Poland was a country in near financial ruin during the Communist era. It is now the sixth largest economy in the European Union (the “EU”). Major Polish cities now feel like any other European city: flashy cars driving past pristine buildings, the latest fashions being sold in shops, suited workers hitting the pavement. So robust is the Polish economy that it was the only one in the EU to avoid a recession through the 2007–08 economic downturn.
It would therefore be incumbent for any financial professional to consider investing in the country if it has not already done so. Litigation finance is no different.
Litigation finance is where a third-party funder agrees to finance all or part of the legal costs of a claimant’s litigation. A return is only collected by the funder in the event of a successful outcome. If the case is lost, the loss is the funder’s alone. It is therefore a form of non-recourse finance.
Sounds easy? It is.
When a case is introduced to a funder, a high level legal and economic analysis is undertaken. If the analysis is positive, the funder will then provide indicative commercial terms.
Upon acceptance of the funding terms, the funder and the claimant/law firm will enter a period of exclusivity during which the funder undertakes further diligence of the claim.
The funder will particularly consider: the merits of the claim, the lawyer’s strategy for a successful resolution, the estimated damages, the creditworthiness of the defendant and the enforcement ability of the case.
Finally, once this assessment has been carried out, the claim will be submitted to the Investment Committee for approval. Upon approval and execution of finance documents, the funding is deployed to the lawyer’s client account. Since this all sounds so positive and easy, why hasn’t there been a rush of litigation finance into Poland?
Unfortunately for the Polish court system, it is not known for its speed. While according to official statistics, the average duration of court proceedings in the first instance in Poland amounted to seven months in 2020 – we all know that statistics can be skewed. These statistics, for example, include accelerated proceedings where a payment order (nakaz zapłaty) is made by the Court on the basis of a few specific documents in a matter of weeks – it is a quick and preliminary enforceable judgement and its inclusion in the statistics necessarily brings down the average. Most practitioners actually find that cases last several years.
Also, once a preliminary judgement is awarded, Polish law permits an automatic right appeal with no leave required. Polish procedure further allows full appeals which means that the case is re-heard in its entirety on appeal. Despite significant court fees, appeals are therefore filed very often, thereby delaying final judgement even further.
It is not uncommon for court cases to rumble on for 5 to 7 years. This isn’t something that funders are keen on: they typically like to see returns within a couple of years, but can wait 4 or 5 years for a fantastic return. Anything more makes a funder query whether the investment is worthwhile or whether there are better opportunities elsewhere.
Anyone bringing a proposal to a funder about investing in litigation in Poland therefore needs to present a realistic timeline for an eventual (and final) resolution. Funders can devise creative ways of pricing cases and can offset risk into their investments, but they need to be certain of the most likely resolution outcome. It is vital, therefore, for duration to be at the forefront of a claimant’s/law firm’s mind when seeking funding.
The next blog our Investing in Poland series looks at judicial instability and the critical questions in a funder’s decision making process.