Iain is the co-founder of Profile Investment, the first third-party funder with a regulated fund dedicated to non-recourse financing of commercial disputes. Iain is a lawyer in the UK of 15 years’ call and registered foreign lawyer at the Paris Bar, and has worked for both Freshfields Bruckhaus Deringer and Latham & Watkins. Prior to launching Profile Investment with Alain Grec, Iain was the general counsel of disputes for six years with a large third-party funder based in London. Iain writes about – and regularly consults with governments, investors and legal bodies in respect of – investment in, and regulatory development of, third-party funding.
What inspired you to move from private practice to third-party funding?
First, I think reference to third-party funding is misleading. It suggests that we are a party to the disputes we finance. We finance disputes, we do not participate in them. As for me, like many senior lawyers in private practice at a large international law firm, you either make the commitment and sacrifices necessary to specialise in a narrow area of the law, or you leave. At that time in my life, the sacrifices outweighed my commitment to a narrow practice area. I was looking for broader, more entrepreneurial experiences that would use my disputes experience, when I stumbled on dispute financing. It seemed like a good fit. It still does.
Why has the market for dispute financing grown so much over the past few years?
The simple answer is because it works for everyone concerned. End-users seek a cost-risk-transfer mechanism; lawyers seek a means of not turning down good cases; and investors seek a measurable asset class with above-average returns on investment. A virtuous circle is created: the first two of these exist because of the success of the third, which further benefits the first two.
How much does the regulation of dispute financing vary across jurisdictions? How does this impact your work and the skills required?
There is no consistent regulation on the activity of dispute financing across jurisdictions. Although most countries have allowed it (with a few notable exceptions), how it is implemented and measured varies widely – from self-regulation as in the UK, to practice directions that I helped draft in the UAE, to regulations in Hong Kong and Singapore that my colleague Alain Grec helped develop. We take the view at Profile Investment that it is worth the time and energy to be at the forefront of the development of rules, regulations and guidelines for dispute financing.
To what extent is external regulation of dispute financing necessary?
There are two types of regulation that are relevant. Regulation on how and from whom monies are raised for the purpose of dispute financing and regulation on the activity of dispute financing. Profile Investment has a regulated fund dedicated to dispute financing, because we believe that how monies are raised and from whom they are raised is important to the lawyers we are paying and to the end-users who benefit from our investment. Adherence to anti-money laundering regulations, for instance, should not depend on “self-regulation”. We believe regulation of dispute financing as an activity is inevitable, and should start with the regulation of how and from whom monies are raised.
What are the biggest challenges facing the dispute financing market at present?
There are two competing models of dispute financing, which we at Profile Investment refer to as merits-model financing (MMF) and pricing the risk (PTR). PTR is an approach dependent on volume and works on the basis that even weak, poor or meritless claims can be financed if the terms are right. PTR tends to treat disputes like any other commodity in a financial system. MMF recognises that disputes are part of a legal system not a financial system and are about the dispensation of justice, of which the compensation of loss is a corollary. Instead, the focus is on the merits and prospects of success of each claim. Whichever of these approaches prevails will have the biggest impact on how dispute financing will be inevitably be regulated.
How might the coronavirus pandemic affect the dispute financing industry? Do you expect an uptick in certain cases being provided funding?
We tend to assess cases from three types of end-user: access to justice; small and medium-sized enterprises; and corporate and state entities. Traditionally we tend to see most cases from the first two categories. However, we have noticed a sharp increase recently from the third category as various belt-tightening measures are implemented. It is possible that as the third-category applicants begin to reach levels commensurate with the other categories, dispute financing will evolve in the way that adverse costs insurance has evolved in several jurisdictions, and it may one day be compulsory for a lawyer to advise their clients on the existence of dispute financing.
What, in your opinion, is the future of dispute financing?
It seems inevitable that as law firms become more like modern businesses, and dispute financers become more legally sophisticated that there will be a converging towards a law firm/financing hybrid. In many cases this is already happening with the plethora of portfolio financing products designed specifically for law firms. The key will be whether it is a law firm with a financing arm or a fund with a disputes arm. The former will continue to help those with the best cases have access to justice. The latter will seek to treat legal systems like finance systems where justice will be at best a corollary of profit.
What advice would you give to someone starting out in third-party funding?
Like most modern businesses, Profile Investment’s strength and value is derived from the collective efforts of its people and its processes. We work with sophisticated and bespoke monitoring and assessment techniques that help to keep us on top of the issues without burdening the attorneys we work with. Furthermore, we’ve pulled together an exceptional team, and we’re always on the lookout for talented individuals with drive and ambition to join us. So if I was pushed, I guess my advice would be, if you want to invest in cases, invest in your people and your processes first.