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FUNDING IN FOCUSC O N T E N T S E R I E S

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MAY 2015

2 legalweek.com Funding in Focus Content Series

As lawyers’ understanding of third party fund-ing grows, so does their willingness to use it, according to the results of a recent Legal Week and Vannin Capital survey.

However, the survey, alongside targeted interviews of both in-house and private practice dispute resolution lawyers, suggests a gap remains between practitioners’ theoretical will-ingness to use dispute resolution funding and its use in practice.

The growing enthusiasm for third party funding shown by the survey participants seems primar-ily to emanate from a strong view that it can assist businesses of all sizes to bring claims.

Proponents of funding point out that this per-ception is correct: at its core, the funding model is simple, involving little more than a third party commercial investor paying for the fees (lawyers, counsel, experts and disbursements) of pursuing a claim through to resolution. If the claim succeeds, the investor receives a return on its investment (paid from the damages awarded). If the claim fails, the funder loses all of the money it has invested. The claimant has no risk of losing money.

Without innovative fee arrangements, of which funding is one among a number of options, small and medium sized businesses, and individuals, with strong claims are being priced

out of the legal market, which is increasingly becoming the domain of entities with the deep-est pockets and a corresponding willingness to risk the costs of litigation.

The recent increase in court fees has made the position even worse for impecunious claimants: prior to the introduction of the new fee struc-ture, a claim for £100,000 incurred a court fee of £910. Now that cost is £5000. Indeed, enabling access to justice is one of the primary reasons why over 50% of the private practice lawyers surveyed said that they had offered third party funding to clients on at least one occasion.

Anneli Howard, competition law barrister at Monckton Chambers in London’s Gray’s Inn, says that in her specialism “third party funding has totally opened up opportunities for claim-ants to bring claims in what is an incredibly technical area”, adding: “competition law damages claims can take a minimum of three years, involve detailed economic analysis and extensive disclosure, with costs running into millions of pounds.”

Increased efficiencyAgainst the backdrop of rocketing court and wider costs, requiring lawyers and their clients to think creatively about funding, it is easy to see why third party funding has so quickly woven its way into the psyche of dispute resolution lawyers.

Interestingly, Noah Rubins, dispute resolu-tion partner in the Paris office of Freshfields Bruckhaus Deringer highlights that third party funding can also resolve many of the concerns

Hitting the mainstream: How litigation funding is becoming a thriving industry

Can third party litigation funding provide access to justice and put claimants in a stronger bargaining position?

Are worries about loss of case control and regulation exaggerated? Legal Week Intelligence and Vannin Capital

examine the rise and popularity of litigation funding and what this means for the legal market

In a claim funded by Vannin Capital, Gul Bottlers - a family run company - was awarded

£8 million damages in a dispute with the global soft drinks manufacturer behind the

Vimto brand, Nichols Plc. [Gul Bottlers (PVT) Limited v Nichols Plc [2014] EWHC 2173]

The claimant instructed litigation partner Robert Wheal at White & Case, who explained after judgment: “Our case could not have been brought before the courts without litigation funding. The Claimant was based abroad and was unfamiliar with the whole process of bringing proceedings in England. Furthermore, although it had faith in the English Court system and the merits of its case, it did not want to spend money on litigation which could otherwise be invested in its business. Third party funding enabled it to bring its case and fight it successfully through to judgment. Without funding, a winning case might not have been brought. With funding, we were able to retain a first rate expert, instruct good counsel and devote the time needed to win the case. The funder made that possible but did not interfere at any stage.”

Case Study - Gul Bottlers

legalweek.com 3Funding in Focus Content Series

‘Third-party funding is an important tool that will become increasingly common’

Charles Lightfoot, White & Case

raised in connection with contingency fee arrangements: “A law firm - no matter how fo-cused on contingency arrangements – cannot diversify risk nor calculate its magnitude with the same efficiency as an organisation that does nothing but this.

Also, contingency arrangements can create perverse incentives and tensions with ethical standards, especially when it comes to the possibility of settlement. It is better to eliminate that tension by allowing the lawyer to focus on best serving the interests of the client, rather than his own interests, in conducting the litiga-tion. Third party funding allows this to happen while still satisfying some clients’ preference (and some clients’ absolute necessity) to miti-gate risk and cost.”

As well as impecunious claimants, large, well-resourced organisations and their representa-tives are also being persuaded of the benefits of third party funding. These organisations may have the resources to finance multiple claims, but funding is increasingly being viewed by larger companies as a commercial risk management tool with which to hedge uncertainties and costs attached to large-scale disputes. Funding takes the claim off balance sheet, ensuring that the cost of the claim has no impact on EBITDA and reduces or, in many cases, eliminates internal legal spend.

While a financial director may have the funds to pay for an action, by deploying litigation funding they can choose to invest those funds elsewhere: given the potentially costly, pro-longed and changeable nature of litigation and

arbitration, this is very attractive. Or a financial director may have pursued a piece of litigation or arbitration only to reach the limit of the available budget before the case is concluded – a litigation funder can step in at this stage. The key advantage of the funding model is that it offers companies the ability to bring litigation with little or no cash-flow burden or financial risk.

Expressed that third party funding can promote access to justice without imposing financial burdens on defendants

73%

Welcome to the first instalment of the content series Funding in Focus, a twice yearly

research collaboration between Legal Week and Vannin Capital about third party

litigation funding running from 2015-2016. Funding in Focus aims to lead the discussion on how third party litigation funding is opening up the justice system to individuals and businesses across the globe.

The series will examine the viewpoints of key players in the litigation process, who will include private practice lawyers, in-house counsel, financial directors and barristers.

Each report will feature the perspectives of leading legal and financial minds, including:

• Opinion pieces discussing pressing legal issues pertaining to funding including cost, risk, conflicts of interest and funder regulation• Market intelligence from private practice and in house lawyers who are most likely to question and potentially benefit from litigation funding • The views and opinions of financial directors on how litigation funding can help manage risk and minimise costs • Analysis of the world’s leading litigation funding markets • Industry sector insight where litigation funding is making the biggest waves and holding the greatest opportunities

Join the discussion here: http://www.legalweek.com/legal-week/special/2380700/commercial-disputes-in-focus-the-future-of-funding

Introducing Funding in Focus 2015-16 Legal Week & Vannin Capital


Tomaso Calcaterra, global commercial finance leader at GE Power Conversion says: “As a financial proposition third party funding of commercial claims makes perfect sense in certain situations for well capitalised compa-nies. First, we are not always the best placed to determine the legal risk of a claim and the intervention of a third party funder is very valu-able to assess the sheer economic value of a claim after having performed their extensive due diligence.

We are not in the business of optimising litiga-tion, but third party funders are. Furthermore, in terms of a company’s balance sheet, a claim is nothing more than an asset with a potential value. The asset’s value can be unlocked at no risk for a company with third party funding.

The availability of cash is naturally an important criterion. Some businesses are more sensi-tive to investing their limited cash on dispute resolution because they need that money to run a cash intensive operation. In summary, it’s a matter of horses for courses when it comes to the option of using third party funding but it seems illogical not to consider the option at all. Naturally, high or low borrowing interest rates should also be factored into the decision.”

Constantine Partasides QC, a partner at international arbitration specialist law firm Three Crowns, comments: “You don’t have to be an opportunistic claimant to find third-party funding interesting. You might well be a blue chip that finds as a matter of fiduciary duty you need to pursue a claim but would rather not expend ill-defined and unlimited amounts in fighting it, and would therefore find third-party funding a useful way of discharging your duty to your shareholders, that is to say, to pursue the claim while taking on limited risk.

“We are starting to see blue chips thinking about third-party funding as a smart way of managing litigation and arbitration portfolios.”

Indeed, existing general counsel behaviour provides a clue as to why they are increasingly interested in the funding model.

It is well known in the industry that fund-ing unlocks “sleeping beauties” – claims that would not otherwise be run, or at least pursued as effectively, without it. The decision whether or not to use vital funds to fight litiga-tion presents a dilemma and a complicated cost-benefit assessment for companies. One should not forget the distraction that litigation can cause a business or underestimate the value of the resources that would otherwise be used to fund the litigation being deployed elsewhere in the business, allowing for more positive growth. Litigation funding enables companies to avoid making the difficult choice whether to spend money on a meritorious claim or on the core commercial activities of its business.

The survey also highlights a level of discon-nect. While a majority of general counsel remain open to the suggestion of third party funding, many law firms appear reluctant to discuss the model with their clients. Given in-house lawyers’ openness to funding, this seems like a missed opportunity.

“That’s the main issue for third party funding – lawyers are afraid of it,” claims Ann Benzimra, a commercial litigation and arbitration partner at Hill Hofstetter.

Benzimra’s firm have employed the third party funding model in several matters. But, she says, private practice lawyers generally “don’t

understand it, and therefore they hope clients won’t want any further explanation…”

While some private practice lawyers cite simplicity of the funding model as the main reason that they would consider using it, Benzimra seems to disagree, “Many in the legal profession put third party funding in the ‘too difficult’ pile. Lawyers as a breed are quite stick in the mud and don’t like change. They like to do things in a clear way that they under-stand – they bill and get paid”.

Could one reason for this disconnect be unwillingness on the part of the lawyers to discuss with their clients what they may see as an embarrassing issue around the costs of funding a claim or a lack of the same? Funders maintain that their model is straight forward: the funder pays the fees of the action in the same way a client would – the lawyer issues an invoice and it gets paid. If the claim is successful, once damages are paid, the funder receives either a multiple of the funds advanced or a percentage of the recovery, which-ever is greater.

‘That’s the main issue for third-party funding

- lawyers are afraid of it’

Ann Benzimra, Hill Hofstetter

Capital adequacy of fundersThe code requires funders to maintain adequate financial resources at all times in order to meet their obligations to fund all of the disputes they have agreed to fund, and to cover aggregate funding liabilities under all of their funding agreements for a minimum period of 36 months. Termination and approval of settlementsThe code provides that funders must behave reasonably and may only withdraw from funding in specific circumstances. Where there is a dispute about termination or settlement, a binding opinion must be obtained from an independent QC, who has been either instructed jointly or appointed by the Bar Council. ControlUnder the code, funders are prevented from taking control of litigation or settlement negotiations and from causing the litigant’s lawyers to act in breach of their professional duties. This is in line with the practice, in England & Wales, of keeping the roles of funders, litigants and their lawyers separate. Because of their interest in the litigation, funders may ask to be kept informed of the progress of the case.

Taken from the Association of Litigation Funders website: http://associationoflitigationfunders.com

Key aspects of the ALF Code of Conduct


Of in-house respondents said they would be open to using third-party funding

Said they would have altered their approach to a matter if they had known the other side was funded

74%Of private practice respondents said client budgeting issues had forced them to settle an action for less than its true value

66%52%

49%Of in-house respondents cite loss of control of the action as something they are ‘very concerned’ about when considering funding


Is there a real risk that funders will fund spurious claims?Despite the positivity within the legal com-munity about dispute resolution funding, there are a number of vocal critics of it. Leading the pack is the US Chamber of Commerce’s Institute for Legal Reform, a lobbying group that represents large American corporations. Representatives from the Institute are known to lobby Whitehall and Brussels, preaching what they maintain are the dangers of third party funding – chiefly that it will let loose the hounds of a US-style compensation culture on the UK and Europe, encouraging claimants to bring unmeritorious claims which are costly and time consuming for businesses to defend.

In reality, as a general rule, litigation funders require claims to have, on an independent analysis, a greater than 60% chance of suc-cess. While this is not an exact science, it is not in funders’ interests to fund unmeritorious claims. The risk of losing their investment, which is usually substantial, is just too high and puts them at risk of not making a profit.

While there is a clear business agenda behind the arguments raised by the Institute, the sceptics also invoke ethical issues around a system where one party has an exclusively commercial interest in the outcome of a piece of litigation.

While funders monitor and follow the progress of the litigation, as prescribed in their funding agreement, they will not influence its conduct. Decisions during the litigation process, such as which lawyers to instruct, remain exclusively a matter for claimants. Similarly, claimants and their lawyers jointly retain control over the strategy of the action, not least, and crucially, over whether, when and for how much to settle.

As Christopher Kinsella, a former chief financial officer for the Dyson Group and TI Automotive and now a member of the UK government’s Industrial Development Advisory Board, com-ments: “Commercial sensitivity, reputation and control are all questions for third-party funding. It is crucial to recognise during litigation if we have reached a point where the case is not worth pursuing any further, and to take the prag-matic option to settle. You need absolute control over that situation as a litigant.”

David Greene, the senior partner at boutique London litigation law firm Edwin Coe, agrees. Whilst still unsure over how much of an impact third party funding will ultimately have on the wider market, he says ethical concerns have been over-emphasised and, as with other fund-ing models, they will be surmounted.

“You have to face reality,” says Greene. “Claim-ants have an entitlement to enforce their rights and go to court. How will they fund doing so? We’ve overcome the ethical questions around solicitors acting on a conditional or contingen-cy fee. Modern day litigation has addressed those ethical questions and come up with practical answers.”

Should the existence and terms of a funded claim be disclosed in all or in some circumstances? The notion of disclosure of a funder has given rise to much debate. From a claimant’s point of view, there are risks and benefits associ-ated with each course of action.

A claimant disclosing that they are funded, es-pecially in the context of international arbitra-tion, addresses the risk of a potential conflict of interest accusation head on. The disclosure would put the arbitrators in a position of knowledge and they could then examine their past or existing relationship with the named funder and disclose, if necessary, that relation-ship. This would naturally protect the integrity of proceedings or, more importantly, of the consequential decision.

Disclosure of funding may, however, either lead the court or the tribunal to award security for costs or to draw inferences from the existence of the funder which may modify its appreciation of the facts and the law.

Over 70% of respondents with in-house posi-tions who took part in our survey said that their own strategy in a dispute would be differ-ent if they knew that the case against them was funded.

As pointed out by Charles Lightfoot, partner in London at the international law firm, White & Case: “In any system that involves a loser-pays principle, there is an argument that funding ar-rangements should be subject to disclosure.”

There seems to be a consensus among the private practitioners interviewed that the deci-sions on costs are really the area where the disclosure of the fact of funding is the most relevant and important. As noted by Khawar Qureshi QC from Serle Court Chambers: “There may be a marked differential in terms of the rates and amounts paid in legal costs where litigation funding is in place as opposed to payment by a client itself. “A court or tribunal assessing costs may benefit if it is able to ascertain whether the funding arrangement is a material factor in this regard.”

For private practice respondents to the survey, the issue of regulation was a significant con-cern, with a majority of respondents highlight-ing this as an issue.

For Arif Kamal, chief financial officer at London law firm Thomas Cooper: “A serious issue is that third party funding is largely unregulated. And the Excalibur case though now sometime back, caused significant concern. A general view is that third party funding has not been welcomed by many parts of the legal profession, and the fallout from Excalibur has painted the funding model as being profit hungry with no regulation.”

In fact, as highlighted by the court (Christopher Clarke J), the funders did not act improperly in that case rather than counsel for the claimant and its appointed expert. However, the court did sanction the funders for failing to under-take their own due diligence on the case and to monitor it appropriately. The cost decision in the Excalibur case is far from a blow to the funding industry. Instead, Excalibur has highlighted that, as with any investment in the technical fields of law or finance, it must be undertaken with professionalism and strict due diligence standards must be met.

Professional third party funders, such as Vannin Capital, expend a considerable amount of time and resources reviewing cases so as to assess their chances of success. The process is over-seen by experienced dispute resolution lawyers to ensure the quality of the due diligence and the ethical transparency of the process. Addition-ally, and importantly, the Association of Litigation Funders, of which Vannin Capital is a founding member, has a clear code of conduct by which

‘A law firm - no matter how focused on contingency arrangements - cannot diversify risk nor calculate its magnitude with the same efficiency as an organisation that does nothing else’

Noah Rubins, dispute resolutionpartner at Freshfields

54%In-house

46%Private Practice

Respondent split( 252 in total )


‘The asset’s value can be unlocked at no risk for a company with third party funding’

Tomaso Calcaterra, Global Commerical Finance Leader at GE Power Conversion

57%Of in-house counsel respondents feel it is very important for a funder to be a member of a regulatory body such as the ALF

all its members must abide. Among other things, the code requires members to meet strict capital adequacy and confidentiality requirements.

While membership of the association is vol-untary and awareness of the association and the code among the wider legal community remains limited, its importance and signifi-cance are clear.

ConclusionThere is no doubt that litigation funding is be-coming more mainstream. Its evolution in recent years has been significant. Its use and availabil-ity is increasing with a number of sophisticated and well-resourced players in the market.

Those who have used litigation funding are generally positive about the experience they have had and regard it as inevitable that third party funding will become a solid and well used fixture on the UK and international litigation and arbitration scene.

From Vannin’s perspective, provided claimants use third party funders that are members of the Association of Litigation Funders and therefore well established, experienced and regulated, the commonly held concerns about litigation funding that many dispute resolution lawyers have should fall away and because Vannin understands those concerns, its business model and approach are designed specifically to address, answer and eliminate them.

If anything is missing, it is the availability of ad-equate information to potential claimants about third party funding. That is easily rectified by the recognition from both funders and lawyers of the need to make that information more readily available and by greater co-operation between them to bring it about.

‘We are starting to see blue chips thinking about third-party funding as a smart way of managing litigation and arbitration portfolios’

Constantine Partasides QC, a partner at Three Crowns LLP


Notwithstanding that it is a foreign emotion for the stereotypical accountant, the group of people who are perhaps most likely to get excited about litigation funding are finance directors.

By partnering with a litigation funder, a claim-ant can entirely de-risk the financial costs of litigation, transforming it from an exercise with an unknown cash commitment for an un-known period of time (an accountant’s worst nightmare) to one with zero cost outlay and only upside potential.

Litigation is expensiveIt is also an unfortunate truth that litigation is now an accepted part of modern busi-ness. As companies grow, they will inevitably undertake litigation and, in all likelihood, the amount and cost of that litigation is likely to increase in proportion to the growth in size of the company.

According to the 2014 Litigation Trends Survey by Norton Rose Fulbright, the percentage of large US companies spending $1million or more per annum on litigation increased from 53% in 2012 to 71% in 2013.

Further, the percentage of larger companies ($1bn+ revenues) spending $10m or more annually on litigation increased for the second consecutive year to 43% (2012: 33%, 2011: 19%).

With the ever increasing costs associated with pursuing litigation, coupled with the fact that businesses have never been under more

pressure to reduce outgoings, even a claim with strong legal merit must be subjected to a cost/benefit analysis to determine whether a company can afford to pursue its right to justice.

Costs and RisksAnyone who has ever been involved in litiga-tion will attest that despite the best attempts of lawyers to budget and timetable, the pro-cess will invariably cost more and run longer than first predicted.

In addition to the cost uncertainty, the follow-ing must always be considered:

• the outcome of litigation is never certain so, even those with the most meritorious claims are not guaranteed that their expenditure will result in a successful resolution; • the amount of management time that will be devoted to monitoring the claim and debating the merit of the ongoing expenditure may well be better used leading and growing the under-lying business; and - if the claim is lost, the claimant is likely to be required to reimburse the defendant for the legal costs they have incurred in defending the claim.

No finance director finds it comfortable to request his board to release funds in order to pursue a claim in the knowledge that there may be no return as well as further cash expo-sure if the case is lost.

However, by utilising the services of a litiga-tion funder, a company can eliminate all of

‘In partnership with a litigation

funding provider a claimant

can derisk the litigation process,

turning the pursuit of a claim

into an upside-only investment’

Zac Hall, Bramden Investments

While the benefits of litigation funding are increasingly understood by

lawyers, its valuable benefits from the perspective of financial directors

are rarely discussed. Zac Hall, an investment manager of Bramden

Investments, the private equity company that invests in Vannin Capital,

explores litigation funding as a new, lucrative form of cost risk mitigation

and investment potential.

A finance director’s view on third-party funding


the above risks surrounding the pursuit of litigation.

ProcessWorking under strict confidentiality obliga-tions, a funder will use litigation experts, including solicitors, barristers, judges and other experts to validate the merits of a claim, the likelihood of success and the anticipated quantum to be recovered.

If the claim is considered strong enough, the funder will present the client with an offer to fund all fees related to the claim on an agreed profile that is matched to the anticipated life cycle of the case, meaning zero cash flow exposure for the claimant for the duration of the litigation. The funder will also arrange insurance or an additional facility to cover any adverse costs exposure in the event of an unsuccessful claim.

BenefitsThe first and most obvious benefit of such an arrangement is that by removing all the claim-ant’s obligations for legal fees and adverse costs, a claimant can pursue litigation without fear of EBITDA or cash erosion. Furthermore, all liabilities, including contingent liabilities for adverse costs remain completely off balance sheet.

In addition to the financial benefits, funding offers: • free, independent validation of the legal and commercial merit of a claim from highly quali-fied and experienced practitioners;

• access to an additional team of litigation experts who will monitor the progress and tactics of a claim at no cost. With completely aligned interests, the funder and its team will hold lawyers to account and be on hand to provide additional views on the course the liti-gation is taking. However, at no time will they (nor indeed are they permitted to), take control of the litigation. This control is sacrosanct and always remains with the claimant; and

• the ability to make the defendant aware that funding has been obtained. It not only indicates that the claimant is sufficiently capi-talised to see a claim through to trial, it shows that an experienced third party has reviewed and validated the merits of the claim.

Another major advantage of third party fund-ing is that it gives the claimant the opportunity to augment or improve its legal representa-tion.

The importance of hiring appropriate profes-sionals cannot be overstated. The litigation process both prior to and during trial is a niche

quantum recovered, whichever is the greater.

However, this cost won’t have any adverse impact on the claimant’s P&L as it is only incurred if the case is successful and if the quantum is recovered. One major issue in the litigation process that is often overlooked is that even if your claim is successful, you are reliant upon the defendant actually being able to pay the judgment. Again, by utilising the capital of a third party funder, that risk is eliminated. If the defendant cannot be made to pay through the enforcement process, it is the funder that loses out, not the claimant.

To fund or not?From the perspective of a finance director, the decision of whether to use funding is very simple. Do you completely de-risk the litigation and make the pursuit of your rights risk and cost free? Or, do you spend the next three, four, five or more years constantly reallocating cash from elsewhere in the busi-ness whilst still carrying the risk of a negative outcome? Prudency suggests that you should use funding whenever possible.

Zac Hall is an Investment Manager at Bramden Investments, the private equity owner of Vannin Capital. With almost a decade of experience working in the City of London as both a finance lawyer and a corporate banker he is assisting a growing number of finance teams to appreciate the benefits of dispute resolution funding.

and highly specialised area and, as a result, is heavily influenced by the lawyers involved. It is vitally important to have a legal team which is adequately resourced and appropriately experienced so that it not only ‘keeps up’ but instead leads and influences the course of proceedings.

When you partner with a litigation funder you know that they are motivated to ensure that the best legal team with the necessary specialism is instructed to achieve a mutually beneficial outcome from the litigation.

Cost Centre / Profit CentreCorporate legal teams are under growing pres-sure to improve their efficiency and reduce costs. A January 2015 survey of Fortune 1000 companies by Consero Group found that 72% of respondents reported increased pressure to manage legal spend.

Savvy finance directors, especially those whose employers are often subject to litiga-tion or who have an existing portfolio of claims, will also see an opportunity to turn legal teams/litigation departments from cost centres into potential profit centres. By utilis-ing funding, management can redirect a large amount of allocated expenditure toward ad-ditional growth projects that would otherwise have been shelved, perhaps indefinitely. If and when the funded litigation is successful, the claimant is still able to reap a reward for the rights it has been able to enforce.

Funding StructureClearly a litigation funder itself is in business and requires a return on what is a high risk capital investment. That cost is typically the return of capital invested plus either three times the amount spent or 25% to 40% of the

A company is deciding whether to embark on a £30m claim which its lawyers’ have advised has a 60 per cent probability of success, with each side expecting to incur legal of fees of £2m. If the company was to self-finance, the legal costs of £2m will be expensed in the P&L every month and year that they occur and thus reduce the company’s EBITDA. In addition, a contingent liability may need to be disclosed in the accounts to cover the defendant’s costs in the event the case is lost. If the case is successful, due to the accounting treatment of litigation the recovery is recorded “below the line” as a non-recurring or extraordinary item.

If the company brings the same case but secures litigation funding, where the terms stipulate that the funder will take the greater of x3 the funding advanced or 30 per cent of the damages in the event that the claim is successful, it will have a P&L impact of £0 (the funder picks up the legal fees) and no requirement to disclose a contingent liability (the funder pays the defendant’s legal fees in the event that the case is lost).

In this instance, management will weigh up whether to risk £4m and suffer years of EBITDA impact to possibly recover £30m or to risk nothing with the potential to recover £21m.

Case Study


Once upon a time, litigation funding was champertous and unlawful. We are living in a brave new world where litigation funding creates new opportunities and new risks. The law of legal professional privilege is an area which has to adapt to the relationship between funder and litigant.

The funders will want to see advice from lawyers who have conduct of the poten-tial litigation. The lawyers will not in such circumstances act for the funders: on the contrary, there will be a potential conflict between the interests of the funders (getting objective advice which will enable them to decide whether to fund on the best terms available) and the client’s lawyers (whose duty is, within the limit of their professional obligations, to further the interests of the client).

Client privilegeSo if the lawyers do not act for the funder but the client, there is no relationship between the client’s lawyer and the funder, which creates privilege. The lawyer is not giving the funder legal advice or litigating on the funder’s behalf. The privilege is that of the client.

The client will authorise the lawyers to pro-vide an opinion to the funders. It should be an opinion addressed to the client which rep-resents the legal advice given to the client. This is logical, because the funder will want to know what legal advice is being given to the client by the lawyers. The opinion when sent will be the confidential legal advice given to the client, sent to the funder with a view to satisfying the funder that the case is strong enough to justify funding. Whether by means of the principle of common interest privilege, or the principle of limited waiver, there should be no difficulty in claiming

privilege for that legal advice in the hands of the funder. If A shows the confidential legal advice which he has received to B, so long as the advice is shown in confidence, there is no difficulty in both A and B claiming privi-lege. Only the client can waive that privilege. Similarly where other materials prepared for the client and privileged through the client’s litigation privilege are sent to the funders, no problem arises.

It is to be emphasised that, in relation to communications between the client’s so-licitors and the funders, the funders do not have any relevant privilege of their own – it is the privilege of the client.

When updates are provided in the course of the litigation, then it is equally important that the updates are provided to the client and copied to the funder, for the same reason. If what is being referred to is legal advice, then even if the letter from the solicitors merely summarises the legal advice given to the client, there is no problem as the letter is secondary evidence of the legal advice given to the client and privileged in the funders’ hands. Information as to progress of a case in court will not be privileged if it simply a summary of what occurred in open court, but if it contains an analysis, it will be treated as legal advice.

In the context of a proliferation of litigation funders and funded

cases, Brick Court Chamber’s Charles Hollander QC considers

the often thorny issue of privilege

The Legal spotlight: A question of privilege

‘The lawyer is not giving the funder legal advice or litigating on the funder’s behalf. The privilege is that of the client’


Internal communicationsThe legal advice received and prospects of success in the proposed litigation may be discussed internally within the funders’ office. The funder may want to be confident that a claim for privilege could be made for these communications. However, if there is an internal discussion by email or similar within the funder’s business, it is not by any means clear that there is a basis for privilege. The same issue applies where a company discusses internally what commercial steps to take in the light of legal advice received: if the communications go beyond repeat-ing the legal advice, there may be problems claiming privilege.

Such internal communications within the funder’s business should not, however, nor-mally cause problems. Firstly, the funder’s documents will not be within the client’s control and thus it is only if the funder becomes a party to litigation (or perhaps in the unlikely event that a witness summons is served on the funder) that disclosure is likely to be an issue. Secondly, it is not at all obvious that such documents will be relevant to the litigation, as they will merely involve discussion of legal advice or legal merits in circumstances where the parties to the emails have no personal knowledge of the relevant events; documents are relevant and disclosable only where they deal with the is-sues in the case. Nevertheless, there may be circumstances where some such documents could be relevant (such as if they refer to what a witness has said when proofed).

The best protection for such communica-tions can be obtained by taking advantage of the legal structure within the funders’ business. So long as there are qualified solicitors or barristers performing a legal function within the funder’s office, there is no reason why they should not be asked to advise the funders in order to inform the de-cision whether funding should be given. The position is the same as an in-house lawyer asked to advise the company which employs him on legal issues. Certainly issues of this nature will be part commercial and part legal, but if the purpose of asking for advice from the in-house legal function is to ask them to “put on legal spectacles” then the funders can claim their own legal advice privilege for such internal communications.

Legal advice privilegeLegal advice privilege (as opposed to litiga-tion privilege) can only be claimed for com-munications between the “client” and the le-gal adviser, according to Three Rivers District Council v Bank of England [2003]. So there should be a request from the executive func-tion (for this purpose the “client” but still part of the funders office) to the legal function (the in-house legal arm of the funder’s office) to give legal advice as to the merits of fund-ing a particular piece of litigation. The legal function can be separated for this purpose from the executive function and structured so that opinions can be discussed within that legal function in the same way that an external law firm can discuss views within the firm without any problems in claiming privilege for those internal documents.

In this way internal emails within the legal function of the funder’s office will be privileged, and the legal advice given to the executive function as to the funding advice is also privileged. What should be avoided so far as possible is emails within the executive

function discussing the merits and demerits in a way that might be problematic if ever disclosed. The important matter to have in mind is that the funders themselves can only claim privilege for their own internal (or external) legal advice; otherwise the only relevant privilege is that of the client.

Litigation funding is creating a variety of

new issues in litigation and privilege is an obvious issue. However, with some careful structuring as suggested above it should be possible to avoid problems. The commercial court grappled with analogous problems in the Accident Group litigation, when insurers sued large numbers of solicitors who vetted personal injury claims for after-the-event insurance and privilege issues arose be-tween insurer and the solicitors being sued in relation to the ultimate clients, who were not involved in the litigation but were entitled to the privilege. It is only a matter of time before there is case law in relation to legal professional privilege in relation to funders.

The 12th edition of Charles Hollander’s book, Documentary Evidence, will be published in May 2015

‘With some careful structuring, it should be possible to avoid problems’

‘Litigation funding is creating a variety of

new issues in litigation and privilege is an

obvious issue’

Charles Hollander QC


When it comes to third party funding, as a jurisdiction, Australia is at the forefront. The passing by New South Wales of the Main-tenance, Champerty and Barratry Abolition Act in 1993 enabled Australia’s first foray into dispute resolution funding. Prior to that, because of the English common law doctrines of maintenance (where a person supports litigation in which that individual has no legitimate concern) and champerty (where one party financially maintains another in litigation and then takes a share of the damages), it had historically been illegal.

The progressive approach to dispute resolution funding adopted in Australia has resulted in a now well-established funding regime which, since 1993, has gone from strength to strength.

However, as with any new or novel concept, reaching the mainstream status that funding has in Australia today was not without its hur-dles. It was eight years after the Maintenance Champerty and Barratry Abolition Act before the country’s largest funder - Bentham - was given the green light to bring the third party model to bear on a class action claim. Three years later, in a landmark move, Bentham was listed on the Australia Securities Exchange, further solidify-ing its position in the market - and third-party funding generally - by moving into funding large insolvency and class action suits.

What really propelled third party funding in Australia into the mainstream was the 2006 High Court ruling of Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd. In that case, the court decided that third parties could indemnify litigants in exchange for a percentage of dam-

ages recovered, paving the way for the third party funding regime as it exists today.

Major forceSo, with the open road created by the Fostif decision, how has the funding model evolved in Australia? The consensus view is that it has become a major force on Australia’s litigation scene. Initially applied in insolvency cases, the funding model is now used widely across almost all areas of litigation, but most widely in class actions.

This is emphasised by the Federal Government Productivity Commission’s recently published final report about access to justice, which ad-dressed the issue of litigation funding head on.

One of the report’s three core recommenda-

tions goes straight to the heart of the third party funding market in Australia. It calls for the introduction of a regulatory system for funders to:

• ensure funding agreements are fair; • prevent funders from exercising too much control over proceedings; • avoid conflicts of interest between funders, lawyers and claimants; and • ensure funders have sufficient capital.

More specific details of the proposed regula-tion have not been published and, by its silence, the Commission has chosen not to recommend a particular regulator to over-see the regime. However, analysts including lawyer Moira Saville at King & Wood Mallesons in Sydney, have written that there is likely to

The view from abroad: Australia

In ‘the view from abroad’ section, we take a closer look at Australia - one of the world’s

strongest and most progressive third party litigation funding markets

Key players

• IMF Bentham • LCM Litigation Fund • Litigation Lending Services • Hillcrest Litigation Services • Quantum

Two funders Listed on the Australian Stock Exchange

$1.5bn collected by IMF Bentham on behalf of clients to date

175 funded claims by LCM Litigation Fund in Australia to date.

$200m the largest settlement of a securities class action in Australia with AUD 150 million allocated to

clients backed by litigation funding.

$2.6bn - Total value of cases funded (from mid 1990s-2009)

760 days - Average duration of funded proceedings

Regulation

• Minimal regulation with no licensing or supervision requirements and not regulated as a credit provider

• Establishment of an advisory panel on litigation funding is under consideration by the Government (AG’s office)

Snapshot: The Australian third-party litigation funding market

‘The market has increased in recent years’

Neil Cussen, Partner, Sydney office of Deloitte


be a three-tiered approach to third party fund-ing regulation using the courts, the Financial Ombudsman Scheme and, where necessary, amendments to existing legislation.

More broadly, commentators suggest that there are two primary reasons for the success of third party funding in Australia:

1) Conditional fee agreements are banned meaning that other means of funding the in-creasing costs of litigation must be found; and 2) The before- and after-the-event insurance sector is relatively weak, meaning that third-party funding fills the gap, providing a less risky method for litigants to cushion the blow of losing an action.

However, more than that, it is widely acknowl-edged that law firms and their clients have seen the real benefits that third party funding of disputes can bring.

“The market has increased in recent years,” comments Neil Cussen, a partner in the finan-cial advisory department of the Sydney office of Deloitte, who has two decades’ experience of the model as applied specifically to the insolvency field.

“There are now numerous funding suppliers,” explains Cussen, “that are tied to various legal practitioners and firms providing services in the small to medium-sized enterprise, middle-market and top end of town sectors.”

More relaxedGavan Griffith QC, who was Australia’s Solicitor-General for 14 years until 1997, and now practises mostly as a presiding arbitrator out of London in commercial and investment disputes, comments that some jurisdictions, including Australia, are more relaxed than England with respect to the rise of litigation funding.

Griffith says: “For example, Australia has long abolished champerty and is comfortable with litigation funding to carry commercial and tortious class actions and also for single claim-ants. There funders are accepted as an every-

‘In Australia, funders are accepted as an everyday part of legal disputes’

Gavan Griffith QC

Total value of cases funded in Australia from mid 1990s to 2009

$2.6bn

day part of legal dis-putes, and the con-ventional procedures for security for costs may be invoked by de-fendants whether or not a funder is involved. In Australia there is no inhibition to funding arbitration claims, but also no reported experience of security for costs orders being applied for where funders are involved.”

For their part, Australian claim-ants broadly appear to have embraced the funding model. In so doing, they seem to have recognised the benefits that fund-ing brings. These include access to justice in circumstances where, if funding wasn’t available, impecunious claimants would not have been able to bring their claims at all and a recognition of the commercial benefits of funding for well-funded claimants, including freeing up capital that would otherwise have been used to fund the litigation and taking the costs of the litiga-tion off balance sheet.

Next issue focus: Russia


Electrical power production and distribution disputes are among the most prevalent types of dispute in the world. It is a vital resource, expensive to produce and distribute. The shift away from coal and gas to renewables and the debate over the benefits of nuclear power seem likely to keep this sector contentious, especially in Europe.

The International Centre for Settlement of Investment Disputes’ (ICSID’s) 2014 statistical report shows that the electricity sector gener-ates more disputes than any other European sector. Furthermore, electricity disputes are among the most high-profile, complex and high-value cases in the world. According to the International Chamber of Commerce (ICC), 15% of disputes in 2012 concerned electric-ity, while ICSID reported that 30% of new cases in 2014 related to electricity production or distribution. Furthermore, according to the United Nations Conference on Trade and Development, the Energy Charter Treaty (ECT) is the second-most used investment treaty in investor/state dispute settlement – the vast majority of such disputes concerning electric-ity production and distribution.

Electricity disputes are frequently and increas-ingly about big money. According to the American Arbitration Association there was a 600% increase in the largest energy claim in just three years from $60m (£40m) in 2008 to $360m (£240m) in 2011. Also, consider the re-cent ‘mega’ cases: the Yukos cases; Libanan-co Holdings Co. Ltd. v. Turkey; and Vattenfall v. Germany – all concern electric power.

Against this background, collisions of interest between investors and states are inevitable. ICSID regularly produces statistics that indicate that in investor/state disputes, respondent states prevail against claimant investors 40% of the time, claimant investors prevail 30% of the time and disputes are discontinued or settled about 30% of the time. Of these latter disputes, most are discontinued at the request of both parties (34%). The next most common reasons for a case failing to reach judgment are a settlement agreement (22%) and the lack of payment of the required advances (22%).

These statistics suggest that of the 463 disputes by investor claimants last year at ICSID alone, 183 will fail and 140 will suc-ceed. Of the remaining 140, more than half, 78, will reach agreement. The remaining 62 will discontinue, the majority owing to a lack of funds.

But to what extent does this pattern apply to electricity disputes? And are country-specific and region-specific factors likely to have an impact? In a market worth billions of euros a year, it is worth exploring what the statistics and experts tell us about electricity disputes in Europe.

Who wins, where and why? Vannin has identified more than 70 significant electricity disputes at various stages across Europe from its own case reviews, a statisti-cal analysis of data sourced from IA Reporter, Encharter.org, GAR and newspaper and in-dustry articles. The results have been broken down so that they focus on Europe’s three largest economies – Germany, France and the UK – and by region, covering Northern Europe, Southern Europe, and Eastern and Central Europe.

In the UK, the most striking aspect of electricity disputes is that the claimants have won 75% of the disputes, mostly against Eastern European and Russian respondents. Furthermore, de-spite its 120 bilateral investment treaties (BITs), the UK is yet to face a claim under a BIT. Given pending electricity constraints and the migra-tion towards renewable energy, many experts believe the UK and UK entities will become more and more active in electricity disputes.

German entities have recently been involved in 11 major electricity disputes. Germany has been a respondent in two of these disputes - one of which has settled while the other is pending. The disputes primarily stem from electricity production and/or distribution in Eastern and Southern Europe. If the nine major claims by German entities are consistent with the general pattern of claims by Northern European entities, we might expect that five of these nine will either succeed or settle.

France is home to the fewest electricity dis-putes, for now. This is likely to reflect its energy security as Europe’s primary net exporter of electricity and its geographical advantage, which allows it to be an excellent hub provider of elec-tricity. While many disputes not in the public domain are undoubtedly taking place, it would appear that France and French entities actively pursue negotiated settlements. However, as Eu-rope’s single largest promotor of nuclear power and Europe’s largest net distributor of electricity, access to that network may prove fertile ground for disputes in the future.

In Northern Europe there are 14 major pending cases, the vast majority of which appear to be against Southern and Eastern European state

Next issue focus: Telecommunications

In the ‘industry focus’ section, we will focus on a specific industry and what it reveals about the legal landscape from the perspectives of claimants, lawyers and funders. In this edition, we examine electrical power disputes in Europe, the causes for these disputes, who is winning, where and why and how new litigation and arbitration opportunities loom large on the horizon.

Who wins, where and why? Industry focus: Electrical power

‘As Southern, Eastern and Central

European States continue to modernise

and liberalise the production and

distribution of electricity the number, value and complexity of disputes

in this sector seem likely to increase.’

Iain McKenny


Increase in the largest energy claim in just three years from 2008

600%entities or states. Historically, there has been a classic split in outcomes, with the claimants prevailing in 30% of cases, 30% of cases settling or discontinuing and the respondents succeeding in the remaining 40% of disputes. If this pattern continues, four cases would be expected to prevail, two to settle, two to discontinue - most likely due to a lack of funds - and the remaining six to fail.

Turning to Southern Europe, Spain and Spanish entities face more electricity produc-tion and distribution disputes than anywhere else in Europe. Somewhere between 15-20 disputes are currently pending under ICSID, the Stockholm Chamber of Commerce (SCC) and United Nations Commission on International Trade Law proceedings alone, mostly from Northern European, German and UK claim-ants. Italy and Greece are also set to become significant respondents in similar disputes from many of the same companies. Portugal may also be in the frame. It is notable that both Italy and Spain originally introduced beneficial feed-in tariffs to encourage investment seeking to capitalize on a sun surplus, a policy currently being contemplated in the UK. Although Southern European entities are active claimants in electricity disputes, the majority appear to be Cyprus-incorporated entities. These claimants appear to prevail in over 40% of the disputes - mostly against Russian, Turkish and Eastern European countries and entities.

By far the most electricity disputes occur in Central and Eastern Europe, which is perhaps unsurprising given that countries in this region have been the most active in terms of modernis-ing and liberalising their electricity production and distribution markets. The pattern of out-comes is the mirror image of those in Northern Europe with claimants prevailing in 30% of cases and the respondents winning out in 40% of disputes. However when central and eastern European entities face each other in regional disputes the claimants prevail 40% of the time.

This research demonstrates that, while the pattern of electricity disputes varies across Europe, the practical challenges associated with the cost, distribution, generation and storage of electricity affect every country differently. Elec-tricity markets across Europe remain asymmet-ric despite efforts from the EU to harmonize and liberalize. The combination of these challenges, with mounting ecological and geopolitical pres-sures, has created a fertile ground for disputes. Indeed, the majority of industry experts and lead counsel that Vannin Capital has spoken to agree that the number of electricity disputes is likely to keep growing in the years to come as energy security becomes a more prominent feature of geopolitical relations.

Electricity disputes in Europe:what the experts say

Experts in Renewables: Northern European Countries have been developing renewable energy technologies and exporting them for many years. They continue to harness wind and geo-thermal technologies for local electricity production and have applied their technologies to the development of photovoltaics for countries in which there is a sun surplus and a need to modernize.

Northern Europe

Liberalising and modernising: Based on an optimistic timeline the total replacement and new investment in the region’s power plant infrastructure may, according to KPMG, result in a total financing of EUR 114–144 billion over the next decade. In Hungary, the Czech Republic, Slovakia, Bulgaria and Macedonia, the Distribution System Operators (DSOs) have been privatized, sold mostly to foreign investors. In Romania, Slovenia and Albania, privatization is well underway.

Eastern Europe

The Energy Gap: There will be a substantial loss of generating capacity during the next decade as coal-fired capacity closes around 2015, following the emissions standards set by the Large Combustion Plant Directive, and most nuclear power stations reach the end of their productive lives. This is coupled with the move to a low-carbon economy, and access to energy supplies being used by some countries as a political tool. Rolling black-outs are a real possibility.

United Kingdom

The Sun Surplus: In the first half of 2013 the renewable energy sector in Spain underwent a major restructuring that will make the official targets of generating 45% of its energy needs from renewable energy sources very hard to meet. Italy has undergone a similar transformation offering high incentives in 2005 that it has since sought to dismantle. Portugal and Greece face similar sun surplus difficulties

France

‘Germany is undergoing a transition in its energy profile. If the transition to photovoltaic and wind turbine generated electricity

is not handled with due consideration to the sector’s

current stake holders, it seems probable that there will be more

disputes like Vattenfall.’

Boris Kasolowsky, partner, Freshfields Bruckhaus Deringer (Frankfurt)

Peter Kiss, partner, KPMG global head of power & utilities

‘I think it is likely we will see a rise in the number of treaty disputes in relation to electricity in Central and Eastern Europe. The process of privatisation and replacement

of electricity infrastructure is much like that which took place in Argentina during the 1990s, when the country’s transport, utility, and energy systems were all overhauled

using almost entirely foreign capital. Once that investment has been made, there is unfortunately a political conundrum: with foreigners too deeply committed to

leave, it is tempting to extract additional value through regulation or even expropriation that benefits local constituencies. This led in Argentina to dozens of claims

after the economic crisis of 2001-2003. While we can hope that Central and Eastern Europe will not see the kind of meltdown that triggered adverse

measures in Argentina, some lesser nationalist policies seem inevitable.’ ‘Compared to Western Europe, the CEE region has a substantial backlog of tasks regarding economic development, which include social, industrial and environmental challenges.’ Noah Rubins, head of international arbitration, Freshfields, Paris & Moscow

‘The increasing use of arbitration and mediation within the industry is perhaps not surprising as electricity companies in France are focussed on the safe, reliable production and distribution of power as Europe’s leading net exporter. This interaction means that companies are predisposed to finding quick, negotiated, confidential and where possible, self-determinedoutcomes, with parties they have long term relationships.’

Dr. Hamid Gharavi, founding partner of Derains & Gharavi

The Nuclear Question: A coalition government formed after the 1998 federal elections had the phasing out of nuclear energy as a feature of its policy. With a new government in 2009, the phase-out was cancelled, but then reintroduced in 2011, with eight reactors shut down immediately. The cost of attempting to replace nuclear power with renewables is estimated by the government to amount to some €1 trillion without any assurance of a reliable outcome, and with increasing reliance on coal.

Germany

Net Exporter: France derives about 75% of its electricity from nuclear energy, due to a long-standing policy based on energy security. It is also the world's largest net exporter of electricity due to its very low cost of generation, and gains over €3 billion per year from this. France has been very active in developing nuclear technology and is building its first Generation III reactor

Southern Europe

‘As northern European developers and investors in renewable energy seek out new markets in Eastern and Southern Europe, it seems that disputes are likely to ensue as

those countries continue to modernize and liberalize their electricity sectors.’

Professor Dr Kaj Hober QC, 3 Verulam Buildings, formerly a partner of Mannheimer Swartling, Sweden

‘The number of renewable energy disputes in Southern Europe seems

likely to increase for the foreseeable future as investors originally

encouraged by attractive feed-in tariffs confront governments now in the

process of dismantling those incentives. Each new ‘reform’ has brought a new

wave of claims.‘

Ian Leedham, former senior counsel commercial & disputes at National Grid and current interim head of commercial for the Thames Tideway Project

‘Harmonisation and cross border network codes are driving greater collaboration,but disputes over trading, prices and volume will occur as countries become more dependent upon the utilisation of cross border flows for energy balancing.’

Luis Castro, partner, Osborne Clarke (Madrid)


Electricity disputes in Europe:what the experts say

Experts in Renewables: Northern European Countries have been developing renewable energy technologies and exporting them for many years. They continue to harness wind and geo-thermal technologies for local electricity production and have applied their technologies to the development of photovoltaics for countries in which there is a sun surplus and a need to modernize.

Northern Europe

Liberalising and modernising: Based on an optimistic timeline the total replacement and new investment in the region’s power plant infrastructure may, according to KPMG, result in a total financing of EUR 114–144 billion over the next decade. In Hungary, the Czech Republic, Slovakia, Bulgaria and Macedonia, the Distribution System Operators (DSOs) have been privatized, sold mostly to foreign investors. In Romania, Slovenia and Albania, privatization is well underway.

Eastern Europe

The Energy Gap: There will be a substantial loss of generating capacity during the next decade as coal-fired capacity closes around 2015, following the emissions standards set by the Large Combustion Plant Directive, and most nuclear power stations reach the end of their productive lives. This is coupled with the move to a low-carbon economy, and access to energy supplies being used by some countries as a political tool. Rolling black-outs are a real possibility.

United Kingdom

The Sun Surplus: In the first half of 2013 the renewable energy sector in Spain underwent a major restructuring that will make the official targets of generating 45% of its energy needs from renewable energy sources very hard to meet. Italy has undergone a similar transformation offering high incentives in 2005 that it has since sought to dismantle. Portugal and Greece face similar sun surplus difficulties

France

‘Germany is undergoing a transition in its energy profile. If the transition to photovoltaic and wind turbine generated electricity

is not handled with due consideration to the sector’s

current stake holders, it seems probable that there will be more

disputes like Vattenfall.’

Boris Kasolowsky, partner, Freshfields Bruckhaus Deringer (Frankfurt)

Peter Kiss, partner, KPMG global head of power & utilities

‘I think it is likely we will see a rise in the number of treaty disputes in relation to electricity in Central and Eastern Europe. The process of privatisation and replacement

of electricity infrastructure is much like that which took place in Argentina during the 1990s, when the country’s transport, utility, and energy systems were all overhauled

using almost entirely foreign capital. Once that investment has been made, there is unfortunately a political conundrum: with foreigners too deeply committed to

leave, it is tempting to extract additional value through regulation or even expropriation that benefits local constituencies. This led in Argentina to dozens of claims

after the economic crisis of 2001-2003. While we can hope that Central and Eastern Europe will not see the kind of meltdown that triggered adverse

measures in Argentina, some lesser nationalist policies seem inevitable.’ ‘Compared to Western Europe, the CEE region has a substantial backlog of tasks regarding economic development, which include social, industrial and environmental challenges.’ Noah Rubins, head of international arbitration, Freshfields, Paris & Moscow

‘The increasing use of arbitration and mediation within the industry is perhaps not surprising as electricity companies in France are focussed on the safe, reliable production and distribution of power as Europe’s leading net exporter. This interaction means that companies are predisposed to finding quick, negotiated, confidential and where possible, self-determinedoutcomes, with parties they have long term relationships.’

Dr. Hamid Gharavi, founding partner of Derains & Gharavi

The Nuclear Question: A coalition government formed after the 1998 federal elections had the phasing out of nuclear energy as a feature of its policy. With a new government in 2009, the phase-out was cancelled, but then reintroduced in 2011, with eight reactors shut down immediately. The cost of attempting to replace nuclear power with renewables is estimated by the government to amount to some €1 trillion without any assurance of a reliable outcome, and with increasing reliance on coal.

Germany

Net Exporter: France derives about 75% of its electricity from nuclear energy, due to a long-standing policy based on energy security. It is also the world's largest net exporter of electricity due to its very low cost of generation, and gains over €3 billion per year from this. France has been very active in developing nuclear technology and is building its first Generation III reactor

Southern Europe

‘As northern European developers and investors in renewable energy seek out new markets in Eastern and Southern Europe, it seems that disputes are likely to ensue as

those countries continue to modernize and liberalize their electricity sectors.’

Professor Dr Kaj Hober QC, 3 Verulam Buildings, formerly a partner of Mannheimer Swartling, Sweden

‘The number of renewable energy disputes in Southern Europe seems

likely to increase for the foreseeable future as investors originally

encouraged by attractive feed-in tariffs confront governments now in the

process of dismantling those incentives. Each new ‘reform’ has brought a new

wave of claims.‘

Ian Leedham, former senior counsel commercial & disputes at National Grid and current interim head of commercial for the Thames Tideway Project

‘Harmonisation and cross border network codes are driving greater collaboration,but disputes over trading, prices and volume will occur as countries become more dependent upon the utilisation of cross border flows for energy balancing.’

Luis Castro, partner, Osborne Clarke (Madrid)

Funding in Focus Content Series legalweek.com 17


It is of course very difficult to speak with confidence about the state of the litiga-tion funding industry, and therefore about its prospects, because so little is publicly known about the cases accepted and re-jected. That is knowledge understandably guarded by individual funders. Perhaps even more importantly, little is known about the untapped but available market of claimants.

For example, an obvious question, and area for research, is why, if it is accepted - as recent research suggests - that many cases suitable for funding which will in due course proceed to satisfactory settlements, judgments or awards, are not submitted to funders, that should be the position.

Crystal ballIt is perhaps helpful to begin by considering for a moment what life might like look in the UK if the litigation funding industry were more developed than now. More claimants would understand the costs risks of litiga-tion and lay them off or accept them. More claimants with cases suitable for funding and who wished to obtain it, would do so. This would include those without financial means to bring the claim and those who wish to move the costs and risks off bal-ance sheet; and those with claims big or small. The process would be well under-stood, straightforward and speedy. Methods of providing financial assistance would be tailored to the differing needs of claimants. More law firms would obtain a selected level of funding for portfolios of cases, and share in the risk and recoveries for selected cases.

For their part, funders would have many

more cases, and have more confidence that adequate returns could be made from the enlarged portfolio. Funders would monitor risks closely, not interfere in the conduct of litigation and avoid unplanned-for liability to pay all of the other side’s costs.

There seems to be no insuperable rea-son why such a situation will not evolve. In many ways the stars are already well aligned for the litigation funding industry. The Jackson Report has recently conferred legitimacy on the industry. There are plenty of potential investors in a low interest rate era looking for higher returns. The pressure from clients on law firms’ costs remains high because costs remain high, and are lia-ble to be shifted to unsuccessful claimants. None of that may be expected to change soon. In the meantime, the competition is down: conditional fee agreements are less attractive than before Jackson because the uplift cannot be recovered; and damages based agreements have not taken off.

Indeed, there have been some high profile new funded cases. These include the well-

‘There are signs that the

funding industry is changing and

branching out in new ways to

serve clients’‘The success of the

industry will depend on its abilities to

meet the needs of the clients’

Raymond Cox QC of Fountain Court Chambers examines the

current state of the UK litigation funding industry and the benefits

a more mature funding market could bring

A closer look at the litigation funding industry


known claim by CF Partners against Bar-clays, and the claim by Tesco shareholders against the grocers. While there have been some well publicised problems these do not appear to be systemic. The failure of the funder Argentum is among these, although the reasons for that remain obscure. The Excalibur judgment caused much conster-nation but was perhaps exceptional when most funders naturally monitor the merits of cases with extreme care and obtain inde-pendent advice.

Finding the casesAnd yet, despite the successes and the ab-sence of hard data, it seems clear that, put simply, funders still struggle to find cases to fund. It appears that there are few cases funded compared to the total number of claims which are commenced in the courts, and certainly not as many as there are avail-able funds. This is despite the fact that The Lawyer reported in February that two of the leading funders had experienced sharp rises in enquiries. At the same time the numbers of cases actually funded was cited as some-where between 1 in 10 and 1 in 40.

These figures are striking. If correct, they suggest that, for all the perceived lack of understanding of funding options, many more clients do in fact seek funding than are successful in obtaining it. It seems odd

that law firms and clients know enough about funding to deluge funders with re-quests for funding and yet there is a dearth of good cases to fund. It hardly seems likely that funders now receive all the cases which are suitable for funding. So why are cases which are suitable for funding not submitted to funders?

Assume a client with a perfect case for funding; maybe a claim for £10m, with very good prospects of success and enforce-ment, and likely legal costs of £1m. The claim is issued and settled, or a judgment or award is given and the £10m recovered. Presumably, if such a claim had been sub-mitted to a funder before commencement it would have been funded with alacrity. It was perfect for funding. The vital question is why the client did not seek funding, and what if anything funders can do about it.

Although no doubt difficult to do, it would clearly be helpful for funders to research cases which match a desirable profile for funding (like the one above) and which proceed, without funding, to settlement, judgment or award, and satisfactory en-forcement, and to find out why the clients did not seek funding.

Ignorance of the funding option is possible but perhaps not likely in view of the inunda-tion of funders with requests. Clients and advisers may be assumed to act rationally even if mistakenly. It seems possible that the costs of funding are judged to be too high. The stronger the case the more likely that is. Clients may be put off if they (wrongly) believe they will lose control of the proceedings, or the funding options are not clear, or because of delay.

Fortunately, all of these matters are in the hands of the funders to control, including the costs of funding. The target for funders of being presented with good quality cases to fund is clear; the question is how they ensure that they are, and that is down to the funders’ research, and determination to meet the needs of clients.

There are signs that the funding industry is changing and branching out into new ways to serve clients; into international business, arbitration, small cases and hybrid cases where the law firm shares the risk with the funder. These changes are undoubtedly important and will continue. But the success of the industry will depend on its abilities to meet the needs of the clients.

The author is grateful to Hefin Rees QC who commented on an earlier draft of this article

‘In many ways the stars are already

well aligned for the litigation funding

industry’

Raymond Cox QC

‘There is no access to justice if parties are unable to afford to bring meritorious claims, and litigation funding can serve an important and practical public purpose’

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