In Opinion

What we look at first: five important elements of a funder’s brief

Litigators are in the business of persuading others to agree with their point of view.  It is therefore surprising that many litigators who plainly believe in the prospects of a case (often shown by accepting conditional fee or damages-based agreements) fail to present their client’s application for litigation funding in an effective and persuasive manner.

In our experience, the best applications for litigation funding contain five key features.

Key feature 1: Case summary and merits advice

A case summary prepared by the solicitor charged with conduct of the case is a great way to get litigation funding applications started. It serves two key purposes:

  1. A well-written, concise case summary enables us to: quickly understand the central issues of the case and the key documents enclosed with the note; determine the questions we need to ask and identify additional information we need; and ultimately reach a quicker decision, so the claimant knows whether it can get litigation funding from us. An effective case summary should include reference to background information, key issues in the case, case strategy and details on funding requirements.
  2. The case summary (and merits advice) allow us to gauge the quality of the solicitor team and the level of thought and attention that has been given to the matter. Quality teams should: have a thorough command of the facts and key issues in the case; understand their client’s objectives; project a robust case strategy (including settlement dynamics and enforcement considerations); and set forth a credible plan to stick to the budget.  The case summaries and merits notes – those that tend to get litigation funding – address these points and do not shy away from the difficult elements of the case.

In our experience, it is important that case summaries are prepared by the solicitors who, in our view, are uniquely positioned to understand the full range of legal (and non-legal) aspects of the dispute.  Case summary notes prepared by counsel teams can focus too closely on the legal arguments at the expense of equally important elements such as case budget and recovery/enforcement strategy.  Case summary notes prepared by non-lawyer intermediaries, such as brokers, often fail to articulate a clear case strategy and can lack sufficient analysis of technical legal and quantum issues to get litigation funding.

Key feature 2: Engagement letters and ATE arrangements

The engagement letter or retainers between the client, its solicitors and barristers are regularly missing from the packs we receive for funding applications.  These are important documents for funders. The terms of the retainer agreements set out the scope of work that the legal team has agreed to undertake for the client, and helps us assess the case budget and funding request.  We consider whether any CFAs or DBAs in place cover the full likely scope of work, including interlocutory applications and any appeal or enforcement proceedings, to check that the legal team will see the case through to recovery.  The terms of the retainer agreements can also indicate the legal team’s assessment of the case merits, as reflected by the level of fees that are deferred to a successful outcome.  Whilst not an absolute requirement in order to get litigation funding, we like to see the solicitor team share some of the risk with us and the client.  In our experience, CFAs which make 25-50% of solicitors’ fees contingent upon success in the case provide good alignment of incentives and promote a co-operative working relationship between the client, its solicitor team and the litigation funder.

Key feature 3: Case budget

We require a detailed case budget to understand what our money will be used for if the claimant does get litigation funding, and to satisfy ourselves that the funding requested is sufficient to support the case all the way through to recovery via settlement or adjudication.

The best case budgets:

  • make clear the assumptions that underpin them (e.g. the number of hours estimated to be incurred by each fee earner at each stage of the proceedings);
  • provide for contingencies (e.g. contested applications, additional expert evidence);
  • include important items such as VAT payable on disbursements or fees;
  • are prepared using Excel spreadsheets with the assistance of an in-house costs draftsman or costs lawyer.  An Excel format enables us to quickly understand, and test, a case budget and the client’s funding requirements and is an indicator that the case has been well planned.

Key feature 4: Settlement strategy

A significant part of our due diligence process involves identifying settlement drivers and forming a view as to whether or not a case is likely to resolve prior to a hearing, which is sometimes a factor in determining whether the claimant can get litigation funding.  Pre-trial settlements benefit both funders and clients because they preserve control over the outcome, expedite recovery and eliminate the risk of an adverse costs order.  In our experience, the best solicitors think about the settlement levers and strategy in the early stages of the case.  They have formed preliminary views as to their opponent’s attitude to case settlement, the best opportunities for settlement and the most effective means of achieving it. 

Key Feature 5: Quantum, recovery and enforcement

Effective litigation funding applications include an analysis of quantum and the likely recovery in the case, supported by an explanation of how this has been calculated. We like to see copies of relevant expert reports (regardless of how preliminary) as we can test these ourselves.  We will consider where quantum has been exaggerated or lacks reasonable support.  The best legal teams will address these points head on.

Finally, winning on the case but failing at the enforcement and recovery stage are cold comfort for clients and funders.  Effective case funding applications identify key concerns regarding the credit risk of the defendant and any likely enforcement difficulties, and demonstrate a clear route to recovery.

  • Simon Burnett
    Simon Burnett Partner

Simon Burnett is a partner of Balance Legal Capital LLP, a provider of third party funding for international arbitration and litigation, headquartered in London, UK. Simon was previously a disputes lawyer in the commercial disputes group at Freshfields Bruckhaus Deringer LLP in London. He went on to complete an MBA at London Business School, during which he consulted to leading international law firms on developments and innovation in the legal sector.