In July 2017, leading UK law firm Shepherd and Wedderburn announced that it had secured an innovative portfolio-based litigation finance arrangement from Burford. The multimillion-pound arrangement is the first of its kind to be arranged by a top 100 UK law firm and major litigation financier. As Head of Commercial and International Disputes at Shepherd and Wedderburn, Guy Harvey played a lead role in advocating for a portfolio financing arrangement. Below, he shares perspective on what led to the ground-breaking deal.
You have spoken before about the profound shift in attitudes towards litigation finance in recent years. When and how did you first encounter litigation finance and what do you see as the “tipping point” that shifted how UK law firms think about it?
Most disputes lawyers have grappled with the problems of funding litigation for years before third-party funding arrived in the last decade or so. For all but the biggest corporates the cash flow demands of disputes have always grated and the move from lawyers extending credit (whether intentionally or not!), through the birth of conditional fee agreements to external funding provision has no doubt been caused by this.
For myself, although I had conducted cases on a conditional fee basis, my initial foray into formal third-party funding was six years ago when we brought the first funded follow-on damages claim in the Competition Appeal Tribunal in a true “David v Goliath” situation. Our client, a small SME, took on a giant in its sector in a case that simply could not have been taken to its end without funding. This was also our first experience of substantial ATE cover. It was clear that it was unknown territory, too, for the tribunal and our opponents!
Of course, the whole field of funding has been transformed since then and the dawning realisation of even substantial clients that they can convert hidden claims into assets with outside help and no risk has brought about a sea change. It took the funding community a while to overcome the engrained conservatism of the legal profession, but the invention of portfolios for clients, and now for law firms, must make the momentum unstoppable—and not before time.
What opportunities did Shepherd and Wedderburn seek to leverage with this deal—and how did litigation finance emerge as the solution versus other approaches or sources of funding?
We are a substantial UK firm, but by no means the largest; and we are unusual in having the bulk of our partnership, staff and business based in Scotland and operating mainly under Scots law. Our London (English law) office has been dynamic since the start, but cannot (and does not) pretend that it can offer the full range of services of our larger City peers. Our natural inclination therefore has always been to look for those areas of work where our real expertise can shine through and where we have substantial experience. The firm has an impressive client list and we have been long-term advocates of third-party funding on both sides of the border and in international cases too.
The areas of competition damages, arbitration, intellectual property and insolvency-related claims are areas of specialization where funding seems a natural bedfellow; and we have a raft of commercial disputes which might be an obvious fit. In addition, many of our clients are those medium-sized corporates whose finances most naturally benefit from what external funding can bring; and the diminution or extinction of litigation risk that the portfolio approach carries with it, coupled with the simplicity of a DBA-backed scheme, gives us a way of standing out in a crowded market. Of course, as recent portfolio developments have shown, larger corporates too are increasingly appreciating the advantages that external funding can bring.
As a firm, we are lucky enough to be financially sound and not dependent on bank or other borrowing. A suggestion that we should seek to expand our disputes presence by carrying large WIP or disbursement balances would have been alien to the firm’s nature, as would have been any introduction of unstable bank borrowing. We have also watched with interest the development of own side ATE insurance. However, funding has proved already to be a sensible way of running the disputes practice—and the portfolio approach seems the altogether logical way forward for us.
You oversaw a review of potential third-party finance partners to arrive at the deal with Burford. What advice would you offer your peers at other firms that are considering similar reviews?
I spoke to a large number of funders during the process of establishing the portfolio. I was struck by how willing most were to consider the concept, or had already been mulling it over. I learnt a great deal from my conversations and they helped considerably in defining the firm’s thinking. Some funders were constitutionally unable to offer a portfolio approach; some were simply too small to do so. None were downright antagonistic to the concept.
When I first made use of funding, I approached the funder on the equivalent of bended knee, with little idea of what I wanted or what was possible. More recent experience has enabled us to be more specific in our searches. If embarking on the portfolio quest, it is vital to be realistic about what you actually want; to define the areas where you principally see the funding being used; and to articulate to the funder how you see the scheme working. My experience of funders was that they mostly showed a degree of flexibility and creativity and working with you to achieve the right solution is paramount.
Of course, while a funding portfolio is above all a commercial arrangement, it is likely to be the culmination of a longer relationship. Trust matters. Funders who know they can rely on the budgeting, project management and commercial nous of their law partners will be far more likely to want a wider involvement. One funder said to me: “At the end of the day, with all the metrics and clauses of funding agreements in place, are these people we want to do business with?”
I am glad that we passed that test with Burford!
It has been said that in-house lawyers are five or so years behind private practice lawyers in awareness of litigation finance. Has that been your experience? How have your clients responded to the news about your portfolio?
I think that funders have always felt that the legal profession has been slow on the funding uptake! Since the main source of information for clients has been that very profession, it is hardly surprising that the news has taken time to percolate through. In addition, the sheer length of the chain between funders, lawyers, in-house counsel, finance directors and main boards has made speedy transmission of ideas difficult; particularly so against a backdrop of litigation having been seen as a drain on time and reserves rather than an asset to be realised.
My own experience is that some clients have taken the lead in demanding that we find ways of making litigation more attractive. Others have been pleasantly surprised that we have been able to offer options. There is no doubt that now we are rightly expected to do so.
The overwhelming response to the portfolio of both our clients and contacts has been to give three hearty cheers. It is early days as I write this—a matter of weeks after signing up the deal—but already I am asking myself the question one client asked me when I told him about it, “Why did it take you so long to do something so commercially obvious?”