Litigation - the opportunities for legal teams
Litigation - the opportunities for legal teams
Aligning your disputes strategy with your company objectives: a proactive and strategic approach
We spoke with several legal departments to examine how building their litigation strategy around key values helped them align with the business and bring value as a department.
The litigation approach of these teams has matured alongside the evolution of wider systems and processes in the company, moving from ‘reactive’ to proactive and strategic.
Making litigation (both claiming and defending) a strategic priority can align the legal function with the rest of the business. To achieve this, most used the key values of the company to develop their litigation strategy.
Defending claims can maintain company integrity.
The same goal has been achieved by bringing strategic claims against certain counterparties.
“Trust being the currency that we work in and with that in mind knowing what our primary focus is, we’ve built our litigation strategy around that.”
Domonique Rai-Varming, Director of Litigation, Trustpilot
Emerging revenue opportunities
BEYOND RISK MANAGER AND ADVISORY ROLES
In terms of the revenue potential of the legal department and the drive towards a more data-led approach to litigation these are not at the forefront for the vast majority of General Counsel and their teams.
Only 4% of the respondents’ legal departments had revenue targets.
15% said that they see identifying potential valuable claims to recover as being a key role.
16% said that they see identifying revenue opportunities as important.
With the right litigation strategy in place, as part of a wider value-based strategy, legal departments can become important contributors to the business bottom line by creating tangible and identifiable value, instead of demonstrating value primarily through cost-cutting.
A well-crafted strategy can take care of managing risks, whilst simultaneously implementing affirmative actions alongside claims - large and small - that a company is defending.
Do you consider a potential claim to be a company asset?
No
Yes
I don't know
Litigation funding - an unexploited solution
Litigation funding is part of the toolbox of a wider litigation strategy. With creative input and a strategic approach it can be used as a tool to drive tangible value to the business. So, we asked legal teams how they anticipate funding forming part of their litigation strategy.
There's an enormous white space represented by corporate legal departments’ adoption of funding, with less than 7% of legal teams having used litigation funding. There are significant cultural and technical barriers to in-house legal departments more routinely using funding structures.
Claimant side - Litigation funding provides an opportunity to not just alleviate financial risk associated with litigation, but also to leverage your claim and move towards a more profitable contribution to the business.
Companies typically use litigation funding to move cost and risk off balance sheets, free up capital for other business purposes, and improve risk management whilst providing budgetary certainty.
Defendant side - There are circumstances where litigation funding can also be used to fund claims your organisation must defend against – for example, in the case of a strong counterclaim or when there are simultaneously one or more claims pursued as the claimant. In either of these scenarios, the contingent value of the claims can potentially provide sufficient upside to enable an investor to absorb the cost of the claim or claims being defended.
To leverage the value of disputes as a business it is essential not to view individual claims – either on the defence of claimant side – as isolated matters.
What is litigation funding?
"Litigation funding is the payment by a third party of legal fees and expenses associated with a claim in return for a portion of any successful damages award. In some cases it involves the monetisation of a potential future award which involves an immediate advance of a portion of the value of your claim. Litigation funding is not the same as a bank loan; it is non-recourse capital which means that if you lose the case, you owe nothing."
- Lucy Glyn, Managing Director, Exton Advisors
Gain more influence
Designing strategies to leverage disputes could be a ticket for in-house lawyers to gain more influence in their organisation.
There's an opportunity here for in-house legal to move away from the concept of legal as a cost-centre to become a value generating department, where meritorious claims become commercial assets to be monetised.
Most respondents want to learn more about litigation funding in order to better serve their organisation, up-skill, and further their careers.
Within litigation funding, there are a number of products, each designed to solve different problems.
Even if funding is not ultimately pursued, to understand the litigation funding and insurance options fully, means legal departments are making well-informed commercial and strategic decisions which will ultimately be perceived positively by the business.
Legal team familiarity with the following
More than a third of the legal teams raised concerns related to technical understanding with lack of clarity from the market on:
- How the different types of litigation funding work. [Explore the products 💡]
- How it may or may not apply to their particular sector and case.
- The criteria used by funders for assessing the suitability of a case for funding. [Explore a step by step guide 💡]
A third of respondents felt that they lacked the resources needed to assess the case.
Drivers for seeking litigation funding
For the most mature legal teams who have used external funding, they appreciate the benefits of litigation funding to:
- fund legal fees and expenses,
- provide greater certainty around law firm budgets,
- mitigate litigation risk and
- be able to pursue claims without impacting cash flow.
For almost half of in-house counsel who sought litigation funding, the primary driver behind the decision was directly from the general counsel. For a third of respondents the decision is driven by the external law firm or counsel.
Most common type of disputes where legal teams have used litigation funding:
Commercial disputes
Awards enforcement
Competition / antitrust
“Litigation funding is clearly a productive solution in that area to give them confidence about what we’re doing as a legal"
- Ed Goold, General Counsel & Chief Risk Officer, Goold
Whilst awareness is growing for the opportunities presented by litigation funding, there remain significant barriers to its use by the majority of UK legal departments.
Almost half of respondents (44%) described an inherent resistance in their company culture, identifying an internal reluctance to pursue a different way forward.
Convincing management is a tough obstacle faced by General Counsel. There are difficulties associated with effectively presenting the financial benefits. For instance, CFOs may object that litigation funding would be more expensive than other finance avenues available.
Reasons that respondents gave for not pursuing litigation funding are risks around reputation (56%) and concern over relationships, including with the counterparty (55%).
Other concerns are financial, with 51% of respondents concerned about the bottom-line cost impact and a third cite general budget uncertainty as an issue.
Collaboration with finance teams
Most CFOs want to understand how using a third party funder for one or more claims compares to using working capital, and how this will impact the company’s reputation.
Leveraging corporate assets to secure finance is not a new concept. For many CFOs and finance teams this is a routine component of managing the company’s investment and growth.
Historically, litigation has not been viewed as a company’ asset which can be leveraged in the same way as other more tangible business assets. Unsurprisingly then the involvement of the finance team with the legal department has been routinely limited to agreeing and managing the legal budget – regarding the department as a cost to the business. Even finance teams which understand they have valuable legal assets, the research demonstrates they’re not routinely working with the legal team to unlock that value.
This presents a unique opportunity for General Counsel to change the direction of conversation, and drive genuine and tangible value to the business through the legal department.
Want to learn how to build a business case for internal stakeholders?
Stated the CFO and/or finance team were involved as contributors on the litigation funding process
Stated the CFO and/or finance team were the owners on the litigation funding process
Stated the CFO and/or finance team were passive in the litigation funding process
