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Litigation without cost risks: What does or doesn´t work and how clientsand law firms can benefitFrederick Iwans, FORIS AG
§ Short re-cap on FORIS AG§ Short re-cap on litigation funding in general§ Litigation funding in cartel damage cases – why it makes sense!§ From a funder´s view – importance of case size and structure§ Right-sizing the case - the benefits and challenges of bundling claims§ Possible bundling strategies§ Conclusions
Contents
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§ In market since 1998 as German litigation funding pioneer§ Publicly listed since 1999, annual revenue ca. 20 million p.a.§ Self-funded through 3 business segments
- Litigation funding- Shelf companies- Company secretarial services for UK and Irish Limiteds
§ Ca. 35 employees, including a team of specialized lawyers§ Geographical focus on central Europe§ Aggregate dispute volume funded to date: ca. 800 million EUR§ Presently 7 cartel damage cases in portfolio, with aggregate dispute value of ca.
50 million EUR
Short re-cap on FORIS AG
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Short re-cap on litigation funding in general
The concept:
§ Funding Agreement between Funder and Plaintiff
§ Funder bears completelitigation cost risk (Plaintiff Lawyer, court fees, respondent lawyer if caseis lost)
§ Funder receivespercentage of yield (ifcase is successfull), typically 25-35%
§ Plaintiff engages Lawyer and files suit without own cost risk
§ Lawyer is paid directly byfunder
§ Court fees are paiddirectly by funder
§ Expert fees are paiddirectly by funder (ifapplicable)
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Litigation funding in cartel damage cases –why it makes sense!
§ Levels playing field (David vs. Goliath) § No cost risk (liquidity, balance sheet sanity,
budget)§ Compliance with management fiduciary
obligations§ Get to pick top-notch law firm§ Funding agreement de facto confirmation of
case merits§ Funding agreement increases pressure on
respondent, can facilitate earlier settlement§ Excellent yield potential, despite funder´s
share (usually only 20-30%)
§ Third-party funding lowers hurdle for clients to pursue claims
§ Funding Agreement de facto confirms case merits -> could attract more clients to join
§ Agreed budget§ Get paid in time § Remain in charge of litigation strategy
§ Attractive dispute values/yield potential§ Experienced law firms§ Usually financially stable respondents (claim
enforceability)§ Settlements possible§ Reasonable risk/chance ratio (depends on
case structure)
Upsides
For clients For law firms For funders
Remaining challenges§ Internal document and data collection work § Damage calculation often requires expert
opinion§ Finding the right case size and structure
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From a funder´s view –importance of case size and structureRight-sizing the case:§ Small claims often un-economical to pursue§ Highly complex cases often with poor risk/upside ratio
Typical cost drivers: Multiple plaintiffs, multiple respondents/third party interventions, expert opinions
Case structures in comparison (3 instances)
Case 1 (Low Value Case):Dispute value EUR 1 million1 plaintiff2 respondentsCourt-ordered expert opiniononly
Case 2 (Dream Case):Dispute value EUR 10 millions1 plaintiff2 respondentsCourt-ordered expert opinion only
Case 3 (Funder´s Nightmare):Dispute value EUR 10 millions40 plaintiffs2 respondents6 third party interventionsPreparatory expert opinionCourt-ordered expert opinion on multiple aspects
Legal fees plaintiff EUR 56.263,00 EUR 377.884,00 EUR 626.992,00
Legal fees respondents EUR 112.526,00 EUR 755.769,00 EUR 755.769,00
Legal fees third party interventions N/A N/A EUR 487.669,00
Court fees EUR 70.574 EUR 498.252,00 EUR 498.252,00
Expert opinion costs EUR 100.000,00 EUR 100.000,00 EUR 500.000,00
Total cost risk for funder EUR 339.360,00 EUR 1.731.905 EUR EUR 2.868.682,00
Upside chance for funder EUR 350.000,00 (35%) EUR 2.500.000,00 (25%) EUR 2.500.000,00 (25%)
Upside chance for plaintiff EUR 650.000,00 (65%) EUR 7.500.000,00 (75%) EUR 7.500.000,00 (75%) 6
Benefits:
§ Right-sizing of case to enable efficient cost structure (cost to benefit ratio)§ More input data from multiple parties -> improves statistical quality for damage calculation§ Increases pressure on respondent -> enhances chances for settlement§ Allows „hiding“ in group/de-personalization -> reduces risk to business relationship§ Reduces costs for all plaintiffs (e.g. by „sharing“ expert opinion)§ Management by same law firm -> improves operational efficiency
Challenges:
§ Finding the right bundling strategy§ Finding the right size of the group, in particular for funding purposes§ Avoiding unnecessary complexity (e.g. diverse factual circumstances, damages, or non-coherent individual
interests)
Right-sizing the case -the benefits and challenges of bundling claims
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Strategy 1:Collective action (Streitgenossenschaft) bymultiple plaintiffs („cooperation model“)
Pros:§ Generally legally undisputable§ Parties „share“ same law firm, efficient case
management§ Parties remain independent with regard to
their own claim
Risks:§ Segregation of individual plaintiffs/claims
possible by court§ Slicing collective action apart can significantly
reduce initial effectiveness/drives costs
Possible bundling strategies
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Possible bundling strategies
Strategy 2:Assignment of individual claims to collectionvehicle (e.g. BKKG GmbH) for litigationpurposes
Pros:§ Very effective way of pursuing claims of
multiple parties§ Allows best for „hiding behind collection
vehicle“, reduces risk of damaging businessrelations
§ No risk of individual claim segregation bycourt
Risks:§ Some courts consider assignment of claims to
collection vehicle as violation of Legal Services Act (RDG) ans thus non-admissable(e.g. Financialright case)
§ But: Recent German Supreme Court (BGH) ruling (Airdeal case) expressly confirmedassignment model as permissible -> hopefullythis notion will spill over into similarconstellations and cartel damage cases.
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§ Litigation funding in cartel cases makes sense for all parties involved and leverages playing fields§ Pursuing small claims (< 2 million EUR) often too costly and ineffective, therefore teaming-up
and bundling claims makes sense § Structure of case is key for succesful funding request§ Funder´s preference are cases with
- Limited number of plaintiffs- Limited number of respondents/third party interventions- Dispute value > 2 million EUR - Low-complexity damage calculation possible
Conclusions
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Thank you for your attention!
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Our team at your disposal
Dr. Hanns-Ferdinand MüllerRA Frederick Iwans
RA Dr. Edgar Stieglitz RAin Dr. Anke Warlich, LL.M. Eur.
RA Markus Glaser RA/StB Thorsten Schmidt
Team Litigation Funding / Dispute Resolution
Backoffice
Executive Board
Conny Leuschner Nadja Furth Adina Maslennikow Marina Töws 12
RA Stefanie Jacob
FORIS AGKurt-Schumacher-Str. 18 - 2053113 BonnDeutschland
T +49 228 95750-50E-Mail: vorstand@foris.comwww.foris.com
We look forward to hearing from you
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