As a former litigator, I still get a rush of excitement when an application comes across my desk for funding which I would have loved to run myself in my previous role. The allure of such a case may be a novel point of law, a claim seeking to right an obvious wrong, or one which might make a crucial social impact. However, as I am now a litigation funder, before delving into any of those intellectually stimulating points, it is vital that I am satisfied that the claim will ultimately make economic sense – just because a case is likely to succeed on the merit, doesn’t mean it will or should succeed in securing funding. Winning a case on the merits is not the final stage in a commercial dispute, recovery is.
It will come as no real surprise to anyone familiar with litigation, that the first three key elements to consider are (1) the full legal budget to pursue the claim, (2) the reasonably anticipated quantum, (the former must be proportionate to the latter) and (3) the plan for recovery/enforcement of a final award. All three need to be evidenced, and all three are vital to a funder’s decision to invest.
Enforcement, the third element, is possibly the most important to funders (and of course claimant parties). What use is a hard-won judgment in favour of the claimant, if the award cannot be collected? Yet when a case presentation lands on my desk, enforcement is often the element to which the least attention is given. Funders can get a bad rap for being overly pessimistic about the economics of a matter, but the diligence process ultimately benefits not only the funder but also the claimant, and the law firm – as in our experience it is much more palatable to have conversations with clients upfront about the realistic financial outcome of a matter, rather than forge ahead and find out later that collection is going to be problematic.
The reason for the lack of information on enforcement in case presentations is not a complete mystery– particularly if the case is being presented to funders at an early stage, as it may require some practical investigation alongside the legal work, as in many cases a defendant’s assets may be spread across multiple jurisdictions and require the help of a specialist asset tracing and recovery team.
Of course, a complex enforcement strategy will necessarily add to the overall legal budget, which itself should not be limited to costs up to the final hearing. In that way, each of the three elements is affected by the others. We frequently discuss with legal teams the enforcement strategy, the additional costs to accomplish that, and the impact such additional budget has on the overall economics of the claim.
The reality is that the tail of enforcement may wag the dog in some cases and it is important for claimant parties -as much as funders- to understand the realities of that as early as possible. It doesn’t mean a matter is un-fundable, but where enforcement is potentially complex, costly or risky, the proposed investment should be structured from the outset to address those risks. That may involve contingent pricing of a flexible funding budget for post-award recovery work, considering insurance products alongside funding, monetisation opportunities, or award default insurance. The funding market is known for its innovative approaches, but for complex matters with enforcement risk an experienced team will be required to ensure a matter can progress with funding.
One of the unique aspects of Erso Capital is that it was established by the senior management team of a highly – specialised litigation insurance brokerage, TheJudge. This means that the teams at Erso and TheJudge have been innovating in the area of litigation funding and insurance for over two decades structuring deals that enable complex matters to proceed – despite the obvious challenges. In many cases, this means that Erso will consider and factor in the late-stage risks of a matter from the outset of the case assessment and may be able to offer packages of litigation and funding solutions that will enable them to proceed with funding where they may not otherwise have done. Specialised insurance policies can provide coverage for things such as cross-undertakings in damages so that claimants can seek injunctive relief in the form of asset freezing, cover the risk of award/judgement default, cover the risk of appeal or annulment of an award to allow clients to monetise the award.
Sarah Breckenridge, Investment Manager
sb@ersocap.com
Sarah is an Investment Manager at Erso Capital and an English-qualified solicitor-advocate. Sarah has a unique combination of practice at a senior level as a corporate/commercial litigator and as a director-level dispute knowledge lawyer. Before joining Erso, she led the team of dispute knowledge lawyers at the global law firm Bryan Cave Leighton Paisner LLP. A significant part of her role involved forging the firm’s policy and practice with regarding litigation funding, insurance and alternative fee arrangements. She brings a wealth of experience in the way lawyers approach questions of funding and costs with their clients, and understanding the impact of funding on the process and outcomes of disputes.