Litigation funding is a must-know for modern law firms. Nick Rowles-Davies reports on a market that is misunderstood and lacking competent professionals
I entered the litigation funding market with Vannin Capital this year. Having been in the law for more than 20 years, I thought I knew the profession well. However, I have been more than surprised by the lack of knowledge displayed by my solicitor colleagues about the litigation funding landscape.
This does not, of course, apply to all firms. Among the hundreds of solicitors I have spoken to since bringing Vannin into the market, I am pleased to have discovered some pockets of excellence in funding knowledge and practice – but they are the exception rather than the rule.
On average I would say that one in three firms knows nothing about third-party litigation funding. Admittedly, some are traditionalists and some do not need to know, but that leaves around a third of firms living in blissful ignorance of the full range of funding options on offer to their clients.
Even where a firm displays some knowledge, it is often misguided or incomplete. I recently came across a mid-sized, well-respected regional firm promoting with great fanfare “a new unique funding opportunity for clients”. I was looking forward to hearing about a clever hybrid or some new innovation born out of the Jackson reforms. Imagine my disappointment when it turned out to be a contingency fee arrangement (CFA). Indeed, another firm I spoke to did not even know what a discounted CFA was, let alone if they had ever used one.
Sadly, the lack of funding knowledge also encompasses an inability to prepare a budget. In order to present a case effectively solicitors need a case strategy, to know how you are going to win, and a budget, so that you know what it is going to cost and when. Yet the number of solicitors showing little knowledge of either is astounding. I have lost count of the number of times I have been told “I don’t know” or “What exactly do you mean?” when I have asked what the budget for a case is.
Display and pay
A nationwide pilot intended to control the costs of civil litigation will launch in October. The pilot centres on the idea that the parties involved in civil litigation draft detailed costs budgets during each stage of court proceedings. The court then has authority to approve a budget or seek a revision. So the days of a solicitor just billing and the client duly paying are at an end. Solicitors need to take note.
I am fairly sure that the new Solicitors Regulation Authority Code of Conduct, which focuses on the outcomes for clients and increases the onus on solicitors to ensure their clients are well-informed, will continue to be flouted as it was under the old code. How many solicitors actually advised their clients on all the funding options that are available?
Regardless of whether the right option for your client is a standard retainer, fixed or staged fee, full CFA, discounted CFA with the client paying, or a legal expenses insurer, the onus has, and always will be, on solicitors to be aware of, and present all of, the funding options available.
Unfortunately the litigation funding market does not help. Little is known about the successes and failures and the good and bad experiences of clients. Therefore the veil of secrecy hanging over the market needs to be lifted so that there is real transparency.
The problem with litigation funding, aside from solicitors’ lack of knowledge, is that it is still seen as a minority market. This is both sad and surprising – anyone who has any sense would consider an investment in litigation funding.
A good catch
“What’s the catch?” is probably the most common question I am asked, after “How does it work?”. Litigation funding is an investment and, like all investments, the funder takes the risk and will look for a return that reflects the risk taken. The claimant makes no cash commitment.
The catch, therefore, is the risk taken. But any litigation is a risk and surely it is better for someone else to take that risk? As for selling it to a client, it sells itself: having 80 per cent of something is better than having 100 per cent of nothing.
One of the biggest battles for a litigation partner is convincing the rest of the partnership to take the risk of a piece of litigation run on a contingent basis. A complete change in mindset towards litigation is required so that it is viewed as an asset, as something that you make money from, rather than as a liability. This is lending to a client with absolutely no comeback on solicitors or the losing client.
Given the difficult financial circumstances some firms are dealing with and the challenges presented by alternative business structures, litigation funding could really be the making of some firms and they should open their eyes to its possibilities.
Nick Rowles-Davies is a solicitor and consultant with Vannin Capital