How do you opt for the right litigation funder? Chris Smith of Vannin Capital gives some tips.
You’re a partner in a litigation or arbitration practice and your client approaches you about a potential claim. Following an initial review, the claim stacks up and you submit a fee proposal. You wait to hear back from the client and, when you do, there is a reluctance on their part to pay your fees, for the usual reasons – they don’t have the cash, they’ve exhausted their legal budget for the year, they are concerned about the risk of losing the claim and so on. Third party funding seems like it would work well given the client’s circumstances and you start discussing this with them. So far, so good, but how do you know which litigation funder to engage with on your client’s behalf?
Association of Litigation Funders (ALF)
The first thing to check is that the funder you are proposing to use is a member of ALF. Yes, there are hedge funds, HNWIs and others who are dabbling in the funding market, but choosing an ALF member gives you and your client a great deal of protection. In particular, ALF members must have immediate access to adequate capital to fund a claim through to completion and adhere to the Code of Conduct, which prescribes the standards of behaviour required and can be viewed at http://associationoflitigationfunders.com/.
The right expertise, the right people
Once you have reduced the list of possible to funders to the members of ALF, it makes sense to find a funder who is experienced in the type of claim funding is being sought for. If it’s a litigation matter, has the funder got experienced litigation practitioners on staff? Similarly, what if it’s arbitration? Talking to an expert will save you time at the outset as the diligence process will be appropriately tailored and focused. It will also mean that during the claim, the ongoing case monitoring will be carried out by somebody who is intimately familiar with the claim process and timetable.
Expertise is important, but an equally important question to ask yourself is – do I get on with the people at the funder? Although funding is often seen as simply a commodity product, which is compared solely by looking at two or more competing term sheets, the reality is that you will be spending a good deal of time, typically over many years, working with your funder to keep them updated on the case. It will make life a lot smoother, when you have your day job to focus on, if you get on with them!
Working styles vary hugely between law firms and the same is true of funders. Ask probing questions about the level of involvement the funder will take and try to size up the personalities of the people you will be working with. One big concern lawyers have is that they will lose control of a funded claim. This is not permitted, but I have certainly heard of situations where funders are aggressive and overbearing which made the partner running the claim feel like he was not in control. That should not be the case; the best funders work as collaborative partners in the claims process who monitor appropriately, add value if invited and let the legal team focus on running the claim.
Assuming you are comfortable with the expertise, people and working style, a final element to consider is the processes the funder uses. There are two key ones to bear in mind here. First, how does the funder treat your confidential information? Is the information stored locally on laptops and sent around on email or is it on an encrypted server behind a state of the art firewall? Information leaks can jeopardise, or even destroy, claims so making sure that all the case information is stored securely should be one of the key question on your funder diligence list.
Second, how does the funder assess your claim? Do they just use an internal team of generalists or do they outsource to experts for the subject matter of each claim? A robust evaluation at the outset will minimise the risks of nasty surprises later in proceedings and it is definitely worth asking any funder to run you through their entire review process to make sure you are comfortable with it.
Whilst the amount of independent information about funders in the public domain is necessarily sparse, a little due diligence before signing a funding agreement will go a long way to ensuring that your (and your client’s) relationship with your chosen funder is a mutually successful one.