The initiation and operations phase of the litigation funder – class action law firm relationship

Abstract

PurposeDrawing on “Strategic Alliance” literature and qualitative research methods, the purpose of this study is to examine the initiation and operations phases of the relationship between Australian litigation funders and class law firms. The initiation phase examines factors such as complementarity between needs and assets compatibility between the funder and the class law firm goals of the alliance trust and alliance structure. The operations phase considers factors such as governance, communication and risk management and accountability. Because of its focus on the fairness of settlement, case law provides limited understanding of the drivers of the class law firm and funder relationship. An “inside look” of how the funder-law firm is initiated and made operational provides a more accurate picture and has important implications for the management of the ethical issues that arise during the course of that relationship.Design/methodology/approachThis paper is a content analysis and contains qualitative interviews.FindingsThe strategic alliance between class law firms and litigation funders has evolved within an institutional climate that has acknowledged the benefits that the alliance can bring to the conduct of class actions. That same institutional environment has led to an alliance which is informal and transactionally oriented, where each of the parties maintains a demarcation in function. Although they share aspects of the strategic management of class actions, funders continue to be diligent monitors of class law firms, and class law firms continue to advance the legal rights of class members.Research limitations/implicationsIt is observed that the size of the sample is small driven by a number of market participants.Practical implicationsThe paper confirms that the litigation funder–law firm strategic alliance works well as a result of institutional constraints.Social implicationsEach of the alliance partners was keen to ensure that neither they nor their partner acted in a way which might attract judicial disapproval. Each also believed that they played a positive role in promoting class member interests, albeit that their primary motivation was to earn fees or a commission. The success of the alliance between class law firms and litigation funders has substantially improved access to justice in Australia for small claims holders.Originality/valueThe paper provides insight into a strategic alliance which is formed primarily for the benefit of third parties. This is one of the first papers to consider the litigation funder–law firm relationship through the lens of strategic alliance literature.