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CFO’s and Litigation Finance: The Time is Ripe for Adoption

February 3, 2023

CFO’s and Litigation Finance: The Time is Ripe for Adoption

One of the holy grails of litigation funding has long been for funders to convince CFOs to view litigation through a commercial lens, and unlock the value of their legal assets. While straightforward and practical, the evolution of the CFO mindset on this issue has been slow to materialize. Many in the litigation funding community blame cultural norms—old habits are simply hard to break, which is especially true when things are going swimmingly. But with inflation upon us and a recession looming, the time is ripe for CFOs to reconsider their firm’s relationship to litigation funding. Research from Burford Capital in June of 2021 found that 75% of companies with over $1 billion in annual revenues reported unenforced judgments worth $20-$100 million in FY 2020, while at the same time, just 24% said they apply quantitative financial modelling to make decisions about litigation, as they do in other areas of the business. That research is now a couple of years old, but it underscores both the need for litigation funding, and the challenge that funders face when trying to convince CFOs to think differently about litigation. Change may finally be afoot. A recent global survey of CFOs conducted by Everest Group found improving cash flow continues to be a priority for a large majority of CFOs. As one respondent noted: “As the business environment continues to throw up shocks prompted by geopolitical uncertainty and sector disruption, CFOs should ensure that, as well as technological evolution, change management becomes a culture rather than a one-off exercise.” Indeed, macroeconomic constraints are forcing CFOs to re-prioritize. Gartner recently identified the Top-10 priorities for CFOs in 2023, based on Deloitte’s Autumn 2022 European CFO survey. The Top-5 among those are:
  • Coping with complex systems
  • Protecting margins and balance sheets
  • Acquiring and retaining talent
  • Raising capital
  • Finding focus
The second point stands out in relation to litigation funding—“protecting margins and balance sheets” is exactly the pitch that funders have been making to the CFO community for years now. PricewaterhouseCoopers conducted its own survey, and highlights the main topics on the CFOs agenda for 2023:
  • Navigate economic uncertainty
  • Enable growth
  • Take action on ESG
  • Accelerate transformation
  • Cultivate finance talent
  • Build trust and purpose
Responses such as ‘navigate economic uncertainty’ and ‘accelerate transformation’ should be music to every litigation funder’s ears. It’s clear based on the above data that litigation funding maintains a product/market fit, in that it addresses some of the core pain points CFOs are currently facing. That said, many CFOs still need to be brought to the table as to how their firms can benefit from the use of litigation funding. Advantages of Unlocking Capital Buried in Legal Claims Susanna Taylor, Head of Investments at Litigation Capital Management, highlights what she considers to be four core benefits of litigation funding for CFOs:
  1. Protecting the value of the business from the cost impact of litigation
  • “If the same case was financed by a third-party funder, then the business will not carry these legal expenses […] The operating profit in each year will be higher and the accounts will be a more accurate reflection of actual business performance.”
  • “Further, once the claim is successful, the company will be able to include the proceeds as profit which has been generated at zero cost.”
  1. Protecting the business from significant litigation risk
  • “The funder carries 100% of the financial risk involved in pursuing the claim and if the claim is unsuccessful, the funder will receive nothing. […] Litigation finance can include the offer of an indemnity against adverse costs and an agreement to meet an order for security for costs.”
  • “Using third-party litigation finance also removes uncertainty in forecasting legal spend, which can be highly variable and difficult to predict.”
  1. Insulating the business from unexpected claims
  • “Litigation brought against a company is an unwelcome consequence of doing business. These claims are almost always unexpected, unbudgeted and require action.”
  • “Importantly it offers the corporate client the opportunity to offset the costs and risks involved in defending claims, as well as allowing the business to apply its capital into growth operations rather than on uncertain litigation.”
  1. Unlocking the value that resides in claims
  • “Litigation finance allows companies to recognize the value in a piece of litigation at a time which suits them best.”
  • “These funds provided to the company can ‘plug the gap’ in expected EBITDA at no cost to the company.”
In an article for Global Banking and Finance Review, Ellora McPherson, Managing Director & Chief Investment Officer of Harbour Litigation Funding, points to the need for CFOs to consider alternative solutions in order generate value, which is especially true during today’s tumultuous economic climate. According to McPherson: “The macroeconomic lifecycle has no bearing on the outcome of disputes and litigation as an asset class itself it has little correlation to the wider market. This means that litigation funders have the capital to pursue meritorious claims at difficult times even when the businesses with the claims do not.” Commercial disputes are often worth tens or hundreds of millions of dollars. These legal claims are simply too valuable as assets not to be leveraged during times of economic upheaval. “It is now no longer a question of whether CFOs can afford to advance these claims,” says McPherson, “but whether they can afford to ignore these assets on their books any longer.” How CFOs Should Approach Funders If CFOs are to be swayed by the high-level arguments posed by funders as to the advantages of legal finance, they must first get comfortable with frontline interactions—what exactly should CFOs expect from a litigation funding partnership? What should they be on the lookout for, and what sets one funder apart from another? The lowest-hanging fruit answer here is cost of capital, but that is obvious. Beyond mere capital requirements, lies a plethora of differentiators which CFOs must account for when approaching and selecting the most appropriate funder for their legal claim (or portfolio of claims):
  • Flexibility. CFOs should select a litigation funder who will be their partner, not just their capital provider. Similar to an agreement with a lender, CFOs don’t want a funder who will balk the moment a curveball is thrown, especially if that curveball comes from somewhere out of your control (as is often the case with legal claims). Funder flexibility and adaptability is an important trait when considering the long-term relationship at stake.
  • Funder Capitalization. Per the aforementioned point, legal claims often take longer than anticipated, or tumble down rabbit holes no one saw coming. Does your funder have enough liquidity to backstop unforeseen circumstances? What is their policy during such a contingency? These are critical questions to ask.
  • Legal Sector Expertise. This is important for two reasons: firstly, so the funder understands the bespoke challenges posed by a given sector and doesn’t get cold feet should the case run up against those issues along the way, and secondly, so the funder can help consult on case strategy, should the claimant and law firm request (most funders are ex-lawyers, after all).
  • Enforcement. Winning a case is one thing, but collecting on the reward is quite another. Does the funder have a track record of enforcing victories—either via a third-party or in-house enforcement team?
  • Reputation. CFOs should consult with past clients to get a sense of how the funder interacts with both the client and the law firm. This is a triangular relationship, and it’s important that all sides work together towards a successful outcome.
Ultimately, Litigation Finance offers an opportunity to monetize what would otherwise remain an illiquid asset, and deploy that capital into a core business activity, thus increasing the enterprise value. That is an invaluable tool for any CFO looking to unlock value without having to resort to traditional capitalization methods, such as approaching lenders or equity partners. The CFO Roadmap Even companies with ample cash to cover attorney fees and expenses can benefit from the instant liquidity provided by litigation funders. Why wait years to unlock the value of a legal claim, when that capital can be put to work immediately? What’s more, the prevalence of litigation funding permits corporations to pursue litigation that they would otherwise leave on the table, and also to reject low-ball settlement offers which they might otherwise accept due to concerns over duration risk and case expense. For CFOs who want to understand if their firm is a strong candidate for litigation funding, there are several steps they can take:
  • Review the company’s litigation history. Have prior legal costs or outcomes influenced management’s thinking about pursuing potential legal matters? Perhaps it is time for a reevaluation of the firm’s approach to litigation.
  • Consult with internal legal staff to identify any matters that may have been deferred for one reason or another, and assess whether those prospective claims might represent strong candidates for litigation funding.
  • Speak with litigation funders or advisory firms to determine a full cost/benefit analysis, including estimates, milestones, duration risk, IRR/ROI potential, and more.
  • Understand the internal resource commitment your team is making, should you take on additional litigation with the help of a funder.
CFOs who follow the above roadmap stand to benefit by repositioning their legal department from a cost center to a profit center. This simple shift in mindset will help strengthen the balance sheet by producing higher net income, lower expenses, and an advancement of business strategies—all without the onerous conditions of a traditional loan.
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Commercial Special Features

Third Party Funding 3.0: Exploring Litigation Funding’s Correlation with the Broader Economy

By Gian Marco Solas |

The following article was contributed by Dr. Avv. Gian Marco Solas[1], founder of Sustainab-Law and author of Third Party Funding, New Technologies and the Interdisciplinary Methodology as Global Competition Litigation Driving Forces (Global Competition Litigation Review, 1/25).  Dr. Solas is also the author of Third Party Funding, Law Economics an Policy (Cambridge Press).

There is an inaccurate and counterproductive belief in the litigation funding market, that the asset class would be uncorrelated from the global economy. That was in fact due to a much bigger scientific legal problem, that the law itself was not considered as physical factor of correlation, as instrument to measure and determine cause and effects of economic events in legal systems.

This problem has been solved, in both theoretical and mathematical terms, and in fact – thanks to technology available to date such as AI and blockchain – it looks much better for litig … ehm … legal third-party funders. 

Third Party Funding 3.0© opens three new lines of opportunities:

  1. AI allows to detect and file claims that would otherwise not have been viable / brought forward, such as unlocked competition law claims[2], which represent the largest chunk of the market for competition claims. See funding proposal.
  2. Human law as factor of correlation allows to calculate the unexpressed value of the global economy. Everything that, in fact, can be unlocked with litigation, allowing then a public-private IPO type of process to optimize legal systems[3].
  3. Physical modeling of the law also allows to transform debt / liabilities into new investments, thus allowing to settle litigation earlier and with less legal costs, leaving more room to creativity to optimize the investments[4].

While it may be true that the outcome of one single judgement does not depend on the fluctuations of the financial economy, legal reality certainly determines the ups and downs of the litigation funding (and any other) market. Otherwise, we could not explain the rise of litigation funding in the post-financial crisis for instance, or the shockwaves propagated by judgements like PACCAR.

The flip side is that understanding and measuring legal reality, as well as leveraging on modern technologies and innovative legal instruments, the market for legal claims and legal assets is much bigger and sizeable than with the standard litigation financial model.

In order to test Litigation Funding 3.0, I am presenting the following proposal:

10 MILLION EUR in the form of a series A venture capital type of investment to cover one test case's litigation costs, tech, book-building and expert costs aimed at targeting three already identified global or multi-jurisdictional mass anticompetitive claims in the scale of multi-billion dollars, whose details will be provided upon request.

Funder(s) get:

  • Percentage of claims' return as per agreement with parties involved;
  • Property of the AI / blockchain algorithm;
  • License of TPF 3.0.

The funding does not cover: additional legal / litigation / expert / etc. costs.

Below is the full proposal:

THIRD PARTY FUNDING 3.0© & COMPETITION LAW CLAIMS Dr2. Avv. Gian Marco Solas gmsolas@sustainab-law.eu ; gianmarcosolas@gmail.com ; +393400966871 
AI: Artificial Intelligence                  ML: Machine Learning                    TPF: Third Party Funding
GENERAL SCENARIO FOR COMPETITION LAW DAMAGE CLAIMS – IN SHORT
Competition authorities around the globe are rapidly developing AI / ML tools to scan markets / economy and prosecute anti-competitive practices. This suggests a steep increase in competition claims in the coming years, in both volume and scope.  AI also reduces the costs and time of litigation and ML allows to better assess its risks and merit, prompting for a re-modelling of the TPF economic model in competition claims considering empirical evidence of the first wave(s) of funded litigation.
CODIFICATION© IN PHENOGRAPHY© AND TPF 3.0©
New technology and ‘mathematical-legal language’, a combination of digital & quantum where the IT code is the applicable law modelled as - and interrelated with - the law(s) of nature (‘codification©’ in ‘phenography©’). On this basis, an ML / AI legal-tech algorithm has been built in prototype to learn, build and enforce anticompetitive claims in scale, to be guided by lawyers / experts / managers, with a process tracked with and certified in blockchain. New investment thesis (TPF 3.0©) for an asset class correlated to the global real economy, including the mathematical basis for the development of a complex sciences-based / empirical damage calculation to be built by experts. 
LEGAL / LITIGATION TECH INVESTMENT, COMMITMENT AND PROSPECT RETURN
10 MILLION EUR in the form of a series A venture capital type of investment with real assets as collateral for funding to any competition litigation filed with and through this algorithm, that becomes proprietary also of the funder(s). It aims at covering a first test case (already identified), full-time IT engineer, quantum experts and book-building costs. The funder(s) is(are) expected to provide also global litigation management expertise and own the algorithm. Three global or anyway multi-jurisdictional mass anticompetitive claims in the scale of multi-billion in value have already been identified. Details will be provided upon request. Funder(s) also gets license of the TPF 3.0© thesis.

Below is the abstract and table of contents from my research:

Abstract

This article aims at fostering competition litigation and market analysis by integrating concepts borrowed from physics science from an historical legal and evolutionary perspective, taking the third party funding (TPF) market as benchmark. To do so, it first combines historical legal data and trends related to the legal and litigation markets, discussing three macro historical trends or “states”: Industrial revolution(s) and globalisation; enlargement of the legal world; digital revolution and liberalisation of the legal profession. It then proposes the multidisciplinary methodology to assess the market for TPF: mainstream economic models, historical “cyclical” data and concepts borrowed from physics, particularly from mechanics of fluids and thermodynamics. On this basis, it discusses the potential implication of such methodology on the global competition litigation practice, for instance in market analysis and damage theory, also by considering the impact of modern technologies. The article concludes that physics models and the interdisciplinary methodology seem to add value to market assessment and considers whether there should be a case for a wider adoption in (competition) litigation and asset management practices.  

Table of Contents

Introduction. I. Evolution of the legal services, litigation and third party funding market(s) 1.1. Industrial revolution(s) and globalisation 1.2. Enlargement of the legal world and privatisation of justice 1.3. Digital revolution and liberalisation of the legal profession II. Modelling the market(s) with economics, historical and physics models. Third Party Funding as benchmark 2.1. Economic models for legal services, legal claims and third party funding markets 2.2. Does history repeat itself? Litigation finance cycles 2.3. Mechanics of fluids and thermodynamics to model legal markets? III. Impact on global competition litigation 3.1. Market analysis and damage theory 3.2. Economics of competition litigation and new technologies. Conclusions. Third Party Funding 3.0© and competitiveness.

--
1. Italian / EU qualified lawyer and legal scientist. Leading Expert at BRICS Competition Law & Policy Centre (Higher School of Economics, Moscow). Ph.D.2 (Maastricht Law School, Economic Analysis of Law; University of Cagliari, Comparative Law) – LL.M. (College of Europe, EU competition Law). Visiting Fellow at Fordham Law School (US Antitrust), NYU (US Legal finance and civil procedure).

2. G. M. Solas, ‘Third Party Funding, new technologies and the interdisciplinary methodology as global competition litigation driving forces’ (2025) Global Competition Litigation Review, 1.

3. G. M. Solas, ‘Interrelation of Human Laws and Laws of Nature? Codification of Sustainable Legal Systems’ (2025) Journal of Law, Market & Innovation, 2.

4. ‘Law is Love’, at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5694423, par. 3.3.

Commercial

Personal Injury Firms Want Private Equity Investment

By John Freund |

US personal injury law firms are leading a push to open the doors to private equity investment in the legal sector, even in the face of long-standing regulatory opposition to outside ownership of law practices.

According to the Financial Times, a growing number of US firms that built their practices around high-volume, billboard-driven mass tort and injury representation are quietly exploring capital injections from private equity firms. The motivation is fast growth, increased leverage, and the ability to scale operations rapidly, something traditional partner-owned firms have found difficult in a consolidating market.

The move represents a departure from the conventional owner-operator model historically favored by the legal profession, where practicing attorneys hold equity in their firms. Private capital could provide aggressive funding for marketing, case acquisition, litigation infrastructure, and operational expansion, enabling firms to ramp up nationwide acquisition of cases. Critics, however, warn that outside investors prioritizing returns could create pressure to maximize volume over client outcomes.

Private equity’s entrance into legal services is not entirely new, but the aggressive push by personal injury firms may mark a tipping point. If regulators and bar associations ease restrictions on non-lawyer ownership or passive investment, this could fundamentally reshape how US law firms are structured and financed.

For the legal funding industry, this trend signals a potential increase in demand for third-party litigation financing and capital partners. As firms leverage outside investments for growth and case volume, funding providers may find new opportunities or face increased competition.

Case Developments Commercial

AmTrust Sues Sompo Over £59M in Legal Funding Losses

By John Freund |

A high-stakes dispute between insurers AmTrust and Sompo is unfolding in UK court, centered on a failed litigation funding scheme that left AmTrust facing an estimated £59 million in losses. At the heart of the case is whether Sompo, as the professional indemnity insurer of two defunct law firms, Pure Legal and HSS, is liable for the damages stemming from their alleged misconduct in the operation of the scheme.

An article in Law360 reports that AmTrust had insured the litigation funding program and is now pursuing Sompo for reimbursement, arguing that the liabilities incurred by Pure and HSS are covered under Sompo’s policies. The two law firms entered administration, leaving AmTrust to shoulder the financial burden. AmTrust contends that the firms breached their professional duties, triggering coverage under the indemnity policies.

Sompo, however, disputes both the factual and legal underpinnings of the claim. The insurer denies that any breach occurred and further argues that even if the law firms had acted improperly, their conduct would not be covered under the terms of the policies issued.

This case follows AmTrust’s recent resolution of a parallel legal battle with Novitas, another financial party entangled in the scheme. That settlement narrows the current dispute to AmTrust’s claim against Sompo.