Quantum is a critical area in third-party funded cases as the Third Party Funders (Funder) remuneration can be based on a percentage of recovered damages. Typically, Funder’s remuneration amounts to 200%-300% of the sums advanced or 20%-45% of the damages recovered, whichever is greater1 . This is why TPF is primarily available to claimants or to defendants with a significant counter-claim, where that claim or counter claim is of a sufficiently high value. For example, Susan Dunn, Head of Litigation Funding at Harbour Litigation, recently indicated that her company requires a minimum claim size of £10 million2 although there are other Funders who will fund significantly lower amounts. Funders will also require a certain costs-to-estimated damages ratio to mitigate their risk. In our experience, TPF encourages the involvement of quantum experts as early as the funding stage. At that stage, Funders carefully assess the legal merits of a claim before agreeing to fund it. Often, this assessment is supported by the opinion of the litigators involved, including any barrister(s) instructed on the case. The due diligence process also includes an estimate of total litigation costs that are likely to be incurred (“budget to settlement”). With regard to quantum, Funders seek to assess whether “the proposed damages [are] realistic and supported by evidence3 ”. An expert report is not necessarily required at that stage but evidence should still be provided of costs incurred or lost profits where relevant. Claimants applying for funding need to prepare a due diligence pack containing enough information and evidence to enable Funders to make an informed decision. Using a quantum expert to feed in as part of the application process to highlight any obvious errors in the quantum claimed and provide their preliminary views on its calculation can greatly strengthen any application. Preliminary views on quantum could be useful information both for the Funder and for the funded party when negotiating the percentage of the damages that are going to remunerate the Funder’s investment, as this percentage can vary significantly depending on the level of risk and the size of the claim. Incidentally, knowing the identity of the likely expert would enable the Funder to have a full picture of the background, skill and experience of the personnel involved in the case before making their decision. An expert would be wary of giving a final opinion at this stage though, and this preliminary work should not limit their independence or ability to come to a different conclusion once they have completed their work.4
The involvement of a Funder may contribute to the degree of specialization of the experts, which also has an impact on the quality of the arbitral awards. Therefore, one should intuitively think of a positive correlation between being funded by a TPF and receiving a high-quality arbitral award through the involvement of great quantum experts. Another important aspect relates to the fact that since TPF is a non-recourse investment, the Funder must critically access its risks, which sometimes may involve the use of experts in the quantification of non-quantified claims before presenting a proposal for settling the funding agreement. Even when the amount of the claim is already calculated, the Funder might access a quantum expert to verify the working methodology employed by the funded party. Nonetheless, the involvement of quantum experts on the due diligence process can be very important in complex disputes, helping the Funder understand the actual amount in dispute as a basis for the Funder to calculate expected returns. This above analysis is also useful for the Claimant, as it receives analysis prepared by an independent third party, providing a more realistic scenario that might guide its expectations towards the claim. Therefore, the participation of Funders enhances the importance of experts when accessing the correct methods of quantification of the claims in the arbitration procedure.
Where TPF is involved, there are two matters that need to be determined: (a) the realistic prospect of success, and (b) quantum. As case law develops around the world, we see that although champerty and maintenance have been abolished as torts (in jurisdictions where TPF is permitted), costs are awarded, to the detriment of Funders, where TPF is used to advance vexatious5 or oppressive6 claims. The use of experienced lawyers and quantum experts therefore becomes very important in determining not only the potential benefits for the Funder, but, perhaps even more importantly, potential pitfalls. The impact is therefore to assess and determine the important issues as early as possible, upon the decision to involve a Funder. This may not necessarily always be at the beginning of a claim, as the Funder may be engaged at any stage of a dispute. Where it is engaged at an early stage, however, then not only issues of merits and value are to be determined upon presentation to the Funder, but also enforcement. What is happening is the claim is being commoditised, and therefore it is transformed into an investment proposition. One caveat I would advise against, which is a matter I am not aware has been aired in the Courts yet, is that of a Funder working directly with quantum experts, before lawyers or even the claimant(s) is engaged. TPF has seen a move towards parties ‘putting together’ a case or potential case, especially where group or collective claims may be involved, and then once the merits and value of that claim are determined, claimants are ‘signed on’. There is a real risk that any work carried out by parties, prior to lawyers and certainly a claimant being involved, will not be subject to privilege and could be ordered to be disclosed to the, possibly fatal, detriment of the claim. I know that in Brazil, only cases of international arbitration are being funded by TPF and not litigation. Given the necessity of privity of contract, this may not be as much of an issue. Having said that, when looking at the commercial fallout of ‘Operation Lava-Jato’, it may be that Funders are looking at where opportunities may lie. In answer to the question, the impact of TPF is early assessment of merits, value and enforceability. The warning is, be careful not to assess too early. The second part of this article will discuss how TPF has impacted enforcement strategies.
This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.
This article was first published for Grant Thorton with co-authors Sandy Cowan (Grant Thornton UK LLP) and Marcela Kohlbach de Faria (Leste).