28 November 2011

New funder targets smaller disputes with fee structure unrelated to damages

A new third-party litigation funder enters the market today promising to target far lower-value commercial disputes than other providers, and not take a percentage of damages as its fee – with a professional negligence expert warning that lawyers could face legal action for not considering their clients’ funding options.

Caprica Management Ltd, which aims to invest around £100m over five years, will consider cases with a funding requirement from £50,000. It says it is already funding £15m worth of cases, including an investment dispute group action.

The funding fee will be a multiple of Caprica’s financial exposure, linked to the likely length of the dispute and the type of case.

The company has been formed by Thomas Miller, a firm with $4bn of assets under management and which has secured backing from banks and other investors for the new venture.

Caprica says its business model has been designed with the Jackson reforms in mind by extending the availability and affordability of funding to businesses which might otherwise find it difficult to pursue claims after the reforms are implemented.

Thomas Miller is already involved in the litigation funding market, providing due diligence services to listed funder Juridica, and owning a minority stake in – and assessing cases for – leading broker TheJudge. TheJudge will source after-the-event insurance for Thomas Miller where required.

James Delaney, director at TheJudge, said “extreme selection and high pricing have prohibited the growth” of the third-party funding market. “That’s not a criticism of funders in the market; on the contrary some are doubtless doing well. But if the market is truly to be embraced by litigators and claimants, market adjustments will need to occur. Caprica is a positive step in the right direction and will hopefully lead to much-needed price competition.”

Frits van Kempen, of Caprica Management Limited, said: “Price is a key point of difference for Caprica. We’ve typically come in at less than half the cost of many traditional funders. Are we taking a risk on price? We don’t believe so. In fact we think there is arguably a greater risk in demanding too high a return, which then reduces the deal volume.

“Litigation is highly unpredictable. Our strategy, therefore, is to secure a large well-diversified portfolio of risks ranging from small to large disputes.”

The company published endorsements of its approach from Nigel Mallett, chief executive of the Professional Negligence Lawyers Association; Richard Leedham, head of litigation at Addleshaw Goddard; and Paul Jonson, head of dispute resolution at Pannone.

Mr Mallett said: “A lower-cost funding solution is something any lawyer discussing options with clients must consider. There is a significant risk to lawyers, particularly those involved in heavyweight cases if they steer clients to high cost damages-based funding agreements before considering competitively-priced alternatives.

“I suspect we might well see cases in the future where clients will be suing former legal advisers because they gave up such a significant share of their proceeds despite more competitive funding packages being available.”

Caprica is the third new funder to launch into the market in recent weeks after Investec and Managed Legal Solutions, although at the same time Allianz Litigation Funding is leaving.

Tags: Litigation Funding, professional negligence