What are some of the financial/economic and non-financial reasons why a law firm’s client might prefer a DBA arrangement over traditional litigation funding:
Even if the DBA contingency fee is the same as the percentage of the recovery demanded by the litigation funder, the pro rata sharing of the recovery and the lack of a preferential return for the funder will always make the DBA a more economically attractive option.
Better Economics for client at low-end returns
The preferred /minimum returns insisted upon by litigation funders make their alternative not only more expensive for the client, but riskier for the client and lawyer at least where returns are at the low end the expected claim valuation.
Lower execution risk
Because there are fewer contracts and moving parts, the risk of a litigation funding transaction not closing is typically higher than with a DBA.
With a DBA, there are fewer potential players, contracts and obligations, and as a result fewer conflicts of interest, to manage. For the most part, the client only has to liaise with their trusted adviser, the lawyers.
Less cumbersome to manage
With a DBA, you do not have the issues arising with continuous interface, reporting, invoicing and payments between the litigation funder and the client.
Lower dispute risk
There are inherent risks presented to the litigation project simply because of the introduction of dynamics/transactions between the litigation funder and the claimholder.
Reduced Professional Ethics Risk to the firm
Lawyers introducing funders to clients, sharing client or case information them, and being in the middle (by receiving payment form the funder, and in other ways) of the funder-client relationship creates ongoing conflicts of interest and potentials to breach rules of professional conduct that must be carefully managed by the lawyer. The insured DBA arrangement solves most of these concerns.
DBA arrangements, like contingent fee arrangements, should not have to be disclosed to the courts or to arbitration tribunals, unlike third party funding agreements, which usually must be disclosed, including to the defendant/respondent. The mischief and adverse publicity arising when a funding arrangement is disclosed can have unpredictable consequences.