Susan Dunn explains how legal costs remain at the forefront of the General Counsel’s mind and how Third Party Funding can help
When asked which factors are driving change in the GC role, in the 2017 Winmark Looking Glass Report survey (1), 69% of respondents quoted cost pressures that require improved efficiency. It is unsurprising then that the question: “Which factors drive change in the role of external counsel from the GC’s perspective”, led to 82% respondents answering: “Cost pressures that require improved efficiency” – the number one answer.
And yet, costs remain disproportionately high for the administrative aspects of legal service provision. In our dealings with corporate legal teams it becomes clear the challenges they face are:
∙ shrinking budgets – all departments need to deliver savings
∙ the need to question and control law firm budgets
∙ with the focus on transactional work, the need to obtain (costly) litigation expertise externally
∙ increased focus on achieving settlement
Law firms can offer GCs practical solutions when teaming up with a litigation funder. Firms have woken up to the fact that their clients demand that they understand the use of funding. Those embracing this early on, have the advantage on slower moving peers. We have seen an upsurge in direct enquiries from corporates, including from finance departments, approaching us for assistance with funding and also law firm selection. GCs recognise we work with an extensive range of firms on all types of disputes and like to tap in to our vastnetworks. They have embraced the fact that TPF relieves cost pressures while improving efficiency.
Divergent risk appetite
CFOs and in-house lawyers have different training and mindsets. Accountants are trained to see black and white whereas lawyers are accustomed to shades of grey, which lacks the certainty a numbers person craves.
The GC wants to prosecute valid claims and team up with the best legal team. The CFO is less enthused about dedicating part of his limited budget to pursuing litigation. Views of what constitutes ‘acceptable risks’ are divergent. And then there is the uncertainty about the outcome of litigation or arbitration. We have funded claims which everyone advised we would win, which either lost or failed to recover any money. Those losses never appeared in the company’s budget because the case was funded.
A CFO is interested in reducing financial risk. Likewise, the GC is trying to reduce legal risk and exposure to claims or criticism for the business. The trick is to stop treating litigation as a liability and transform it into an asset by removing the financial risk of the dispute. This is where TPF comes in.
Shift the burden of risk
When a funder backs a case all legal and case related costs are paid throughout the case by the funder – not the business. If the case is settled or won and monies received, the funder takes a pre-agreed share of the proceeds. If the case is lost, the loss is the funder’s – there is no recourse. The business is only paying monies to the funder when it receives monies from a case. TPF allows CFOs to take the legal cost budget off
their balance sheet and use that capital for other business objectives, while the GC can pursue
Our evaluation of the claim for funding adds an informed second opinion to the prospects of the claim, from our experienced litigators, for no charge.
We help develop and agree the budget for acase. As we ring fence that budget in our fund at the outset, we make sure all assumptions have been considered. This exercise helps focus the minds of all involved, clearly strategising the objectives for the claim. TPF also helps strengthen the chances of the case succeeding by ensuring the case is properly resourced, i.e. that the best legal teams can be appointed.
Corporate clients, and their law firms, may worry they cede control to the funder when they agree to take on funding. That is not the case: we neither control the litigation team, nor the settlement discussions when they arise. A win-win for all parties involved.
(1) The Looking Glass Report 2017 by Winmark in partnership with Clyde & Co. The findings are based on a survey of 100 in-house legal leaders and 18 Board directors, desk research and 19 in-depth expert interviews.
Susan Dunn is Co-founder and Member of Investment Committee at Harbour Litigation Funding.
This article first appeared in The In House Lawyer magazine and was re-published in Practico – The Costs Briefing