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Out of the Shadows: The Mainstreaming of Litigation Finance

April 22, 2021

Out of the Shadows: The Mainstreaming of Litigation Finance

Litigation funders provide non-recourse funding to litigants, in order to enable them to pursue a meritorious case they couldn’t otherwise afford. It’s a straightforward process with a net societal gain of increasing access to justice. So why aren’t more people making use of it? The CLS Blue Sky Blog details that a newly-published article in the Vanderbilt Law Review, The Shadows of Litigation Finance, explores how Litigation Finance can overcome barriers that have been placed in its path. In the piece, authors Suneal Bedi (Professor at Indiana University and Maurer School of Law) and Willian C Marra (Investment Manager at Validity Finance), examine the awareness problem that plagues the industry, and lay out a scholarly framework with which to evaluate the full impact of litigation funding pre-trial, during the case, and after a case is resolved. Third-party legal finance is an enormous step forward in terms of social justice. Until this industry came to be, those who lacked financial means often lacked any way to seek justice when wronged—particularly by a large business, utility, or government. Litigation funding allows average citizens to pursue valid cases while preventing frivolous claims from clogging court dockets. After all, no funder wants to invest in a frivolous case that’s unlikely to be profitable. One of the interesting points made in the article is that there’s no specific framework to measure the success and benefits of non-recourse legal funding, hence it is difficult to counter the assertion that the use of litigation funding necessitates increased regulation. The pre-claim and post-claim impact of litigation funding are some of the key measurements explored by Marra and Bedi. By examining how funding changes the behavior of litigants at these stages, the authors hope to illustrate the heretofore unseen benefits of litigation funding—such as increased compliance and more equitable bargaining.

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Commercial

Defense Firms Move Into Contingency Work as Funders Supply Capital and Case Validation

Traditionally defense-oriented large law firms are increasingly taking on plaintiff-side engagements for their corporate clients, with litigation funders providing both the capital and an independent assessment of which claims merit pursuit.

As reported by Original Jurisdiction, the shift was the subject of a Burford Capital panel discussion examining how the historical division between plaintiff-side and defense-side practice has continued to erode. Corporate clients, panelists observed, have come to treat affirmative litigation as a balance sheet item rather than a cost center.

The reframing is straightforward: as one panelist put it, "if you have a meritorious legal claim, that is an asset" — one that can generate value for shareholders instead of sitting unused. Recognizing claims that way, however, requires firms built around hourly billing to absorb risk they have not historically carried.

That is where funders enter. By financing plaintiff-side matters, funders allow firms to pursue contingency work without exposing their own economics to a single outcome. Panelists also described the diligence funders perform as valuable in its own right, characterizing a funding commitment as "a vote of approval" on the strength of a claim.

The transition demands a change in orientation as much as in economics. Lawyers accustomed to defending must, in the words of one participant, "stop playing defense" and play offense, while managing budgets against work that generates no continuous hourly revenue. Larger corporate clients, meanwhile, are weighing potential recovery against the commercial relationships a claim may disturb, and selecting counsel accordingly.

Commercial

Drafting Determines Whether Funding Costs Are Recoverable in Singapore Arbitration, Practitioners Warn

Whether a successful party can recover its third-party funding costs in a Singapore-seated arbitration remains unsettled and turns substantially on how the funding agreement itself is structured, according to new practitioner guidance.

As reported by Pinsent Masons, recoverability is determined by tribunals on a case-by-case basis, with no settled rule compelling or barring an award of funding costs. The threshold for challenging a tribunal's costs determination in court is correspondingly high, reflecting Singapore's minimal-intervention approach to arbitral awards.

The analysis points to the Singapore International Commercial Court's decision in *DTH v DTF*, in which the court declined to disturb a tribunal's refusal to award funding costs alongside legal costs on an award of approximately $14.73 million. The SICC observed that it was "difficult to see how such a determination could be said to shock the conscience," signaling how little room parties have to relitigate costs allocation after the fact.

Drafting is where the guidance places the emphasis. Funding agreements must satisfy the requirements of section 5B of Singapore's Civil Law Act, and arrangements framed as commercial investments in the outcome rather than as funding for the costs of proceedings risk falling foul of the maintenance and champerty rules that section 5B carves out.

The practical implication for funders and funded parties is that the recoverability question is largely settled at the point of contracting, not at the costs stage. The guidance also notes the divergence between Singapore-seated arbitration and SICC proceedings, where recovery of funding costs remains prohibited outright.

Commercial

New Jersey Appellate Division Upholds Legal-Bay Medical Funding Agreement Against Statutory Challenge

New Jersey's Appellate Division has affirmed the enforceability of a Legal-Bay LLC funding agreement in *Viglianti v. Blue*, rejecting a plaintiff's argument that state insurance and lien statutes invalidated his obligation to repay the funder after his personal injury case settled.

According to PR Newswire, the underlying dispute arose after the plaintiff exhausted his automobile Personal Injury Protection benefits following a motor vehicle accident but still required spinal fusion surgery. Legal-Bay advanced $90,000 directly to his medical providers, allowing the procedure to proceed while his claim against the defendant remained pending.

After the case settled, the plaintiff challenged Legal-Bay's right to repayment, contending that New Jersey statutes governing PIP reimbursement and physician liens operated to void the funding agreement. Both the trial court and the Appellate Division disagreed. The appellate panel found that the cited statutes did not "invalidate or limit the agreement," characterizing it instead as a private contract voluntarily entered into by the plaintiff after consultation with counsel.

The decision is notable for the distinction it draws between statutory schemes regulating insurers and medical providers on one hand, and privately negotiated funding arrangements on the other. Rather than reading the PIP framework as occupying the field, the court treated the funding agreement as a separate contractual undertaking that the plaintiff was free to make.

For the consumer legal funding sector, the ruling supplies appellate-level support for medical funding structures in a state where the treatment of such arrangements has drawn recurring scrutiny. It also underscores the role documented consent and independent legal advice play when funders defend agreements against later statutory attack.