funding, remember the “Golden Rule”: if you were a funder, would you want to know? If the answer is “yes,” share it. In the worst case, it will save you time and effort. In the best case, it may save the deal–or even your case.