Category: Financial Analysis

UK High Court Affirms Arbitral Ruling that Party Can Recover Litigation Finance Costs

Marla Decker | October 3, 2016

The High Court decided an appeal brought by Essar Oilfield Services, which challenged an award granted in an ICC arbitration to Norscot Rig Management, in which the arbitrator directed Essar to pay not only Norscot’s damages and attorneys’ fees, but also Norscot’s costs of litigation financing. In the dispute between the two oil and gas companies, Norscot used financing to pay for its £647,000 in attorneys’ fees, and, as a result of the successful arbitration, Norscot was obligated to the funder for the greater of three-times that amount or 35% of the damages award. (The amount of the damage award has not been reported.) Essar challenged the arbitrator’s authority to award the litigation finance costs in the High Court.

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Three Ways Litigation Finance Changes Your Job: Inside & Out

Lee Drucker | January 20, 2016

This post was contributed by Bill Patterson; he was the general counsel of Business Logic where he oversaw a “bet-the-company” litigation. He now manages complex litigation at Swanson, Martin & Bell. You can contact Bill at bpatterson@smbtrials.com.

Litigation finance is here to stay. Having worked as outside counsel, in-house and now as outside counsel again, I can confidently make that statement. There are three fundamental ways litigation finance changes your job, whether you’re inside or out.

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Lake Whillans’ Life Sciences Law Firm Index

Lee Drucker | January 13, 2016

In order to help entrepreneurs in the life sciences sector, we are creating an annual ranking of the top law firms that help these entrepreneurs protect their interests throughout the lifecycle of their business.

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How to Raise Capital in a Difficult Situation

Lee Drucker | December 9, 2015

Developing a new product or business in the energy space is rife with complexity. Whether it be creating a new alternative energy device or innovative software platform, energy entrepreneurs must identify a valuable opportunity, assemble a dedicated and talented team, and potentially invest years and abundant resources in R&D – all of which may occur before navigating government regulations, finding manufacturing partners or even knowing whether you have a viable product for the market.

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Litigation Finance; a Financial Perspective

Lee Drucker | December 2, 2015

On November 20th, the Center on Civil Justice at NYU School of Law hosted an in-depth conference dedicated to the subject of litigation finance, Litigation Funding: The Basics and Beyond. It was a great opportunity to interact with many of the people that are devoting their time and energy to thinking about and building this new ecosystem of law and finance. David Lat (among others) covered the event, and you can read some of his takeaways here.

Personally, I was able to glean from the perspective of other professionals in the industry; some perspectives were new and interesting, and other perspectives I disagreed with, but in either case it was it was worthwhile to learn what perspectives others were bringing to bear. One of the big take-aways for me was that each funder seems to be taking a slightly different approach to the industry. Next week, I will write an article to distill these differences.

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Is Litigation Finance Right for Your Client?

Lee Drucker | July 29, 2015

Litigation can get expensive, fast. Litigation finance is a funding tool many companies are considering to help cover the fees and expenses related to major legal claims. We at Lake Whillans Litigation Finance have compiled a list of questions to help you determine if your client is a candidate for litigation finance. Is litigation finance…

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Litigation Finance: 10 Questions to Help Advise Your Client

Lee Drucker | June 24, 2015

We, at Lake Whillans, have been writing a lot about litigation finance in order to provide lawyers and claimholders with a framework for thinking about its use and potential benefits. I thought it might be time to take a break from writing, and provide an analytics tool to help claimholders and their lawyers determine whether litigation finance makes sense for the business.

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Portfolios of Legal Claims

Lee Drucker | January 29, 2015

In our last post we discussed the analysis a CFO might undertake when considering whether to raise capital for a litigation. We touched upon the fact that many companies do not have a portfolio of litigation – a fact which makes it difficult to mitigate the risk of investing in a legal claim. Today, we will focus on that insight and dive more deeply into idiosyncratic risk and the value of diversification.

Generally speaking, an investor must be compensated for the time value of money and risk. The risk that an investor must be compensated for is the risk that the return on an asset will be lower than the expected return. While any investment in a litigation has substantial risk, the vast majority of that risk is what would be termed in modern portfolio theory as “idiosyncratic risk.” Idiosyncratic risk is asset-specific risk that has little or no correlation with the market. This risk can therefore be substantially mitigated or eliminated through adequate diversification. By contrast, “systematic risk” (in modern portfolio theory parlance) is risk that is inherent to the entire market or an entire market segment, and cannot be mitigated through diversification. To illustrate the difference between these two types of risk, idiosyncratic risk manifests if a company suffers a major factory closure due to a natural disaster (in which case the price of its stock will likely decline while the rest of the market remains unaffected) while systematic risk manifests if the global economy slows down (in which case the price of a company’s stock will likely decline, but so will the price of the larger market).

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Financial Analysis of Litigation Funding

Lee Drucker | January 7, 2015

The emergence of litigation finance has enabled CFOs to better manage and finance a once dormant asset – potential litigations. Many of the companies that we finance are emerging businesses with promising new products that have the ability to transform an industry. Businesses such as these are often characterized by a high ROI (return on investment) and a constrained budget (often having recently raised capital from the venture community). Imagine that the wrongful conduct of a third party has damaged such a business, and the company now faces the prospect of an expensive and lengthy litigation if it is to secure compensation. Before litigation finance, the decision might well have been between bringing litigation or not – now the decision is between self-financing or third party financing.

In order to determine which option is preferable, the CFO would likely attempt to value the potential litigation. In an older post (which you can find here), we discussed the framework for valuing a litigation. For the sake of simplicity let us assume that the expected damages are $30 million, and the chances of losing the case are estimated to be 30% – therefore the estimated value is $21,000,000.

Next, the CFO would likely attempt to calculate the cost of monetizing the asset. In order to estimate the true cost of allocating capital to the litigation, a CFO might undertake the following analysis:

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