Posted by Chris Deadman, director of operations at Litigation Futures Associate Invicta Capital Funding
Any investment strategy, whether it is buying shares or investing in commercial litigation, is a cocktail comprising equal parts art and science.
In third-party funding, the science component is relatively straightforward – assess the underlying legal merits, calculate the commercial returns and determine recoverability. But that is only half the story. Often overlooked is the human element, the dramatis personae of a claim who can frequently mean the difference between success and failure.
I have often said that litigation funders have a foot in both the HR industry and the financial sector, because in the final analysis, investment in a piece of litigation is a wager, a leap of faith in the talents and abilities of the legal team (including the client) to bring home the proverbial bacon.
I am not a lawyer myself unless you count a grade B O-Level in General Principles of English Law (Donohue v Stevenson anyone?). So if a lawyer passed me a cast-iron certainty of a case, there is a very high probability that I would mess things up royally without clear step-by-step instructions. This is because I haven’t got the faintest idea how to run commercial litigation.
And the reverse is also true. Give a supremely talented commercial litigator a genuine 50/50 case and there is a good chance that with a fair wind and a sensible claimant and defendant, they will engineer a commercially acceptable outcome for their client. The common theme here is the legal team – a good one can be enough to secure victory and vice versa.
But the claimant’s legal team is just one, albeit very important, piece in the jigsaw. What about the claimant? Are they a cool-headed corporate entity who will be prepared to look rationally at an offer of settlement or a private individual with significant emotional investment in the claim who wants ‘justice’? Who are the decision makers? What are their motivations? What do they want to achieve?
And this qualitative analysis should not be restricted to the claimant’s side. The same questions need to be asked of the defendant’s team, as there is sometimes a lazy tendency to assume that they will want to settle a matter in order to make it go away.
I recall an investment being made several years ago in a case that looked eminently sensible on several levels. It soon became apparent, however, that we had massively underestimated the degree of personal animosity that existed between the claimant and the CEO of this large and credible company.
No matter how commercially sensible it might have been for the defendant to make an offer of settlement, their shared history made it a badge of honour for the CEO to resist any attempts at concluding the case amicably, whatever the financial cost.
All of these factors need to be considered carefully by any prospective funder. And this qualitative aspect can sometimes be overlooked because funders usually feel most comfortable analysing the financial risk. But litigation is game played by people and as we all know, people can do the strangest things.