Tuesday, May 1, 2018

Third-Party Funding - Questions and Answers

With the increase in the use of third-party funding (“TPF”) for litigations and arbitrations across the world, Curtis’ lawyers reached out to Harbour Litigation Funding to gain a better understanding of the workings of third-party funding from the perspective of funders. We had a chat with Ruth Stackpool-Moore, Director of Litigation Funding.

Q: When evaluating whether to fund the legal costs of a claim, what are the key considerations that Harbour takes into consideration? 

Having funded claims for over 10 years we have the experience to know that the following factors must be investigated in our initial review:

• the ability of the defendant or the respondent(s) to pay, including consideration of the value of their assets and where they are located – this is of primary importance since success is only success if an award is paid;
• strong legal merits;
• reasonable economics, which we assess by comparing the estimated costs to bring the proceedings, how realistic they are, and what proportion we are being asked to fund with the realistic value of the claim (which will include consideration of the client’s view on reasonable settlement) – we look for a significant gap between the two; and
• the legal team’s experience in the relevant area of law.

It is important to remember that a funder of a claim is taking all of the financial risk. If the claim is unsuccessful, the claimant does not need to repay the legal costs and Harbour’s investment is lost. You can therefore understand why we want to invest in the most experienced lawyers and specialists in the practice area(s) involved.

Q: What do you need to be able to assess the legal merits? 

One of our first questions will be: have you received written legal advice, and from whom? In that written advice we would expect to find answers to questions such as: is the case on liability good? Is there a clear basis to claim damages? How long will the case take to come to trial or final hearing? Is settlement a possibility, and how likely?

We focus on understanding the key issues, formulated by the lawyers who have reviewed the wider documentation.

Q: Is there a minimum claim amount that needs to be met in order to receive funding? 

We do not work on the basis of a minimum claim value for funding but, rather, we assess the overall economics in any particular case. That will involve a review of the funding required, the value of the claim and sensible settlement expectations. At Harbour, you work with an experienced team of dispute lawyers that has been funding for over a decade. It won’t take us long to talk through your case along the lines explained above. If we think Harbour could fund the dispute, we will immediately discuss the next steps. I would recommend that if you think your case would benefit from funding, the best thing is to contact us for a quick chat. After all, each case is unique.

Q: In our introductory article on TPF last year, concerns of an increase in frivolous claims were raised. What is your take on this? 

This is a misconception we hear often, but is simply not true: we don’t back cases unless we believe they will win. If a case is unsuccessful, we lose our investment and therefore it is not in our interest to fund cases that we don’t think will win.

Q: It has also been said that funders aggressively manage the cases they fund, or push for them to go all the way through to hearing or trial, because of the perceived need to deliver a certain return. Is that true? 

This is not the case at all at Harbour. We agree our return upfront with the claimant and do not interfere with strategy as the case progresses. It is the claimant and its legal team that run the case. Settlement should be considered at all times, if it is in the best interest of the claimant. As far as we are concerned, having a case determined at hearing or trial represents uncertainty; settlement does not, and is ultimately appealing to us. Ultimately the decision whether to settle or proceed rests with the claimant and its legal team.

Q: Could you offer some examples of the kinds of disputes you fund? 

Globally we have funded a wide range of commercial litigation such as breach of contract, breach of statute and competition law, IP and patent disputes, insolvency, fraud-related, tort and trust claims. We also fund international arbitration, both commercial and investor-state, under a number of different sets of arbitral rules in a variety of jurisdictions. In geographies such as Australia and the UK, class actions are another category of claims which receive funding. Such claims can include everything from shareholder claims to product defects to environmental issues causing economic loss or personal injury.

Q: What types of activity have you seen in the Middle East market in the last year? 

The team regularly visits the region. For example, in January 2018 one of my colleagues spoke at the World Litigation Forum in Dubai. We regularly receive requests for funding from the Middle East, including Oman, and we have seen interest increase in the last few years. Most of these contacts related to construction claims.

Q: What differentiates Harbour from other funders? 

One of the key differences is experience. Harbour has been funding for a long time and our team is made up of lawyers coming from first-class private practices and senior in-house positions. We are also a truly global funder. We have funded in 13 jurisdictions and under four sets of arbitral rules in relation to most areas of law.

This extensive experience, combined with a large amount of capital immediately available, means that when issues arise - as they do in the unpredictable world of dispute resolution - we have the expertise and the capital to deal with them.

Another significant advantage of working with Harbour, and which is not the same for all funders, is that when the Harbour funds invest in a claim, the entire budget is ring-fenced from day one. Our funds are not leveraged. So not only do we have a large amount of capital, immediately available, but we can also guarantee the full budget throughout the life of the case, offering the claimant peace of mind.

Q: Are there any upcoming developments we should be aware of? 

We see new users and new uses of funding. TPF has moved from financing impecunious claimants otherwise unable to access justice to well-resourced corporates who are interested in the risk management or hedging qualities of third-party funding.

The positive developments in Singapore, Hong Kong and Dubai related to third-party funding have consolidated its global acceptance. Singapore’s Ministry of Law recently launched a public consultation to seek feedback on the third-party framework they introduced in early 2017 to understand how the system has been received and whether or not its expansion beyond arbitration should be considered, and Hong Kong is expected to clear the final hurdle, implementation of its code of conduct, in Q3 2018.

From Harbour’s own point of view, we launched our fourth fund, with £350 million of additional capital, in March 2018 bringing our total funds raised to £760 million. This new fund gives Harbour even greater flexibility in relation to the cases it can fund, as we are able to address every type of dispute funding from seed money for investigations, single case or portfolio funding to support for even the largest class action and single case budgets.