Litigation funding is a financial loan instrument which is used particularly in commercial and treaty arbitration and commercial cases. Claimants who have a strong case but limited finance to pursue it, or simply prefer to seek external funding, can apply for litigation funding to finance their case. It is primarily used by claimants facing financially stronger defendants. It is a developing trend in Europe, the United Kingdom and the United States.
Litigation funders assess cases based on criteria like the matter in dispute, procedures, merits, success rate and enforceability. In return of financing the litigation, funders become entitled to a share of the proceeds if the litigation is successful. Funders receive an income that is hard to reach via other financial instruments in such a short time.
London has become a key location on this subject, with specialist law firms and counsels. Broker firms in London have begun to act as intermediaries between funders and potential litigants.
In general, litigation funds are established as partnerships between former managing partners of law firms and finance companies. A significant number of litigation funders are members of the Association of Litigation Funders in the United Kingdom and operate within the association’s rules and regulations.
We believe that litigation funding is a financial instrument which must be considered by Turkish businesses and citizens, particularly for cases before commercial or treaty arbitration. Since attorney and litigation fees can amount to millions in such cases, litigation funding is a great opportunity for Turkish parties to pursue or defend their claims, when previously they were unable to cover the related expenses.
In this context, Orçun Çetinkaya, Partner at Moroğlu Arseven, discussed this typically unheard of financial instrument with Epaminontas Triantafilou, Partner in the London office of Quinn Emanuel Urquhart & Sullivan, a firm which has a reputation as a global leader in litigation and international arbitration.
Orçun Çetinkaya: Are Turkish companies eligible for litigation funding?
Epaminontas Triantafilou: Currently yes.
Orçun Çetinkaya: Does litigation funding work like a traditional loan?
Epaminontas Triantafilou: Not exactly. It is more accurate to consider litigation funding as a standing loan facility which can be used to pay litigation expenses as they arise, typically after the funder has reviewed and approved the expenses. Moreover, the repayment of the loan facility usually is not tied only to the amount borrowed, but also to the damages achieved through the litigation.
Orçun Çetinkaya: What kind of cases are the litigation funders more interested in?
Epaminontas Triantafilou: There is no general category of cases, in terms of subject matter, that funders would identify as more interesting or attractive. Funders consider the merits of each case, the risks attached to it, and the return they stand to earn if there is a successful outcome.
Orçun Çetinkaya: How and why should Turkish Business apply for litigation funding?
Epaminontas Triantafilou: Litigation funding is a good option for litigants, usually plaintiffs, who for various reasons either cannot or do not wish to expend their own money participating in litigation. The best way to assess whether a particular case is a good candidate for litigation funding is to consult with a law firm that has extensive experience with funded cases. Experienced counsel can provide access to different funders, and assistance in applying for funding.
Orçun Çetinkaya: How long does it take to receive litigation funding?
Epaminontas Triantafilou: The application process can take several months, so it is important to explore the possibility of litigation funding as early as possible before commencing a case.
Orçun Çetinkaya: Is the initial memorandum important to secure funding and who should prepare it?
Epaminontas Triantafilou: An initial assessment of the merits of the case usually is prepared by the lawyers for the litigant that seeks funding. It is essential to ensure that this assessment is done properly by reputable counsel, so as to build credibility and to attract the interest of funders.
Orçun Çetinkaya: What are the criteria for litigation funders in lending money to claimants?
Epaminontas Triantafilou: Funders are interested in obtaining sufficient return on their investment, so they are keen to invest in cases with high probability of success. Thus, in addition to the merits of the case, funders are interested in the probability of successful enforcement and, of course, in the quality of the lawyers that represent the party seeking funding.
Orçun Çetinkaya: How much/ What proportion of funding can Turkish Business get?
Epaminontas Triantafilou: It is possible to obtain funding for up to the entire cost of preparing and prosecuting a case.
Orçun Çetinkaya: Do the litigation funders pay professional fees of lawyers and official fees of courts?
Epaminontas Triantafilou: Usually yes. The exact level of a funder’s financial commitment, however, is determined on a case-by-case basis.
Orçun Çetinkaya: How are the proceeds of the case shared with the litigation funders?
Epaminontas Triantafilou: Each funder determines the share of the proceeds to which it becomes entitled if the litigation is successful. For instance, the funder could obtain three times the amount it has lent, plus a percentage (for example, 20-30 percent) of the remaining recovery. The amount of proceeds a funder seeks to recover usually correlates with the risks it attaches to the case, including enforcement risk.
Orçun Çetinkaya: What is your experience working with the litigation funders?
Epaminontas Triantafilou: We have an excellent working relationship with several litigation funders. Our firm has helped litigants obtain funding in hundreds of cases over the years, in the United States, Europe, the Middle East, Asia, and beyond. Funders trust our firm to become involved in meritorious cases and to win for its clients.
Orçun Çetinkaya: What are your suggestions to Turkish Businesses for their lawsuits before foreign courts, commercial and treaty arbitrations?
Epaminontas Triantafilou: It is important to discuss key issues in your case, including litigation funding, with experienced and reputable counsel. Funders are far more likely to grant a funding application if it is supported by a reputable, qualified law firm they know and trust.
Orçun Çetinkaya: Are there any prejudices at foreign courts, commercial and treaty arbitrations against cases backed by litigation funders?
Epaminontas Triantafilou: No. In some jurisdictions and in certain kinds of arbitrations there are ethical and other rules and restrictions regarding litigation funding, but those can be discussed in more detail with qualified counsel on a case-by-case basis.