Standardization of agreements could significantly bolster the reputation of litigation funding, according to Tets Ishikawa of LionFish Litigation. By creating a common framework under which all funding contracts could operate, drawing inspiration from the master agreements used in the derivatives market by the International Swaps and Derivatives Association (ISDA), the litigation finance market could move closer to other financial markets.
Visualizing Standardization
To gauge how this framework might work, Ishikawa suggests a look at the credit default swap market could provide valuable insights. The acceptance of standardized definitions and practices under ISDA’s updates brought significant gains in efficiency and transparency for this market. If a similar approach were to be adopted for litigation funding, we could see comparable benefits.
For instance, according to the ISDA’s 2003 update, restructuring was divided into three categories that parties could select as applicable, leading to improved transparency and credibility of CDS contracts.
Parallels to Funding
According to Ishikawa, several areas of litigation funding and insurance documentation, globally, could be standardized in a similar way. Immediate areas that could benefit from a standardized approach include terminology for proceedings and funder profits, clearer definition of reduced prospects, consistency in termination events and default provisions, clear establishment of success outcomes, harmonized drawdown processes, and straightforward waterfalls/priorities agreements.
Standardization Benefits
Harmonizing standard terms and definitions would provide an array of immediate benefits. Besides execution efficiencies that may be passed onto plaintiffs, it would increase market credibility and sustainability by creating a more robust, global market. Moreover, it would foster openness and transparency, deterring rogue funders and addressing the supposed influence of foreign governments in litigation funding.
In conclusion, a body like ISDA, or the International Legal Finance Association in collaboration with the litigation and contingent risk insurance industry, could drive the promotion of standardization, especially considering the increasing range of professionals entering these markets. The entire article by Tets Ishikawa can be found here.