Tuesday 5 January 2016
Let’s start the New Year off with a short quiz. Nothing too taxing, just something to get the old grey matter functioning.
Ready? Ok, here we go: How do you get a case funded?
If you answered, ‘ask your lawyer to complete the funder’s application form and send it across together with key documents like witness statements, report on quantum, Counsel’s Opinion etc.’ then you would be absolutely correct. Congratulations, you win a prize. Select anything from the second row (not the giant teddies, no one wins those, they are just for display purposes) and clear off. As we have discussed previously, funders like to know that the case they are being asked to fund not only enjoys good prospects of success but also the sum sought is realistic and is likely to be recovered in full. To make this decision, they rely primarily on the views of the solicitor and Counsel. In the vast majority of cases, the client will have paid their legal to undertake this exploratory work in order to get the case to a state where the funder has sufficient information at his disposal in order to take a view.
Now for a difficult one: How do you get a case funded if you haven’t got Counsel’s Opinion nor indeed even a lawyer on record and haven’t got the money to pay either? If you answered, ‘shop around and find a lawyer willing to risk hours of his or her time just on the off chance that your case might be worthwhile’, then good luck with that project.
The fact is, that unless your case clearly has the potential to be worth tens of millions or you otherwise have a good relationship with that firm and you are calling in a favour, the chance of finding a solicitor willing to drop everything for you, offers two possible outcomes: Bob Hope and no hope.
None of this should surprise the sensible claimant. The law firm is a business whose success, in the main, depends on its staff hiring out their professional expertise based on an agreed hourly rate. If each of its staff can manage to bill and collect the agreed fee for each hour in the working day, then you do not need to be Lord Sugar to conclude that the law firm is going to be profitable. If however, the fee earners are spending a large proportion of their time working on non-paying speculative projects in the hope that this time investment will somehow reap dividends at some future point, unless the lawyer has brilliant insight this is a short cut to penury. Never forget that lawyers are generally risk averse people (think accountant and then add a zany tie/sock combo). The law firm partner who consistently adopts this approach will make themselves hugely unpopular with their colleagues. Why are you diluting our profits with this risky attitude when you can fill your eight hour day billing clients who have the ability to pay?
Add to this heady brew the tendency of claimants to misrepresent the facts or otherwise fail to comply with their legal team’s requests to supply further information that the claim is definitely not one pursuant to Magna Carta to prevent next door parking his work’s van across your drive, and you have a recipe for disaster.
But here is the problem for the funder. Buried within the slag heap of worthless speculative claims, there exists a rich seam of profitable and meritorious cases which will never see the light of day because the claimant does not possess the funds to take them forward. The question of who pays for this initial investment in deciding the worth of a claim has vexed funders for many years. Pre-funding of cases has been sought regularly by claimants and lawyers alike, but because the traditional funding market has always focussed on very large claims, there simply has been no incentive to speculate money on smaller matters.
Step forward Augusta who earlier this month launched the first financial facility that enables claimants to have the merits of their claims independently assessed, with no obligation to continue. This, as they say, has the potential to be a game changer because the investment that Augusta will make in these types of claim will be on a non-recourse basis. It means that the claimant does not have to pay back the money spent by Augusta in the event that the case is assessed as lacking either in hard evidence or if the claimant decides not to pursue matter further. This is edgy stuff. At no cost, the client is now able to receive an independent and dispassionate view on the prospects of their case prepared by some of the smartest people in the business. No flim-flam, no hidden agendas, no cutting of corners, no wishful thinking. Just a cold hard assessment that will advise the client in dispassionate and unequivocal terms if their case is going to win.
Time will tell whether this is a profitable route for Augusta but their bold move represents another step in the development of litigation finance as a credible source of support to claimants and lawyers.