Financing litigation for claims on high-net-worth trusts

21/03/2018 Andrew Jones, managing director, Vannin Capital,

With statistics from the English High Court demonstrating a marked increase in the number of inheritance disputes in the period from 2012 to 2016 – including a 36 percent rise for such disputes in 2016 alone – it is not surprising that demand for third party litigation funding in this area has grown significantly. 

The trend has resulted in lawyers and claimants (usually family members) coming to realise the benefits of financing litigation with the assistance of specialist investors, helping claimants to secure the inheritance to which they are properly entitled.

The decision to turn to a litigation funder makes sense in the case of high-net-worth inheritance disputes, as this sort of litigation will typically involve complex and multi-jurisdictional trust structures, which can in turn give rise to protracted legal battles that can be very costly for claimants.

In addition to the difficulty of such claims, claimants will not generally have access to disputed trust assets, meaning that they may not have the financial resources necessary to pursue a legitimate claim. This, in turn, could place them in a “David and Goliath” situation against a well-advised and financially secure opponent. In such a context, it makes sense to take advantage of the benefits that litigation funding has to offer.

As with any contentious inheritance matter, disputes can arise for a myriad of reasons. Family conflicts where assets are passed to a second spouse rather than children are particularly common. The use of trust structures can further complicate matters by locking up an inheritance or making assets inaccessible to third parties with meritorious claims against the deceased’s estate with insufficient assets to fund the claim.

If a claimant is to succeed in attacking a trust or offshore structure to recover assets, they will need to take many things into consideration as part of their planning. First, the type of structure or entity in question; secondly, the grounds on which to attack; thirdly, the jurisdictions involved; fourthly, the enforcement of future awards; and finally, the funding of the claim. 

All of these issues must be carefully considered to enable the strategic planning necessary in order to maximise the chances of success. When confronting the reality of attacking a complex trust structure in multiple jurisdictions, it can seem a very daunting challenge, but obtaining funding from, and working with, a litigation finance specialist can make the whole process much more manageable.

Leading litigation finance professionals are experts in litigation and have an excellent understanding of the merits of a claim in terms of likelihood of recovering assets, not only through the initial litigation, but also the subsequent enforcement of awards. Furthermore, the financial interests of the funder are entirely aligned with those of the claimant.

With litigation funding, the funder only receives a return on investment if the claimant recovers proceeds from the claim – whether through a court judgment, arbitration ruling or settlement. In the unfortunate circumstance where a claim is unsuccessful, the claimant pays nothing, and the funder loses its investment. Funding deals also always involve “After The Event” insurance to cover any adverse costs award, so again the claimant pays nothing even if there is an order to pay the successful defendant’s costs.

The non-recourse legal finance products available on the market are tailored to enable claimants to attack to the fullest degree, whilst removing the long-term financial impact and risk that can typically be expected from litigation.

Given the stakes at play for the litigation funder, the best funders go through rigorous selection processes before choosing to invest in a claim, with stringent legal and financial due diligence to ensure that any claims taken on are likely to be both successful and enforceable. It is this careful process that provides confidence that the claims that are invested in will deliver a substantial return for the claimant and the funder alike.

Whilst claimants look to funders for financial support, they can also provide much more than just capital. Leading funders are embedded in the global dispute resolution market, working with networks of lawyers and experts in all of the key jurisdictions.

As a result, funders can help claimants put together top-level litigation teams to maximise their chances of success. This is particularly valuable in complex cases involving offshore structures and multiple jurisdictions.

Funders therefore maximise the prospects of a successful outcome in court, but in reality, the majority of inheritance disputes are resolved through a negotiated settlement. Funders can add value in these situations too, providing assistance in the assessment of settlement offers and helping to secure advantageous settlements at an earlier stage in proceedings.

This is because the resources –financial, technical and human – that funders offer claimants can help bring defendants to the negotiating table. In short, funders help to redress the “David and Goliath” imbalance that many legitimate claimants face.

As inheritance disputes rise in number, fuelled by the greater complexity of modern families and by the increased value of assets, would-be claimants should not be afraid to go after what they are properly entitled to. Even when faced with a dispute involving complex offshore trust structures, litigation funders can provide the financial, technical and human support necessary to bring a claim to a positive outcome.

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