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Supply Chain Risk

‘Transactional Greed’ Leads to a Broken Litigation Market, says Award Winning Commercial Litigation Funder

At last week’s Legal Futures Innovation conference, it was said that there is interest from US private equity investors in the UK litigation market. We spoke to Chris Clay at Escalate to find out more.

What makes the UK commercial litigation market so attractive?

We operate within perhaps the world’s best and most credible justice system. It is not by any means perfect, though. There are significant barriers that prevent claimants gaining access to the system itself – the main barrier being cost.

This creates an attractive investment proposition in that there is a large market where strategic investment can unlock a significant amount of new litigation work, and a market framework that carries integrity in process and outcome to allow for controlled sensible risk assessment before investment.

What are the drivers for market growth?

Nobody really knows the potential size of the UK commercial litigation market, but various statistics do give an indication of it. Interestingly, it is estimated that businesses are currently losing in excess of £40billion a year by NOT pursuing their disputes.

Add this ‘black hole’ to the existing UK commercial litigation claims market, and a world economy coming out of a pandemic, and the size of the opportunity is very significant.

So when considering the drivers for growth I would say that litigation funders are not just looking at the competitive advantages of displacing existing funding arrangements on cases that have been able to make it into the system. They are looking to increase the overall ‘size of the pie’ by unlocking a huge number of cases that currently are not even making it into the system due to the barriers and broken model.

Why do you say that the traditional litigation model is ‘broken’?

Transactional greed. Granted, the litigation ‘supply chain’ are all undoubtedly focused on helping progress claims, but in doing so they naturally look at their own risk profile in relation to their specific investment element and price accordingly.

When all those in the supply chain have taken their slice, the claim is not always attractive or workable for the claimant. Sometimes the combined numbers just make the commercials impossible.

As a simple headline explanation, we always say that the market is broken due to an inherent cost barrier.

If you dig further down into the traditional litigation model then the cost problem becomes much more layered. Each component of the supply chain has different business models, each of which provide further challenges to the creation of an effective and cost effective system for any prospective claimant.

Just look at the legal delivery component. The inherent delays in the court system, and the unpredictable hourly rate (with litigation lawyers being targeted by the billable hour) are clearly at odds with the client objectives of quick, commercial return with low litigation risk. Which adds up to a fundamental mis-alignment of interest.

What makes Escalate different and innovative?

We recognised we had to overcome the transactional greed by becoming the ‘supply chain’ for delivery and building a portfolio mindset to manage risk.

This meant that we could look at the total case delivery risk rather than isolating each supply chain component for its contribution given.

Escalate is the lawyer, funder and adverse cost protector. So when reviewing a case we can offset any perceived shortfall on one part of the supply chain by smoothing from the upside on another area.

We then layer this further by applying a portfolio approach so that we are looking at risk across a spread of cases, different in size and type, so that a blended outcome can be achieved and which ultimately helps us drive the risk pricing down.

This means the client can always be the main beneficiary of any award.

We also recognise the fact that a client deserves value and that reward should be directly linked to the tangible success that is achieved in any work undertaken – the package is therefore wholly contingent on recovery being achieved and is commensurate with the level of recovery secured. Contrast this with the traditional model where the lawyer wins irrespective of the outcome for the client.

And the benefits to clients?

Escalate is unique in the market in that it is a packaged solution that removes a claimant’s financial risk for pursuing access to justice.

It has a fixed price applicable to all cases regardless of size or type so claimants now know what their fee is from the start and importantly the client is always the main beneficiary of any award

Perhaps most important it ensures that interests are aligned from the start.

Escalate is fully contingent and therefore the client knows that we won’t get paid unless it is successful. And we are paid by how successful we have been so they have real assurance that their case will be progressed as quickly as possible to its maximum potential.

We aren’t driven by how many billable hours we can achieve in a case but by how quickly and successfully they can resolve a dispute for a client.

How does the ‘virtual’ litigation department work?

The best distribution channel for Escalate is through partnerships with businesses that have a flow of litigation cases.

So we have a network of over 150 accountancy practices who carry Escalate as a product offering to their clients. Accountants are in prime position to spot commercial disputes and bad debts and offer their clients a risk free solution.

The next step was to partner with other law firms who don’t have a litigation department. We can package Escalate together and have a co-branded offering.

Think of it like ‘ABC Solicitors Litigation powered by Escalate’. Our law firm partners then benefit from a split of the fees at the end of the case.

It’s important to note that there is no fear of poaching clients, because we are solely a litigation firm.

It works really well because the law firm gets to offer their clients a real alternative to high cost, high risk litigation, whilst making a great income. They also don’t have to gp to the expense of setting up a new department and additional PII.

And for those firms that do have their own litigators but want to access just our funding pool, we can do that too.

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