How not to apply for funding
Published on: 29/06/2021
On 11 May, as part of London International Disputes Week 2021, I led a session entitled “How Not to Apply For Funding”. It was a lively discussion between myself, Glenn Newberry and Claire Stockford of Eversheds Sutherland, and Chirag Karia QC of Quadrant Chambers.
The genesis of the session was a question I have been asked many times, namely “how do I make a successful application for litigation funding?”.
While I can provide an answer of sorts, there is no one-size-fits-all approach. There will always be an element of subjectivity in a funder’s decision-making process. I feel much better placed, however, to provide guidance on how not to apply for funding, based on my nine years of experience working at Harbour.
Working with Glenn, Claire and Chirag, who have extensive experience dealing with funders and funded claims, we identified seven themes or issues which, if managed poorly, will probably lead to a funder rejecting a funding application. Here is a summary of what we discussed:
In the main, the funding industry focuses on larger claims. The reason why is, I think, straightforward. Litigation is expensive and a funder wants to be confident that the claim it is backing will recover sufficient damages to satisfy both the claimant and the funder. The larger the gap between the case budget and the claim value, or the so-called economics (more on that later), the better.
Funders typically commit a lot of money to each individual claim in their portfolio. Harbour’s minimum commitment is around £1m. It isn’t enough, therefore, for the legal team asking for a funder’s money to be enthusiastic. I gave the example of a property litigator who once said to us, in the context of applying for funding on a patent infringement case, “this should be fun! I’ve never run an intellectual property case before”.
We are not paying for someone’s professional development. We are paying for experience and a strong track record in a particular field. Litigators should never be defensive when asked by a funder about their track record, just as they wouldn’t be when asked by a client.
I was asked recently whether Harbour would fund an appeal with a 20% chance of success, to which my reply was “would you?”.
Funders only get paid if a claim is successful and damages are recovered. We fund claims we believe will win, and we do not take ‘punts’.
A good starting point when applying for funding is to ask yourself whether you would invest in the claim you are putting forward. If you can’t convince yourself, you are unlikely to convince others.
In general terms, funders are looking for a healthy gap between the case budget and the case value. This is what they mean when they refer to the economics of a case.
Getting a good grip of the economics, especially when a case is at an early stage, can be difficult. Funders are not necessarily looking for precision, they just need to see that the economics have been given proper consideration by the claimant and its legal team.
Sometimes we are asked to fund a case with terrible economics, on the basis that we will have the exciting opportunity to work with a large corporate. That isn’t an opportunity that is likely to provide us with a return on our investment. We are not in the business of funding loss-leaders.
A senior litigator at a large law firm once told me that “budgets are for chumps”. Thankfully, this is now very much a minority view within the legal profession.
Budgets are important, to funders, clients and the courts. A good budget is one that is constructed upon clear assumptions, and takes a conservative approach.
If you are applying for funding, you have to be prepared to work with the funder in preparing a clear and detailed budget.
Funders know that it is often difficult, especially at an early stage in a dispute, to make an accurate assessment of damages. However, it is important to do your best with the information available. And this is where experience is important. In similar claims that you have managed, what (within a range) did your client recover?
A funder is looking to make a return on its investment. An important part of a funder’s assessment is having confidence that the damages recovery will be sufficient to satisfy both the client and the funder.
Recoverability isn’t just about the resources of the defendant. It is about whether or not you can make them pay. The defendant may have the means to meet a claim, but if you have to enforce against them in Russia then you are unlikely to secure funding. Generally speaking, doubts about recoverability will lead to a funder saying no. Or else, if the funder is backing a claim with recoverability challenges, it is doing so because the legal team has a clear plan regarding enforcement, and a good track record in relation to the same.
The final theme is, I hope, a matter of common sense. Put simply, if you make a half-hearted attempt to secure funding, you are unlikely to succeed.
You have to sell the proposal to the funder, knowing that if you succeed you will be rewarded with a fully resourced case. Don’t complain to the funder that no one is paying you to sell the proposal to them.
So, to sum up:
- If the case that requires funding is one in which the legal team has no (or little) experience, the funder will probably say no.
- If the legal team doesn’t believe the case will be successful, the funder will probably say no.
- If the economics are terrible, the budget half-baked and little attention has been paid to the realistic damages recovery, the funder will probably say no.
- If the defendant is unlikely to meet the claim, the funder will probably say no.
- And if you lack enthusiasm and make a half-hearted attempt to convince the funder to invest, the funder will probably say no.
This blog was written by Stephen O’Dowd, Senior Director of Litigation Funding at Harbour, a sponsor of LIDW21.