Julian Chamberlayne, Risk and Funding Partner at Stewarts chaired a panel session addressing litigation funding for corporate clients as part of this year’s London International Disputes Week (LIDW).

The participants debated whether and how corporates and insolvency practitioners should explore third-party funding (TPF) as well as funder selection and terms, details of funding agreements and avoidance of disputes ensuing from that agreement.

Speakers on the panel included:

• Kevin Hellard, Head of Global Recovery and Reorganisation and UK Insolvency at Grant Thornton
• Susan Dunn, Founder of litigation funder Harbour and Chair of the Association of Litigation Funders (ALF)
• Jamie Molloy, Head of ATE insurance at Ignite
• Kate Armstrong, Litigation Risk Management Divisional Director at Howden
• Richard Viegas, Co-Head of Litigation Funding at Taylor Wessing

When is third party funding appropriate?

The panel considered the relative status of litigation funding markets in different jurisdictions but focused primarily on England and Wales, noting that there is a well-established tradition of funding and a mature market of funders prepared to back claims. Richard Viegas made the point that UK corporates typically do not litigate on a regular basis and so may require more advice on funding options than businesses in other jurisdictions.

Kevin Hellard noted that insolvency practitioners (IPs) are among the most knowledgeable professionals when it comes to navigating the funding space, as they are used to heightened fee risk. IPs also regularly apply for after-the-event insurance (ATE) when working on a dispute and recognise the importance of this key element to a funded claim.

The panellists generally advocated that corporates take a bespoke approach to determining if a case is appropriate for funding, insurance and/or alternative funding agreements with the lawyers, but some corporates will, for some claims, still choose to pay as they go in the traditional way. There are merits to each option, and a broad market of funders and insurers with different structures, resources and appetites for differing types of claim should TPF and/or disputes insurance be sought. Multiple panellists agreed that the client’s lawyer should take an active role in advising on options for TPF, including when it comes to selecting a funder.

Identifying a funder

Corporates should understand that choosing a third-party funder is not a quick and easy process and a degree of ‘matchmaking’ will be involved. Julian Chamberlayne made the point that the instructed lawyers have a duty to ensure their clients are getting detailed advice on the viable funding options, related terms and what that might look like in terms of the ultimate division of claim proceeds.

The panel debated the degree of broker involvement that might be involved in this process. Richard Viegas commented that while a client may secure funding via a broker, they should always use this route for ATE insurance. Kate Armstrong agreed that the regulated service provided by insurance brokers is materially different to the more limited and unregulated service provided by funding brokers. An interesting observation from the session was that corporates tend to complete more extensive due diligence on insurers than they do funders: Susan Dunn voiced her surprise that more clients seeking funding have not scrutinised sources of funding historically and in fact encouraged them to do so.

Third-party funders should approach the initial stages of relationship building with a certain degree of transparency: Kevin Hellard posed that unwillingness to engage on key issues at an early stage is a warning sign. This led to discussion of mooted regulation of litigation funders, particularly in the wake of the PACCAR judgment and the recently published CJC report on third party funding. Membership of the Association of Litigation Funders (ALF) is one good indicator for a reputable funder, though it does not provide the full picture as membership is not mandatory and there are some reputable funders who are not ALF members.

Details of the funding agreement

All the panellists agreed that any funding agreement should be easily comprehendible to all parties with clear terms on settlement calculation and with a mediation provision included. Kate Armstrong noted that the ‘waterfall’ arrangement is under regular review and that corporates should understand how it operates in practice at various stages of the litigation. The key to successful co-operation in a funding transaction is always putting in place provisions for the parties to work through the case together, applying a common sense approach at every stage.

Where a claim is brought against multiple defendants, this can be significant in determining whether a case is fundable and/or insurable as more parties means more legal representatives,  a more complex litigation timetable and almost inevitably higher costs. Jamie Molloy remarked that corporates should be careful that their insurance will withstand security for costs, and that the claim will not become unsustainable should the defendant adopt a strategy of prolonging litigation to drive up costs.

Conclusions

In the closing moments, Julian asked each member of the panel to summarise with a key takeaway for the assembled audience online and in-person. Some of their various recommendations included:

• When exploring funding, put together a trusted team of professionals who are experts in their relevant areas.
• Keep the agreement simple (to the extent possible).
• The solicitor must act as the point person for the client, and ensure their interests are championed throughout.
• TPF remains an attractive prospect in England and Wales, with more options for corporates than at any time previously. Sensible implementation of the CJC recommendations should consolidate this position.

You can find further information regarding our expertise, experience and team on our Litigation Costs and Funding page.

If you require assistance from our team, please contact us.

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