Characteristics of a Good Case
The Five Elements of a Commercial Case Suitable for Litigation Funding
A good action suitable for litigation funding by a third party funder will have the following characteristics.
1. The Type of Cases Funding is Provided For:
The claim needs to be a commercial recovery type case where the claimant is seeking damages or compensation. Funding is not suitable for a defendant defending a claim unless the defendant has a suitable cross claim which the funder considers to have good prospects.
Litigation Funding Solutions does not organise funding for non-commercial cases such as family law disputes, personal injury claims, defamation actions or workers’ compensation claims.
2. Good Prospects
The claim must have good legal prospects of succeeding in Court should the action proceed to judicial determination. A good claim is an action that should succeed at trial on the basis of the documents and evidence readily available.
The best cases are usually referred to as â€œdocument casesâ€ meaning that the dispute arises in circumstances that are recorded in documents (eg, agreements, correspondence emails or meeting notes) or rely on interpretation of arrangements recorded in writing. Cases not suitable have few or no documents and generally rely on verbal representations or recollections of past events as distinct from documents.
It is also recommended that the strength of the claimantâ€™s case be reviewed after testing/assessing the nature of any defence that the defendant puts forward, either in response to initial demand or after examining the defendantâ€™s witnesses and documents, for example, by liquidatorâ€™s public examination.
3. The Claim is Profitable
It is important that the damages which are capable of being recovered justify the cost of litigation. Legal claims often involve layers of potential damages. For a legal claim to be successful it must have a strong inner core of liability.
Many claims can potentially be stretched to increase quantum. However, generally speaking, the further you move from the center of a claim the move risky and expensive the claim becomes to litigate. There are often much greater costs involved to establish â€œouter boundaryâ€ recovery levels. A funder looks for an action that has a solid core. Once a funding decision is taken the potential of greater recovery becomes icing on the cake and can be used to pressure the defendant to settle.
As a rule of thumb, â€œinner coreâ€ quantum of a claim needs to be $1,000,000 or more to warrant a funderâ€™s interest and make the cost of funding justifiable for the claimant and its stakeholders. One reason for this is that the cost and expenseÂ to run a $1,000,000 damages case often involves comparable costs to cases for much bigger amounts.
4. The Defendant Must be able to Pay
Does the defendant have the financial ability to satisfy the claim?
A good claim against a defendant who has no money has little attraction to a funder for obvious reasons. The financial capacity of the defendant needs to be assessed at the very outset to ensure, so far as possible, that the defendant is able to satisfy a successful claim if the claim is pursued.
Defendants who generally fall into the category of a â€œgood targetâ€ are:
1. Public companies with significant market capital;
2. Government instrumentalities such as the Australian Taxation Office;
3. Large well established companies with hard assets that can be verified;
4. Private individuals with verifiable valuable assets eg. Unencumbered real estate;
5. Individuals, professionals and companies with adequate insurance coverage from reputable insurers.
Another category that may appeal to a litigation funder are cases where the subject matter of a claim is recovery of money or assets that are identifiable and able to be pursued for recovery, even if the defendant itself has insufficient financial capacity aside from the value of the assets in question.
The objective at the outset is to freeze the money / assets in question by Court injunction, freezing order or caveat until the case is determined and the property recovered. Again, the value of the property needs to be of sufficient value to attract a funderâ€™s interest.
5. The Claimant has Leverage
An added bonus or advantage in litigation is a case with some leverage or a pressure point. A pressure point is some â€œsusceptibilityâ€ of a defendant or the case that pressures the defendant to settle a claim quickly rather than risk an adverse judgment or bad publicity.
In a normal case, a defendant will defend an action to test the strength of the case and throw up whatever defences are available to meet the claim. Defended proceedings can be delayed in the court system to frustrate a claimantâ€™s action getting to trial, or stretching the claimantâ€™s resources. Generally speaking delays in the prosecution of a civil action tend to favour a defendantâ€™s position.
Having a pressure point can work decisively in the claimantâ€™s favour (and hence is looked for by funders). The use of a liquidatorâ€™s examination to compel a defendant or key people within a defendant organisation to be examined in a public hearing and produce relevant documents, can expose the defendant to unwelcome publicity.
Another pressure point is that litigation may expose a defendantâ€™s fraudulent, illegal or immoral acts.
In these situations the defendant will be pressured to resolve the case early to avoid the risk of the case or exposure through judicial determination.