The risk to clients here is not only financial. Clients funding off balance sheets will usually be constrained by internal budget. At the outset of an action a client may have a budget of US$9m to spend over three years and will allocate that budget on a straight line basis of US$3m each year. This might provide the client with greater certainty over the lifetime of the case, and the client may not be able to front-load any of that budget, but in many cases this approach is likely to delay resolution and tie up management time for longer. It will likely also allow the defendant more time to put assets out of reach and ultimately frustrate recovery when a judgement is received.
This risk becomes even greater when pursuing claims across different jurisdictions, including in offshore jurisdictions. Whilst offshore jurisdictions have strong legal and asset tracing expertise, supported by strong commercial judiciaries, defendants can move quickly to put assets out of reach if claimants do not adopt a strategic approach from day one. This can result in lengthy litigation which may ultimately fail to yield a positive financial result.
In a usual example of traditional litigation and asset tracing work, strategic decisions are often driven by budget rather than merit. As a result, a party with a strong US$100m claim might first bring proceedings in a home jurisdiction, such as England, and “wait and see” how the claim progresses before committing additional budget to proceedings in other jurisdictions or on ancillary applications. It might be difficult to justify the additional cost to the board in advance of any judgement, or at least any successful applications. When that judgement is received the proceedings may be 2 years in, with US$6m committed, and still no financial recoveries made. At this point the client will need to take further steps to enforce the judgement – this costs time and money and assets may already have been dissipated. Clients may spend years chasing assets through various offshore jurisdictions, but this strategy of chasing assets rarely moves as quickly as a defendant can move them.
When a case is funded, decisions can be driven by merit. The interests of the funder and client are aligned – to obtain a strong outcome quickly. At the outset we will assess the claim and consider what budget the value of the claim can sustain. In the example above where the claim is for US$100m, we may be able to offer US$12m of funding.
This funding of US$12m can be deployed strategically. In a case involving various jurisdictions a well-funded asset trace can be undertaken at the outset, with enforcement and attachment strategies drawn up in all relevant jurisdictions where assets are found. This may result in higher spend at the outset on investigations, various local counsel teams, and synchronised applications, but is much more likely to yield a positive result. Where assets can be identified and attached from the start, the benefit of any judgement is protected and the client is well placed in any settlement discussions.
The benefit of the funding is therefore greater than simply taking legal costs off balance sheet. The provision of our funding is driven by the value of the case, rather than the general financial condition of the client which would drive funding off the balance sheet. As a result, funding can be used to drive better outcomes in less time, in addition to all the traditional benefits of non-recourse financing which funding provides. In this example, where US$12m is available, the client may also have the option to part-monetise the value of the claim by drawing down part of this US$12m to fund other aspects of their business.
The client could therefore move from spending US$9m on self-funding a case, to pursuing the case at zero cost, with better prospects, and an ability to draw down cash for business growth.