Will funders start bypassing solicitors?
There is quite a buzz about third-party funding at the moment. Media coverage has spread well beyond the legal press, with recent articles on the topic in the FT and now even the Guardian.
But much as funders like to suggest every now and then that the sector has entered the main arena, in reality it is still very much on the edge, peering in.
Harbour Litigation Funding, one of the bigger funders which has just raised another £120m to invest in cases, recently estimated that only one-in-10 litigators has ever used funding. But I would guess that the figure is actually even lower than that. At a recent Butterworths conference on third-party funding (covered in the June issue of Litigation Funding), it was interesting to see that even though more than 30 delegates put their hands up to say that they were lawyers, only three of these then said that they had experienced third-party funding. And that was a group of lawyers who were actually attending a conference on the topic.
So why is take-up so low? The easy answer would be that clients don’t like having to give up a cut of their winnings, and would rather finance their cases in the normal way. Plus, it’s true that funders want high prospects of success and tend to be more interested in the bigger cases. But I think there is another factor.
I have no doubt that there are a lot of clients out there who would actually be quite interested in using the funding route. Not only the little Davids fighting big Goliaths, who can’t afford to bring the case without a funder’s deep pockets, but also the risk-averse corporate, which has the readies in the bank to pay the normal way, but actually would prefer to give away a cut of damages in return for the assurance that they won’t be facing a large bill if they lose.
So why doesn’t this sort of corporate use funding in practice? Partly, I suspect, because these clients don’t really know that funding might be available. They rely on their solicitor to tell them it is a viable option; but for a solicitor unfamiliar with the funding world (as most are), the temptation is to stay within their comfort zone, concentrate on advising on the legal issues, and not get involved in messy funding arrangements where their own lack of experience and knowledge may be exposed.
That will not be true of all lawyers, of course, but it may be a factor for some - whether or not they want to admit it.
As far as funders are concerned, they are beginning to see that if their sector is to ever truly become mainstream, they need to get their message out directly to in-house counsel. For many general counsel, having a means through which they can assure their chief executive that they have got rid of the whole of the risk attached to a piece of litigation will be quite attractive.
Taking it a step further, what funders really dream of is for in-house clients to begin recognising that some of the legal actions they currently choose not to bring could actually be transformed into a revenue stream. For example, companies whose patents are infringed around the globe, but which might not want to take on the risk of litigating where the infringement does not really affect their business to any great extent, could turn those potential claims into hard cash (at no risk) by using a funder to finance them. Funders are particularly keen on claims in patent courts or the International Court of Arbitration (ICC) in Paris because of their streamlined and predictable timelines.
Third-party funding will really enter the mainstream only if it is driven by demand from clients, and at that point, solicitors will soon begin developing the required expertise. Once clients start asking about it, solicitors will be able to carve out a pivotal role as savvy and well-connected fixers to help their clients obtain the best funding they can, on the best terms possible.
Rachel Rothwell is editor of Litigation Funding magazine, providing in-depth coverage on costs and the financing of litigation.
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Comments
Savvy and well-connected fixers
Why no mention of Stone & Rolls v Moore Stephens or Brown v Innovatorone? Both were the subject of litigation funding and both failed - not much "revenue stream" in either case. The Claimants in Brown are, it seems, now facing an application for indemnity costs. How is this going to affect the market for such funding? Some lawyers must surely be concerned about taking on cases which are the subject of such funding, for fear that, if the case goes wrong, the funders will be looking to recoup their losses from the lawyers. How long before we see a case in which a funder sues the fundee's solicitors for negligence? Or before we see a fundee suing his solicitor for failing to get him a better funding deal?
Litigation funding
"Me" refers to funders looking to recoup their losses from lawyers instructed by claimants. Funders of commercial developments routinely require direct warranties from contractors and members of developers' professional teams. As the market in litigation funding develops, it can be expected that similar direct warranties will be sought.
Warranties
Funders may well ask for warranties, but the only warranty they are likely to get is the express or implied term that the solicitor will act with reasonable care and skill. No sensible solicitor would warrant the outcome of the litigation and no sensible professional indemnity insurer would be happy to write a policy in favour of a solicitor who gave such a warranty. I can't see why the funder would need a collateral warranty, because it will presumably be a client of the solicitor (as will the fundee) and will, in any event, be owed a tortious duty of care by the solicitor. It will have relied upon the solicitor's assessment of the merits of the case in deciding whether to fund the claim in the first plaqe.
Another interesting angle is what will happen when there is inadequate ATE cover to meet the costs liability consequent upon an unsuccessful claim. Did Mr Brown and his co-claimants in the Innovatorone case have ATE cover sufficient to meet the £16m of costs reported to have been incurred in defending the claim?
Warranties
I agree that no sensible solicitor will guarantee the outcome of litigation and if he were to do so, his PI policy would not cover a claim. However, I doubt that the funder will be a client of the solicitor because that might place obligations on the funder to the solicitor which it would prefer not to have.
I doubt personally that the funder would wish to rely simply on a tortious duty but I accept that any collateral warranty is unlikely to impose on the solicitor duties to the funder greater than those owed to the client.
It will, however, be interesting to see how the market develops.
Better Promotion of Litigation Funding
Only now are people realizing and understanding what litigation funding is. Once there is a general consensus on what its about then it will spread more than it has already. It's almost like comparing litigation funding's ascendancy to the IPhone. People had to understand what the IPhone was all about before they bought in mass, the same can be said about litigation funding. The benefits of what it can do for the legal system is really good, its going to take time and more education on the subject.