Firms ponder third-party funding for WIP

As the implementation of the Jackson reforms moves closer, some firms are considering how best to make use of the contingency fee model, or damages-based agreements (DBAs), as they are to be known in the UK.

The new model is intended to relieve the funding pressure on big-money cases by making better use of external funders.

Some firms, however, are considering whether to use external funds to help improve cashflow by funding work-in-progress.

Consider, for example, that you have an instruction on a £50m claim for a loyal client that costs £10m to run. You want to keep the client but the running costs of the case are too high for your firm to consider. The client has a promising case and offers a £5m contingency fee if you win. This is an exciting prospect but the running costs are just too high.

This is where the third-party funders are proposing to step in. For a weighty return, funders are proposing to loan firms the running costs of the case. One litigation funder says he has been inundated with calls from partners looking for a cash injection up until the year-end on the promise of a healthy return once the case is settled.

None of these deals have happened yet, but as firms look to top up cash pots at year-end and banks become increasingly reluctant to lend, funders have an interesting - albeit expensive - alternative.