June 28, 2017

‘Third party funding in arbitration: Ben Knowles and Nick Rowles-Davies in conversation’

In our 6th 1/3LY Ben Knowles, co-chair of Clyde & Co's Global Arbitration Group, discussed the status of third party funding in arbitration with Nick Rowles-Davies now of Chancery Capital. Following recent developments in the funding market and Nick's professional career, Ben took the opportunity to catch up with Nick and share thoughts on the current state-of-play.

Ben: In our previous interview, you felt that there was insufficient awareness of the benefits and processes of third party funding amongst potential users and that this was an issue to be addressed. Do you feel that progress has been made in the last 12-18 months?

Nick: Most litigators are now aware of litigation finance and they have their own – often too narrow - view of what it can do. The basic facets of third party funding are known to most litigators, however that is of course only a very small part of litigation finance. The fact that it is now regularly discussed with end clients at the outset of litigation means that significant progress has been made. Equally, in house counsel are also beginning to understand the benefits of litigation finance and are now alive to its presence and benefits. There is still a very long way to go in terms of the use of litigation finance and really understanding its benefits.

Ben: We have certainty noticed an increase in awareness of funding both within the firm and from existing and new clients, they are more open to hearing about funding and often raise it with us when discussing their case – 2 or more years ago this would have been very rare.

Ben: Are discussions around funding taking place more directly with corporates not just via law firms as a result?

Nick: Yes. There has been a significant increase in enquiries directly from corporate clients. However, these discussions still tend to begin via the lawyers and grow from the review of a single case that is being reviewed for funding. The awareness of litigation finance in the corporate world has certainly increased since I completed a large portfolio transaction with a FTSE listed business. Since that transaction, there have been many enquiries to understand the benefits that we can offer corporate clients. This area of litigation finance will continue to grow and is a key area for my new fund.

Ben: While clients talk to me about funding I don't think we are at a stage yet where many have funding in place even on a portfolio basis before they speak to the lawyers- I think we are still the main conduit. I think it is good for clients to hear the lawyers previous experiences of funding in cases as part of their assessment of whether funding is right for them and, for those who have not experienced it before, we can help them through the process.

Ben: We previously discussed Asia as an area of 'growing interest' but the market has clearly now opened up significantly – what are your predictions for funding in this region?

Nick: Asia remains an area of interest for funders. It is a relatively new market with changes being made to historic restrictions on funding in Singapore and Hong Kong, where funding has developed in the insolvency world. These are not huge markets at present but they will be attractive to the traditional third party funding model as they will provide fertile ground and some new opportunities.

Ben: I feel that the market has come a long way but perhaps has further to go, what changes are you seeing in the funding marketplace?

Nick: There is a significant increase in the number of funders in London and globally. That has led to an increase in competition, particularly in the London market. It will be very interesting to see how things develop and how competition changes things.The most obvious issue is one of price. Several funders will struggle with downward price pressure, given their success rates and the difficulty in predicting outcomes. Every funder will claim to be well capitalised and to have an array of opportunities. The London market has become very crowded and there are only a certain number of cases that can and will be funded here each year. Competition is driving funders to open in new jurisdictions, such as Asia, to seek more opportunities to invest. That seems to me to be only a short term solution to the problem.Many funders will also claim to be doing things differently and everybody in the market claims to fund portfolios of cases when the reality is somewhat different. A move from single case funding is certainly the future, but I am not sure every funder can or will make the transition.

Ben: From our perspective it is interesting that we have seen an increase in interest in funding both from developed and developing jurisdictions. We also see a real mixture of those who could not pursue a case without funding and those who see it as a business tool to share risk and enable them to use their capital for other projects. I think an area of caution which both Singapore and Hong Kong reflected in their recent legislation is to ensure the quality and professionalism of funders and to work with those who truly understand this market – not who just dip in and out of it.

Ben: You have of course made changes in your professional life too, what motivated you to launch a new business?

Nick: Yes, I have. I spent some months away from the market and have thought  carefully about the industry. Eventually, I felt ready to launch my own fund and to do things genuinely differently in the litigation finance world, well away from the existing congested market.

Ben: Did you see a need that other funders were not meeting?

Nick: Whilst there are a number of reasons, I do not think the industry has developed as much it should or could have done to date. Litigation finance has not become an everyday corporate tool and the reasons behind why this is the case are not difficult to change. My intention when I launched Chancery Capital was to create a new limb of the litigation finance market. We are doing just that. Within our short existence to date we already have clients who use our finance out of choice, rather than necessity, because our offering allows them to do so. We focus on some key specific areas where we can work for the benefit of law firms and corporate clients and in ways that probably no other funder operates. Our approach is unique and individually tailored to each client and case, the response so far has been incredibly positive.

Ben: What would be your key piece of advice to those considering seeking funding?

Nick: The obvious and often boilerplate responses to this question are that clients should make sure that the funder is well capitalised, check for ALF membership, check the track record and ascertain the source of funds.However, I would argue that the best advice to any client considering funding or looking to protect its position is to make sure that you know what problem you are attempting to solve, and to convey this to the funder. Often the issue is not just the specific case in question.  Standardised products and template responses to a request for funding do not address what it is that you are trying to achieve. Litigation finance should be individual and bespoke to your specific situation and indeed needs, and any client looking to use funding should be happy that this is being addressed.

Ben: Thank you.

To view 1/3LY Issue 6 please click here.