How to get your case financed: basic investment criteria
One of the most significant developments in Asia’s legal landscape this year, has been the arrival of litigation and arbitration funding for certain jurisdictions. As a growing and globally recognised area of the legal industry, the question is no longer ‘whether’ dispute resolution finance should be permissible. Instead, the market’s attention has turned to practical questions like what sorts of cases will attract funding? With this in mind, I thought it would be helpful to outline the basic investment criteria we use when considering a case for funding.
Basic Investment Criteria
Modern litigation funding is not just for those who cannot pay. Recent industry growth has been driven, in part, by well-resourced, financially capable parties, simply seeking to shift, or share, the cost and risk of commercial disputes.
While we treat each case on an individual basis, we typically apply the following basic investment criteria, to ensure at a minimum, that:
• the case is meritorious;
• the economics of the investment and the case are likely to provide a reasonable return to all parties; and
• there is a high prospect of recovery.
Merits
The case must be meritorious. We are not looking to support speculative or vexatious claims or defences. The degree of merit required to satisfy a funder’s board or investment committee is highly subjective. Some funders, or their brokers, may require prospects of success expressed in percentage terms, often so that it may be incorporated into some form of algorithmic risk assessment or pricing model. We do not take this approach. What makes a case 80% likely to succeed as opposed to 82% or 85% is often not clear and this approach can be largely arbitrary. Instead we will consider the strength of the case, based upon our extensive experience and the views of the lawyers acting on a matter, to determine whether it is likely to succeed.
We will give greater weight to documentary evidence and clear points of law, which provide predictability. Cases that are heavily reliant on contested facts and oral evidence are likely to carry greater risk from an investment perspective.
Economics
Assessing the ‘economics’ of a case involves weighing our likely exposure (i.e. the legal and other costs to be invested, as well as potential exposure to adverse costs) against the likely recovery on resolution of the matter. Approaches of funders will vary considerably; however, we typically seek to fund cases where the economics permit the funded party to retain more than half of the resolution sum. For this reason, we often require a minimum ratio between the likely resolution sum and costs of investment. A typical benchmark is 10:1, meaning a project budget of up to $1m for a meritorious case worth $10 million.
We tend to focus on the conservative likely outcome, rather than the maximum potential claim value. The prospect of settlement and the respondent’s ability to pay will also factor into the likely level of recovery. Those seeking funding should therefore avoid overselling the value of their case. A balanced, realistic approach will better assist us in the assessment process.
Recoverability
The non-recourse nature of a typical IMF arrangement means that we do not receive our costs or a return unless there is a successful recovery. For this reason, the counterparty to the dispute must have the ability to meet any judgment or award made against it or to settle at a figure that supports the economic assessment of the case (discussed above). If enforcement action is likely to be required in order to recover, the counter-party must have identifiable assets in jurisdictions where funded enforcement action is permissible and likely to be effective.
To summarise, we are looking for meritorious cases, of a size proportionate to the likely costs, against a counter-party who is capable of meeting any award, judgment or likely settlement sum.
Tom Glasgow leads IMF Bentham’s Asia Office, responsible for assessing and managing cases throughout the region. IMF Bentham is one of the world’s most experienced and successful dispute resolution funders. If you would like to know more about securing funding, we would be more than happy to discuss your case.