Firms ponder third-party funding for WIP

Third-party litigation funders stand by to fill the gap on case running costs

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.