1. Make clients aware of the full suite of options
The legal finance market is potentially more diverse than you might be aware. Unfortunately for attorneys, clients will expect their lawyers to be their primary knowledge source. Ensure you are fully conversant with third party finance, arbitration cost insurance, fee shifting insurance, security for costs bonds, arbitration award default insurance and award monetisation options.
2. Ensure you discuss arbitration cost insurance with every client
This insurance covers the fees a client pays their attorney on a traditional billable fee arrangement. In the event the case loses the insurer reimburses the client for the fees and out of pocket expenses they’ve incurred. The premium for the cover is often contingent upon success, meaning there is no premium to pay if the case loses.
This insurance has particular applicability for corporate clients and clients who do not have any liquidity issues and who prefer to engage the firm on standard fee paying basis. It provides GC and financial controllers with certainty of over their cost exposure by sharing the risk with insurers Significantly the cost of the insurance is often less than a quarter of the cost of most third party finance arrangements, which means a greater net recovery to the client.
Discussing risk sharing insurance with clients is also a means to soften the impact of sensitive budget discussions. That is, rather than have the focus of discussion on what discount can be applied to the hourly rate, which negatively affect realization targets, the conversation can instead be turned to a positive one.
3. Less haste, more preparation
There can be a temptation to rush to the funding market to test appetites even before preparing a solid due diligence pack. While an initial level of engagement may well be received, the process can become protracted when information is provided on a piecemeal basis. In our experience, significant external due diligence time can be saved when liaising with third party financiers and insurers if a case is well reasoned and presented from the outset. This should include a sound analysis on quantum, jurisdiction, liability and enforcement risks, even if only a preliminary basis and subject to further investigation.
4. Agree your strategy with the client
Before engaging with any third party funders or insurers, ensure there is a clear strategy with the client as to what you’re collectively trying to achieve and in what timeframe. This might include agreeing in principle parameters over the economics of a deal, having a preferred structure as well as a back-up plan if the first choice structure is not achievable.
Above all, ensure you understand your clients key drivers. Is it cash-flow, risk management or both. For example, does the client have funds or access to a fighting fund? Are they more concerned to cap (or in some way manage) their risk than they are bank-rolling the fees? What is their attitude to risk? Are there any additional financial drivers/concerns, for example, does their business need an injection of capital? If there is a need for operating capital, their arbitration claim could be used as an asset to raise (additional) finance.
5. Tender the opportunity – with one caveat
Irrespective as to whether you choose to use TheJudge or another a broker, we strongly recommend that you tender any approach to the funding or insurance market. If it’s a strong case then not only will a tender encourage price competition, nothing will make a funder or insurer move faster than knowing another market is trying to win the deal. One caveat; give real thought to the funder or insurer selection. Appetites vary enormously. Months could be wasted discussing a case with a funder who realistically is unlikely to close a deal. Ask about their conversion rates for the type of case in question. And above all never allow the client to sign exclusivity with a fund until it’s clear the fund has done some significant initial due diligence.
6. Don’t ignore the risk of fee shifting (adverse costs awards)
There has been a significant increase in the number of tribunals awarding costs against the unsuccessful parties in arbitrations. Unless the arbitration agreement expressly confirms each party bears its own costs, ensure the client is aware of the risk of a cost award. Fee shifting insurance exists to remove this risk, and often with a premium that is only payable if the case is successful. Protect your practice and ensure you’ve made the client aware that such options exist.
Have a client in need of funding or insurance?
If you have a client interested in considering external finance or risk management options, then we’re here to help. With offices in London and New York, we have access to over 25 funders and 20 insurers globally. We add no cost to the process and routinely save clients millions in the cost of their funding arrangements.
In the first instance please contact either:
Matthew Amey, Director James Delaney, Director