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An interview with Susan Dunn: part 2/4: thoughts on funding

I was delighted to have the chance to put a few questions to Susan Dunn, co-founder of Harbour Litigation Funding, and a founding director of The Association of Litigation Funders in the UK.

In part 1 of my interview with Susan, she talked about her career and interests. In part 2, she gives some perspectives on litigation funding. In part 3, Susan considers what the future might hold for litigation funding. Finally, in part 4, Susan discusses the key challenges facing civil litigation in England and Wales, and the skills required to be an effective litigator.

There are probably still some people who don’t really understand how litigation funding works (although less and less so, I imagine). What would you say are the key misconceptions about litigation funding?

I think that there’s a variety of them: they range from how funding actually works through to the philosophy of it.

I think that a lot of people still think that we cause more litigation to happen. I’ve always thought that most curious because why would we fund bad cases? We can’t make money unless the cases we fund succeed. We would quickly be out of business if we did so.

Then, in the same breath, people accuse us of being too conservative and only wanting to fund “sure fire winners”. Yet those alleged sure fire winners don’t always succeed, as we know very well.

We receive about 45 new enquiries per month of which we fund one or two cases. I suspect that, in the conversations where we are asking people why they think they have a good claim, there are a number of people who go away questioning, “Why are we doing this?”.

The American Chamber of Commerce seem to have a disproportionate interest in funding. They seem to think funding causes more litigation for their members to deal with, and do a lot of lobbying of our politicians. If they really wanted to reduce the amount of claims issued in the US they should be lobbying to introduce the loser pays costs rule, as that would cut a swathe through litigation there. People would think a lot more seriously about launching a claim if they felt exposed to adverse costs if they withdrew a frivolous claim. But they don’t appear to want to have that debate domestically. They want to talk about this tiny handful of businesses, globally, which are litigation funders, and the tiny handful of cases which are funded each year (Harbour funds no more, currently than around 25 to 35 cases per year globally, albeit those are cases with an average budget of £4-5 million).

The loser pays principle does change the dynamic so much.

Of course it does. If someone knows they face having to pay the other sides’ costs, it makes them so much more thoughtful about whether their claim is a good one, and the US doesn’t have that deterrent.

I think the other thing is that people think funders control all litigation or arbitrations, but the number of cases we fund is tiny in the grand scheme of all cases globally issued every year.

And I think the third thing – some people have had bad experiences – I like to think not with us – that funders are slow in reviewing cases and saying whether they will fund a case. I just encourage people to engage with us and hopefully see that we provide good service and quick turnaround times. One of the things that Wragge & Co was always great about, when I trained there, is that good service and expectation management is paramount – so we endeavour to have really good response times on enquiries.

Those are the three that people tell us about. There might be other things, as most people only tell you what they think you might be ok to hear.

It might be interesting to have some statistics on how many people who come to you and go through the exercise but don’t get funding, then settle within a couple of weeks.

I’d love to know that – you never do get to find that out.

And also the percentage of really big cases – what percentage of them have funding in place.

I suspect the number would be tiny. Really tiny. People have this notion that we’re these “all knowing, all powerful” beings…not at all.

What would you say have been the key changes – just in the last couple of years – in terms of litigation funding?

Two things, primarily.

First, the development in the number of jurisdictions that are now adopting funding. We now fund in 12 different jurisdictions.

The last remaining, what I would call, “popular” places for litigating, that are still considering their policy on funding, are Hong Kong and Singapore – and we’re just in the process of seeking approval of our funding, by the court in Ireland.

And the other thing is the use of funding by both large corporates – (we’re funding an increasing number of large corporates now) – and then by the magic circle, top 20, top 10 law firms who, having previously thought their clients didn’t need funding, are now saying, “Our clients are asking for it, so we’d better understand it”.

This assumption that clients want to carry on in the same way as they always have, just paying hourly rates without limit, is an out-dated one. When asked the question, a lot of corporates, are saying, “We don’t want to take on the financial risk of the costs of litigation. You (funder) can pay for it. And we don’t mind giving you a percentage of the proceeds at the end of it all, if the case is successful, knowing that it will cost us nothing if the case is unsuccessful.” This is an only increasing trend.

I hadn’t realised that you funded in so many jurisdictions…

It wasn’t a grand plan – it was sort of by accident. In September, we opened a new office in Hong Kong – we’ve recruited the Director of Litigation Funding, Ruth Stackpool-Moore, who was Managing Counsel at the Hong Kong International Arbitration Centre and has worked in Germany, Paris and London, to lead the growth in Asia Pacific. We are currently funding 12 cases in Australia, two in New Zealand, two in Hong Kong (where it is permitted in insolvency cases) and are likely to fund a case in Singapore shortly, again an insolvency matter.

There is a perception that you need a mammoth claim. How should lawyers decide whether funding is appropriate for their cases? Is it right that you need a multi-million pound claim before third-party funding can be a sensible option?

There are a couple of funders who are looking at smaller claims. I started life funding cases as small as £75,000 in claim value. I couldn’t make any money out of them, given the minimum amount of cost involved in any case, and that cost is substantial.

Until the costs of running litigation come down dramatically, that is going to remain the case. We find that, in the types of litigation that we see, it is almost impossible to run them for under £1 million (if considering all own side and adverse costs exposure), which is just an enormous amount of money.

In our case, our minimum claim value is £10 million because we look at cases that have a 10X differential between the claim value and the cost of running it. So, if the minimum average is £1 million, 10X means £10 million as a minimum claim value.

It makes me enormously sad because I think there are huge swathes of, what are still substantial, claims that struggle to find funding because of the amount of costs that are involved.

I think defendants know this – that the cost of pursuing them for what are really quite substantial sums is prohibitive to many. The costs of litigating can end up being an excuse for bad behaviour if wrongdoers know. One only has to look at the impact the sharp increase in issue fees in the Employment Tribunal has had. It has led to an 80% drop in cases being filed in the tribunals. The government says that it is because they have weeded out bad cases. There is a £400 issue fee and a £1,200 hearing fee. People can’t afford that for claims which are, on average, smaller than those fees.

At the moment, we can’t find a way to make funding work for smaller cases in a way which leaves us being able to support our business and the claimant still taking a meaningful amount of damages.

If there were more streamlined processes: for example if the disclosure burden was reduced, would more cases be funded?

Absolutely. It is just a factor of costs and claim value. That is the only reason. There is no other reason than that.

There is so much in litigation which is admin and is being done by lawyers in high-cost locations which should be done by, say, paralegals in lower cost locations. Focus the costs and expense on the real strategy and thinking. There is too much duplication and not enough efficient project management…all of those things…if you could get that sorted and bring the price down, then, of course, we would fund smaller claims.

We’ve been talking about the sort of claims you might fund? How should solicitors prepare if they want to approach you for a funding proposal? Do you find that there are a lot of solicitors coming to you who have not prepared properly?

Oh yes, unfortunately.

The best lawyers in the world for presenting cases are Australian lawyers. We love working with Australian lawyers. They are so organised and thoughtful about what we want to see, and they seem very focused on presenting matters to clients in a user-friendly and organised way. I say, whenever I am presenting to lawyers, if you look at a case and you think it is good, and that, if you were a funder, you would fund it, we are probably going to agree with you. There is still a terrible tendency to complicate matters or not organise thinking properly before approaching us.

And yet that seems to be very challenging, for some reason. People just don’t put themselves in our shoes. They say things like “Here’s a big data room.” I think, “I’m not interested in your big data room. Tell me the facts, tell me who is going to pay if the claimant wins, tell me what is the minimum claim value, tell me what the costs are going to be that you want me to pay, and tell me why you think the claimant should win”. That is it. It is the same every single time, and yet there are a lot of lawyers who seem to struggle to present in that way. It is very surprising to me.

Well, I guess that you think that, if they present the case well to you, they will manage it well too…

That’s a really good point. It is a sign. We ask for opinions on the merits, and summaries of the claim, to see how thoughts on the case have been organised. This is our first opportunity to do so. If you can’t organise your thoughts, then you can’t organise your case.

Lawyers are asking us for several million pounds in fees to fund these large cases. I don’t think it is unreasonable for us to say, “Can you please present this case coherently?”. We are all lawyers after all – isn’t that supposed to be what we are good at?

How is the Association of Litigation Funders operating in your view? When Jackson LJ announced the formation of ALF, he pretty much said that he strongly recommended that practitioners should select funders who are members of the ALF. Currently, there are seven funders who are members and, I understand, there are a lot more funders than that. Are you still satisfied that self-regulation provides sufficient safeguards?

First of all – to say that there are a lot of funders – I am not convinced that there are. There are a lot of people who claim to be funders who don’t have any money so they are, in fact, brokers.

One thing I say to people is, “First, check that a funder really has money”. We get asked once or twice a year to prove that we have £410 million. It’s amazing. I can’t believe that so few people ever ask to verify that information. So, presumably, they are not asking others either.

ALF works well but it is worth considering whether there is a role for, say, the MoJ to review the activities of those funders who opt not to join the ALF.

Would people who have joined the ALF want an independent body that could still come and ask questions?

I don’t think Harbour would mind. We are already regulated. We are solicitors, so regulated by the SRA. I am an FCA-authorised person, and Harbour Litigation Funding is FCA authorised. What we would object to is someone trying to suggest they should be able to set the financial terms we agree with our funded claimants – it would be wholly inappropriate to interfere in a commercial relationship in that way.

What are your thoughts on the Damages Based Agreements Regulations 2013? A sub-committee of the CJC, chaired by Professor Rachael Mulheron, has recently reported and made a number of recommendations for amendments. Are there any particular changes that you would welcome? Do you see DBAs being taken up in the market at all, currently?

Almost not at all.

I think that the real shame of them was not permitting hybrid DBAs. I think that was a lost opportunity. The quid pro quo of removing the recoverability of CFA success fees was the DBA, including hybrid DBAs. Yet the confusion over so few words is surprising – or if not surprising, it is disappointing.

In terms of changes we would welcome:

  • Clarification around what is in the DBA cap, and what is not, because I think there was a lot of confusion about what people were supposed to be paying for.
  • I still think hybrids are needed. I think that that is what the market wants. When we talk to law firms, they say, “Oh we would run the case on a risk share basis but we just can’t fund the whole case, we can’t write all those big cheques for disbursements”, in the types of large disputes we look at.

One of the things we did, to address that, is that we fund law firms so that they can offer a full DBA, then we cover the disbursements and as much of the WIP as the law firm wishes, as long as the economics of the case permit it, and then we take a share of the proceeds on success. That has been expressly approved in the latest recommendations published by the group headed by Professor Rachael Mulheron.

Has that model proved popular?

Yes, very popular: particularly within corporates and particularly in cartel follow-on actions where companies don’t know that they have lost money (because they didn’t know that they were a victim of a cartel). Their law firm says, “Do you want to spend £3 million getting back this money you did not know you had lost?” They say, “Not really.” Then, “Do you want Harbour to pay for it?”. To which they say, “Yes please and we’re happy to give Harbour a share of the proceeds if the case is successful”, happy that they are not having to find the budget for the case. They like that the law firm is acting on a DBA as a demonstration of their commitment to the case.

It was 2013 that these regulations came in. One thing I would say, as an overarching thing, is that the latest recommendations are good ones – so let’s just get on and implement them. It is about finding somebody at the MoJ who will undertake the redrafting. It needs to happen by the end of this year. Otherwise, it is going to be three years since they came in before the regulations work effectively.

Harbour Litigation Funding Practical Law Dispute Resolution Beverley Barton Susan Dunn

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