New research shows GCs increasingly considering legal finance
Burford recently commissioned research into how macroeconomic trends are impacting senior in-house lawyers’ perspectives on commercial litigation and arbitration. Among other findings of the 2023 GC Survey is that GCs are increasingly considering legal finance as a routine tool for managing the cost and risk associated with commercial disputes.
Legal finance addresses concerns around expenses and cash flow
Some senior in-house lawyers in the survey highlighted the availability of legal finance as an important factor in pursuing litigation claims where cash flow is a concern. As the general counsel of a transport company put it: “[Legal finance] removes the cash component required for budgeting since the legal finance company will provide those resources at the outset. That has been one way we have tried not to use a significant amount of cash in connection with litigation.”
The senior legal director of a global food and beverage company went further: “I would structure [disputes] so that we don’t have cash outlay at the beginning by using a law firm on contingency or litigation finance. If we did not have those options, it would affect the company’s decision to pursue them. This is not the time for the company to spend its own money on potential future recovery.”
The legal counsel for an energy company spoke to legal finance’s potential to de-risk disputes and also send a signal to litigation opponents about the strength of claims: “The idea behind litigation finance is part of our calculation. If [a funder] comes in, their presence de-risks your matter and also validates your legal position. Sometimes litigation finance is a necessity.” The legal counsel went on to say: “The availability of litigation finance tends to inspire success in the claim.”
The economy is driving demand for legal finance
The economy, among other factors, is impacting how businesses think about legal finance. As the senior counsel of a real estate company said: “We are definitely looking at legal finance because although we want to pursue litigation, we don’t want it on our books, which is funny because we have reviled litigation finance for a long time as a defendant. In this economy, the finance team wants to find ways to make the books look better and [legal finance] is a key way to do so.”
This and other perspective from in-house lawyers reinforces that even businesses that were historically skeptical of legal finance now consider it a relevant and valuable tool.
As another in-house lawyer put it, “[Legal finance] is becoming more and more appealing as the economy changes. In fact, eight months ago, the company would not have considered [it].”
Enabling use of counsel of choice remains an important benefit
Another commonly cited benefit of legal finance is that it allows businesses to engage top legal counsel regardless of the firm’s fee model. As one in-house lawyer put it, “If you are a plaintiff pursuing a claim against a large, global company, the only way to engage experienced trial counsel is often through litigation funding.”
The senior legal director of a food company described legal finance as useful to bridge the gap between a law firm that only works on an hourly fee basis and the desire for cost-sharing solutions: “I think of contingency-fee based work or litigation finance in a similar fashion because if I want to work with a firm that does not want to take a case on a contingency, I could use financing for that as well.” Another senior in-house lawyer explained: “I would welcome litigation funding when… it will be difficult to find a lawyers to take the case on a contingency matter.”
Finance teams are asking for legal finance solutions
Some senior in-house lawyers say their CFOs and finance teams actively ask about litigation risk-sharing solutions. “The finance team and CFO always ask about costs, spending and outcomes, with timing factors. They all drive the interest in litigation funding. The CFO now proactively asks about litigation financing when we are considering affirmative litigation.”
The general counsel of a food company explained that legal finance has become part of the business’s overall strategy for disputes: “The first time we had a litigation funding opportunity [in] about 2018 there was skepticism, but the CFO immediately understood the opportunity… and he supported it. As a result, we have looked at setting floors and assigning guaranteed minimum over the past few years.”
To read the findings in full download the 2023 GC Survey.
