The Potential Benefits of Standardizing Litigation Funding Agreements
As the size and influence of the global litigation finance industry has grown, so too has the frequency and intensity of criticism leveled at the practice. To combat these critiques, litigation finance leaders continue to explore different avenues to reinforce the credibility of third-party funding. In an opinion piece published on Bloomberg Law, Tets Ishikawa, managing director at LionFish Litigation Finance, has suggested that implementing some form of standardization across litigation funding contracts could bolster these efforts to improve the industry’s reputation. He argues that ‘standardized agreements can play a pivotal role in improving transparency in litigation funding,’ thereby offering a solution to one of the most commonly voiced critiques of third-party funding. Ishikawa begins his piece by comparing litigation finance to the derivatives market, explaining how the introduction of a master agreement by the International Swaps and Derivatives Association (ISDA) ‘reaped enormous gains in market efficiency and transparency.’ He argues that for documentation used in both litigation funding and litigation insurance, introducing some form of standardization could ‘enhance the market’s global credibility, legitimacy, and transparency.’ Looking at what areas of litigation funding documents could be standardized, Ishikawa identifies several ‘key basic concepts’ that could benefit from global uniformity. These concepts include proceedings, funder profits, termination events and default provisions, drawdown processes, and waterfalls/priorities agreements. As Ishikawa points out, ‘as the market evolves, more concepts will become obvious candidates for standardization.’ As for the specific benefits that standardization of litigation funding agreements could offer, Ishikawa argues that it would immediately result in ‘execution efficiencies’, with the ‘savings passed onto plaintiffs.’ He also suggests that another important upside from standardization would be its encouragement of ‘openness and transparency’, which Ishikawa believes could be ‘a major tool in removing rogue funders.’ An additional benefit identified is that standardization would ‘bring a level of maturity that brings the market structurally closer to other financial markets’, something that Ishikawa highlights as one way to tackle fears of foreign interference through litigation funding.