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Emissions scandal sets clear course for future of litigation funding

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Doubtless you will have seen the BBC's Panorama expose that cars manufactured by the VW Group, including Audi, Skoda and Seat models, are designed to ‘cheat’ European emissions tests.

The German automobile manufacturer finds itself in a deepening financial and public relations crisis. Shares in the company have plummeted since September, when accusations of 'fixing' diesel emissions tests emerged in the United States.

It is alleged that software on some vehicles was able to detect when the car was being tested for emissions. This so-called 'defeat device' would then tell the engine to reduce the emissions in the exhaust fumes by anything up to 40%. This produced a distorted reading, concealing the car's 'real world' emissions (ie: when not under test), when a higher level of emission is released into the environment.

This latest ‘twist in the tale’ adds another layer of complexity to those looking to secure financial compensation for any loss as a result of the scandal. Only a few weeks ago it seemed legal firms were getting close to finding the investment needed to pursue group action against VW Group, on behalf of shareholders in the United States. That case was believed to be worth upward of €40 billion. Now, however, the cost of this sprawling case has likely increased.

The legal expenses funder, Bentham Europe, recently announced that it would be funding the entirety of the shareholders’ claim, illustrating the potential for profit should any claim be successful.

This kind of backing is not just confined to such large sums. Financial backing from specialist funding groups is an increasingly viable options for claims at all levels, whether dealing in billions or thousands. This sets a clear path of how commercial litigation is to be funded, breaking away from the traditional constraints of privately funded cases.

Alistair Gregory, Commercial Litigation Partner at the national law firm, Stephensons, said: "As a firm, we are increasingly exploring the funding of commercial litigation using alternative funding models, such as applying to a specialist funding firm.

“What should be reassuring to litigants and lawyers alike, is a recent trend of funding being granted for lower value cases and the way in which we are able to persuade funders to adapt their models to suit lower value cases.

“Traditionally, litigation funding of this type was off limits for smaller cases. It’s reassuring to note this is no longer the case.”

Five steps to securing litigation funding:

1. Get your case in order
A common pitfall when the case is reviewed by the funder is that the case is not in good shape. This is likely to result in a rejection or a long list of questions, either way, its not the best start to establishing a good working relationship with the funders who are to share the risks. Funders like to share risk and work with lawyers too. The role of your lawyer is pivotal to helping secure funding and help avoid disappointment. 

2. Engage
Ensure that you find the right funder at the start to give yourself the best chances of success. Half hearted and/or several post-rejection applications will inevitably get you known in a very tight industry which can be disastrous.

3. Get the best deal
It may be worth considering privately funding the initial stage of the litigation to secure a response from your opponent. Once you have the response, it is likely to be much easier to persuade a funder to offer a package at a favourable rate.

4. Understand the process
The funders of litigation look at the process as one of investment, risk and return. The way in which a funder puts together a package varies greatl. It is a sophisticated finance arrangement and can often be difficult to understand. Do not be afraid to ask and fully understand the risks. The best way to do this is to be guided by solicitors.

5. Full and frank
Funders can only work on the information provided to them by you and your lawyers. There is no point in putting a gloss on what is presented to the funders. If funders discover issues which could have been presented to them sooner this can leave you in a very hazardous position and could jeopardise your funding entirely.

For more information on commercial litigation funding, or to speak to one of our commercial solicitors, call 01616 966 229.