Harbour View Q1 2018

Harbour View

What your client thinks

Spring 2018 Featuring topical articles by guest authors and the Harbour Team. harbourlitigationfunding.com

Contents Page 3-5

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Page 6-9

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Page 10-12

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Page 13

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Page 14-17

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Page 18-19

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Page 20-25

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The rise of risk management

By Elliot Berger, Harbour

Disputes, an untapped asset for corporates?

By Sandy M Cowan and Colin Diss, Grant Thornton

Corporate reputation

By Matt Baldwin, Coast

Shareholder actions, an industry overview With thanks to Institutional Protection Services

Trends in focus: securities litigation

By Andrew Onslow QC and Scott Ralston, 3 VB

Trends in focus: Brexit and competition claims

By Stephen O’Dowd, Harbour

A law firm special: what clients think

The view of five GCs / CEOs

Page 26

Harbour news

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ARTICLE ONE - THE RISE OF RISK MANAGEMENT

Corporates

The rise of risk management

By Elliot Berger, Commercial Director, Harbour

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arge businesses today operate in a challenging and uncertain environment.

The geo-political landscape continues to shift in unpredictable ways with, for example, the political and economic ramifications of the Brexit vote and the Trump presidency still largely to play out. Stock markets have started to experience jitters following the second longest bull run in history, whilst growth in many economies and for many organisations stubbornly refuses to reach pre-financial crisis levels.

quarters of leadership teams have become more risk averse when investing in new projects.

New approaches to risk This has led to the proliferation of novel approaches taken by companies to mitigate risks. New risks, such as those surrounding data breaches and ransomware can now be partly managed, for example through cyber insurance. Companies face new challenges due to increasing transparency and heightened consumer expectations. On page 11 Coast describes future risks to the corporate reputation.

Action and reaction Transformation is occurring across all industries at an accelerating pace, whether driven by technology, transparency or changing customer preferences. Companies operate in a state of almost continual flux: new operating models, turnovers in leadership and new product bets are more frequent than before. To quote a Google executive, “change has never happened this fast before and will never be this slow again”.

Companies are also looking at ever-present risks, and seeking new ways to mitigate them.

For example, recent years have seen the adoption of financial hedging products or insurance in areas like business interruption.

Companies also seek more external support to assist with previously internally performed tasks, such as supplier due diligence.

This contributes to a complex – and often costly – risk environment for companies to manage.

One reaction has been a doubling of the number of assurance functions across the last 10 years – such as Enterprise Risk Management, Compliance, Cyber-Security, and Data Privacy teams. Another has been a reduction in risk appetite – research shows more than three

Litigation is another longstanding corporate concern, and part of the trend among executives looking to new ways to hedge their risks. In recent years at Harbour we have seen more and more large, well-resourced corporates utilise our funding to shift some or all the risk of an adverse outcome in litigation or arbitration.

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ARTICLE ONE - THE RISE OF RISK MANAGEMENT

The impact of disputes

unfamiliar risks will emanate from investments in new technology and markets. With businesses having to move faster than ever before, new legal risks may go unnoticed - and unaddressed.

The struggle to find sustained growth, everincreasing business expenses and demands to deliver savings, means that corporate budgets remain tight. The risks inherent to even the most solid of claims are well understood. Whilst legal fees may be just a fraction of a large company’s total G&A expenses, it’s common for those costs to be allocated to an individual business unit or country budget, where the fees can have a significant impact.

In addition, our decades of collective experience at Harbour tell us that economic, geopolitical and regulatory volatility are key drivers of dispute volumes. In this edition we shine the spotlight on two trends: shareholders class actions and the potential impact of Brexit on competition litigation.

For those local business leaders and finance directors, the cash spent pursuing claims may then not be available for other core business building activities.

The impact becomes particularly personal for those who are measured on business performance or variance from a pre-agreed budget or target. Expenses for claims are unpredictable, last for several months or years, and come with no guarantee of a return - and sometimes the exact opposite in the case of an adverse costs award. As such, it’s not surprising that many CFOs tell us that lawyers’ fees are often a big topic of conversation at management meetings.

Recent years have already seen an increase in demand for litigation funding from wellcapitalised corporates, as knowledge among executives about the availability and benefits of funding has grown. If we are in fact looking at a future where the volume and risk attached to commercial litigation increases, with corporate leadership teams spending more time looking for risk management solutions, we can expect the pace of adoption of third party funding to accelerate even faster.

Enjoy the edition.

Litigation funding resolves these problems by offering corporates the opportunity to shift the entirety of this litigation risk on to a third party. It provides comfort to business managers who need to make the internal case to pursue a claim in today’s risk-averse environment, and offers a host of financial and reporting benefits, as set out in Grant Thornton’s article in more detail, from the improvement of operating profit and cash flow, to increasing the market value of a business that makes more efficient use of its capital.

“… cash spent pursuing claims may then not be available for other core business building activities.”

Future trends As we look ahead, there are many reasons to believe that the number of disputes involving corporates will increase. New, unpredictable and

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ARTICLE TWO - DISPUTES, AN UNTAPPED ASSET FOR CORPORATES?

Disputes

An untapped asset for corporates?

By Sandy M Cowan, Head International Arbitration, Forensics and Colin Diss, Associate Director, Complex and International Insolvencies, Grant Thornton

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ith disputes emerging as an asset class, it is important that corporates consider the benefits of dispute funding, but also its impact on the financial statements.

which means the claimant will not recover the total value of the damages, should they win.

One limitation to a corporate’s dispute portfolio strategy is cash. Once that constraint is removed, it is arguable that claims that otherwise would not be brought, can be pursued. By expanding a corporate’s litigation portfolio, additional assets and subsequent revenues could be generated improving the corporate’s earnings and effectively off-setting the upside taken by the providers of dispute funding.

The accountant’s angle Financial Directors (FDs) wishing to use dispute finance can be classified as those seeking funding a) by choice or b) by necessity with one constant – disputes are expensive and risky. The majority of FDs are risk adverse and welcome any opportunity to hedge risks, whilst retaining the potential to create an asset. Whether a claimant has access to cash or not, dispute funding should be considered when seeking to unlock value from a dispute portfolio.

So what is the impact of funding or not funding on the financial statements of a corporate?

To answer that question, we need to review the purpose of three of the primary financial statements briefly.

When assessing a legal dispute an FD considers: i) do we have the cash flow to risk on legal costs, ii) what is the financial impact if we lose and iii) what is the ‘opportunity cost’ of using this cash i.e. could it be better deployed for capital expenditure, growth or investment opportunities?

Show me the money One of the most memorable scenes in the classic film Jerry Maguire is Cuba Gooding Jr shouting, “Show me the money!” That’s what financial statements do. They show where the money came from, where it went, and where it is now.

Three of the primary financial statements are:

An obvious benefit of funding is the removal of obligations for legal fees and adverse costs – without a negative income statement or cash flow impact – with the added advantage that the dispute finance and contingent liabilities remain completely off-balance sheet. That said, the funder requires a return on their investment

• Income statement • Balance Sheet • Cash flow Statement

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ARTICLE TWO - DISPUTES, AN UNTAPPED ASSET FOR CORPORATES?

Income statement

Once incurred legal fees are either be recognised as a liability on the balance sheet (if unpaid) or have caused a reduction in the cash balance (if paid). In both cases the impact of incurring legal fees is an equivalent reduction in the shareholders’ equity. Any damages received would increase the cash balance with an equivalent increase in shareholders’ equity.

An income statement shows how much income or revenue a corporate earned over a specific time period (usually a year). It also shows the costs and expenses associated with earning that income.

Alongside changes in revenue, the differing levels of profit (loss) shown in an income statement are: gross profit (income less cost of sales), operating profit (gross profit less operating expenses), EBITDA (operating expenses adding back depreciation and amortization) and net profit (the profit after all expenditure has been accounted for).

Cashflow statement Cash flow statements report a corporate’s inflows and outflows of cash. This is important because a corporate needs to have enough cash on hand to pay its expenses and purchase assets.

An income statement can tell you whether a corporate made a profit; a cash flow statement reveals whether the corporate generated cash and whether there has been a net increase or decrease in cash for the period.

Generally, legal fees are recognised in the administrative expenses section of an income statement, thereby impacting operating profit, EBITDA and net profit. Any damages received would often be significant to the results of the business and the level reported within the Annual Report. In such cases most users would remove this other income from their assessment of the ongoing results of the business.

Bringing it all together Each of the above financial statements, although explained separately, are closely related.

Changes in assets and liabilities on the balance sheet are also reflected in the income and expenses on the income statement, which result in the corporate’s profits or losses. Cash flows provide more information about cash assets listed on a balance sheet and are related, but not equivalent, to net profit shown on the income statement. No single financial statement tells the complete story, but combined, they provide very powerful information for users.

Balance sheet A balance sheet shows what a corporate owns (assets), what it owes (liabilities) and the amount belonging to the owners or shareholders (capital), at a fixed point in time. Assets include physical property, such as land, plant and equipment, vehicles, and inventory. It also includes nonphysical items, such as trademarks, patents and monies due from customers for product sold.

Cash itself is an asset and so are investments that a corporate makes. Liabilities reflect the amounts of money a corporate owes, such as money borrowed from a bank, money owed to suppliers for materials etc.

Shareholders’ equity is also referred to as capital and reserves, net assets, or net worth. It’s the money that would be left if a corporate sold all of its assets and paid off all of its liabilities, and it belongs to the shareholders (owners) of the corporate.

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ARTICLE TWO - DISPUTES, AN UNTAPPED ASSET FOR CORPORATES?

Case study

In this example, management will be faced with a decision to risk £4m and suffer the effects of profit and cash erosion to possibly recover £20m (assuming a win and recovery of costs), or to de-risk themselves with a zero outlay and the potential to recover £13m (£20m claim less £7m funder’s return on investment).

Let’s consider a corporate who is contemplating pursuing a legal claim for £20m with expected legal fees of £2m on both sides, under two scenarios - self-funded and funded - and how this shows in the financial statements: Self-funded – the legal fees of £2m are recognised in the income statement and impact operating profit. If the action went on for several years, there would be a yearly effect on the income statement.

RISK APPETITE

The balance sheet is £2m worse off to either cash or liabilities and retained earnings are also £2m lower. Additionally, a contingent liability would need to be disclosed in the notes to the financial statements to cover the possibility of paying the defendant’s costs in the event that the case is lost (unless management considered the chance of being required to pay such costs was remote).

Self-funded

Funded

Win £20m

Win £13m

Lose -£4m

Lose £0m

In the cashflow statement, the cash position is £2m worse off over the period the legal fees were incurred.

Funded – A funder agrees to fund the full £2m of legal expenses, plus adverse costs insurance, in return for 35% of the claim in the event that the claim is successful.

Conclusion Whether dispute funding is the right solution for corporates to unlock the value in their offbalance sheet dispute assets will depend on the specifics of each corporate and case or cases. One thing is clear, in an environment of costs cutting corporates cannot afford not to consider it.

There is no impact on the income statement as the funder pays the legal fees, nor on the cashflow statement as no cash leaves the corporate.

In the balance sheet cash and retained earnings are preserved. Furthermore, there is no need to disclose a contingent liability as the funder pays the defendants legal fees in the event that the case is lost.

With thanks to Nilesh Mehta, Grant Thornton, for his assistance.

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ARTICLE THREE - CORPORATE REPUTATION

Corporate reputation

Building and breaking businesses

By Matt Baldwin, Joint Managing Director of Coast

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rust in businesses, charities, government and the media is at an all-time low.

Whether it is unacceptable treatment of women, crass behaviour of NGOs, aggressive tax planning by household brands or the financial collapse of big businesses which only months earlier had been given the all clear, it is difficult to know which organisations to trust.

questionable business interests – well let’s just say it didn’t end well for Bell Pottinger.

Reputation is not just a problem for PR people, but for CEOs, heads of Legal, HR, IT and Finance.

Corporate transparency is increasingly on government and regulators agendas. Financial reporting standards are tightening and include many non-financial measures.

Every year, global PR giant Edelman surveys 33,000 people around the world as part of its annual Trust Barometer. It found this year that trust in governments has plummeted by 41%, the media by 43%, and that just 37% of its panel say they trust company CEOs – the lowest in the 17 years it has run the survey. Respondents told Edelman that the ‘system has failed them’ and that it is ‘unfair and offers little hope for the future’.

Reputation is now a boardroom agenda as it can have a serious impact on the bottom line and the sustainability of a business.

Future threats The tide in acceptable behaviour has changed.

What used to be normal or tolerated is no longer acceptable. Take for example the actions of Hollywood’s Harvey Weinstein and the treatment and harassment of women. Almost every industry is facing its #metoo moment. The now infamous Presidents Club dinner moved the focus to the property industry and left charities with difficult questions to answer.

Businesses, charities and governments should be worried. They will have to work harder than ever to earn our respect, trust and our business.

Is this a failing of the PR and communications industry? It is, after all, our job to help build and manage reputations and show corporates how to put their best foot forward. No PR firm could successful argue that Oxfam’s staff were entitled to engage prostitutes in countries where it was administering aid or that it is acceptable to treat women unfairly in the workplace. And when a PR agency did act for unsavoury regimes and

The future threats to corporate reputation have their foundations in the actions of organisations and their people today.

Greater corporate transparency means businesses, charities and government can no longer fly under the radar. And that is a good thing.

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ARTICLE THREE - CORPORATE REPUTATION

The gender pay reporting obligations facing businesses in the UK may focus on pay gaps between male and female employees, but moves the debate towards the wider treatment of women in the workplace. It is not an issue that will go away.

managers, business leaders and Boards. Many will not be up to the job.

They can guide businesses through change, addressing issues and breaking news stories, but always with a long-term aim in sight – to build a better business that listens. If that makes you or your senior colleagues uncomfortable then great – you are doing something right.

Payment practices reporting, where organisations have a duty to report publicly on their payment practices and performance may not have caught the imagination in the same way as gender pay reporting has, but it will. Born out of the concern of the administrative and financial burden faced by thousands of companies because they are not paid on time, it will not be long before enterprising journalists create league tables of the best and worst companies to supply.

Coast is a PR firm working with professional services and property firms across the UK and around the world.

On the other side of the coin, suppliers can cause real reputational damage as KFC discovered when its new distributor was not up to the job.

When suppliers question their relationships, demand better terms or, in the worst case, refuse or are unable to supply an organisation, it may be too late to act. Increasingly, suppliers will be held responsible for the reputational damage they cause their clients and customers.

“Future threats have their foundations in the actions of organisations and their people today.”

Prevention is better than cure There is no magic bullet that will solve an attack on corporate reputation; bad behaviour has a habit of finding the light of day. These and future scandals will slowly and surely change the way businesses, charities and governments behave.

You may believe that customers or clients love your brand, but don’t be fooled. Failure to live up to expectations will see them go elsewhere.

What can you do?

PR and communications professionals should be at the heart of driving meaningful change, and not just there to defend or deflect undesirable behaviours. This will mean challenging senior

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ARTICLE FOUR - SHAREHOLDER ACTIONS, AN INDUSTRY OVERVIEW

Trends in focus Shareholder actions An industry overview

Collective and group shareholder actions take place almost daily around the world with the purpose of recovering investment losses arising from corporate (or adviser) non-disclosure, misrepresentation or fraud. Broadly speaking there are two types: opt-out and opt-in actions.

The scale of the industry • Every year 300 to 400 new shareholder actions are brought by investors, 80 to 100 of which are outside the U.S. • Currently around 1500 shareholder actions are in progress across 26 different jurisdictions.

• U.S. class actions are the best known and still account for 200 to 300 new actions and 100 to 200 new settlements each year.

• In the last 10 years, an estimated $60bn billions have been returned to investors through these processes but equally it is projected that over $20-30bn was missed by investors. Unclaimed money is not returned to the company at issue, but re-distributed to other investors who do properly claim their share.

• Non-U.S. actions can recover significantly more than U.S. actions - expected to return $8 billion to investors annually.

different jurisdictions, have become routine.

Thus investors need to make decisions between competing actions (and sometimes jurisdictions) if they wish to recover their (or their clients’) losses.

• Investors have a fiduciary duty to understand where they are impacted by shareholder actions and collect eligible recoveries, particularly where funds are managed on behalf of beneficiaries. Investors in turn have become more exposed for missing eligible payments as their clients have begun to realise not all eligible moneys have been collected.

• Technology has made monitoring possible and effective. This has led to the formation of specialist firms offering dedicated support to help manage institutional investors’ responsibilities. As their services become more sophisticated, the scale of these actions is expected to further expand.

Developments to watch

The new global landscape

• What used to be an almost entirely US shareholder class action landscape, has broadened internationally with differing jurisdictions, legal systems, requirements and processes. This impacts both investors and listed companies.

• Parallel actions, concerning the same/similar defendants and subject matter in the same or

Shareholder actions are here to stay. Parties on either side of the fence will have to review and/ or create robust policies and processes as part of their operational governance.

With thanks to investor action specialist, Institutional Protection Services for providing the statistics.

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ARTICLE FIVE - TRENDS IN FOCUS: SECURITIES LITIGATION

Trends in focus Securities litigation

Tools available in the UK

By Andrew Onslow QC and Scott Ralston, Barristers, 3 Verulam Buildings

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Statutory causes of action

ecurities litigation by disgruntled shareholders is becoming a recognised feature of the English litigation landscape, and the availability of sophisticated litigation funding makes such cases more economically viable. But the existing incomplete procedural framework creates practical difficulties which must be carefully navigated.

Sections 90 and 90A of the Financial Services and Markets Act 2000 (FSMA) supply statutory causes of action for untrue or misleading statements and omissions in listing particulars or prospectuses (in the case of section 90) and published information of any kind (in the case of section 90A).

Why is securities litigation becoming more accessible?

A key feature of section 90 is that such a claim does not require individual claimants to prove reliance; by contrast a claim under section 90A requires proof of both the defendant’s fraud and reliance by the investor. For section 90 claims, this means that on liability issues the shareholders will usually face the same hurdle, which in theory means a more cohesive claimant group and an easier calculation of returns by a litigation funder contemplating collective redress. Again, by contrast, section 90A claims necessarily involve focus on the particular situation of the investor, whether corporate or individual.

Current or former shareholders of a listed company may complain that they have suffered loss by the company’s failure to disclose accurate and complete information about its affairs. Two fact patterns may be highlighted: (i) claims that the company failed to disclose accurate and complete information in fulfilment of its ongoing disclosure obligations, usually to the effect that it delayed publication of bad news, and (ii) claims that the company failed to disclose accurate and complete information in the context of an M&A transaction, often about the price to be paid or the potential downsides of the transaction.

Other attractive features of the statutory causes of action are that (a) it is usually only necessary to sue one defendant, namely the listed entity, (b) the shock of bad news may often produce an immediate downwards impact on a company’s share price (giving the investor a useful yardstick for assessment of loss), and (c) a listed company

The modern availability of litigation funding and a perception of the favourable economics of securities litigation have contributed to the growth in this area.

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ARTICLE FIVE - TRENDS IN FOCUS: SECURITIES LITIGATION

announcing negative news may frequently be expected to have had some prior understanding of its prospect, making plausible the case that there has been a cover-up in the higher levels of the company.

The group register identifies the claimants which will be bound by the management court’s judgments and orders and will be subject to the management court’s case management powers. In keeping with the opt-in nature of the procedure, a claimant must issue a claim before it can be entered on the group register.

The globalisation of shareholder claims

GLOs and securities litigation

Models for collective redress vary across jurisdictions. They provide a frequent source of comparison for both law reformers and litigants engaged in forum selection. The overlap between jurisdictions can also surface during the course of litigation, as the parties absorb forensic techniques (e.g. the use of American event-studies analysis to calculate quantum), seek disclosure from other jurisdictions (e.g. relying on section 1782 orders to obtain evidence from a US-based entity) and encounter assertions of privilege for documents produced in investigations undertaken partly in other jurisdictions (e.g. the RBS Rights Issue Litigation [2017] 1 WLR 1991).

The central feature of a GLO is that the claimants have a common interest in the determination of the GLO issues. In securities litigation under s.90 of FSMA that common interest may appear quite uniform because there are no individual reliance issues and insofar as causation, quantum and the defences give rise to individual issues, these may be hived off to a later trial. But this commonality of interest is not unlimited and may disguise the claimants’ different interests in the litigation. It must always be borne in mind that this is not a class action - the claims are simply being managed together.

Pre-action work and claimholder democracy

The GLO procedure Following Lord Woolf’s report, Group Litigation Orders (GLOs) were created in 2000 to provide a better way of managing multi-party proceedings as detailed in PD19 and 19B of the Civil Procedure Rules. One of their distinguishing features, in contrast to the “opt-out” procedures in other jurisdictions and now available in some competition claims in the UK, is that they are an “opt-in” procedure which requires every claimant to consent to its participation in the litigation. The claims are linked purely for case management purposes. This linkage is achieved by the identification across the claims of “common or related issues of fact or law”, following which the Court may make a GLO to facilitate their collective management by a management court.

Case management is undertaken by establishing a group register.

In any GLO securities litigation, the amount of work required to corral shareholders of disparate backgrounds into a cohesive group should not be underestimated. This includes not only the normal administrative tasks of retainers and anti-money laundering procedures, but also the planning of the mechanisms by which the group will advance its claims, meet the burden of any costs and disbursements, and make decisions about settlement.

Fundamental to the effective organisation of the group and conduct of the litigation is the imposition of effective claimholder democracy, which - in the same way as the collective decision-making mechanisms are used to create bondholder democracy - provides the machinery by which to bind the group as a whole. It may be that within

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ARTICLE FIVE - TRENDS IN FOCUS: SECURITIES LITIGATION

the group it is not possible to agree a mechanism or delegate authority for all eventualities, at which point the individualistic nature of the opt-in procedure may come to the fore.

Normal Court policy is to encourage the parties to settle their differences by agreement. This works perfectly well in individual cases, but there is a lack of regulation as to how settlement should take place in a GLO context. In other forms of collective redress, the Court has a supervisory jurisdiction, for example: (i) optout proceedings in the Competition Appeal Tribunal require a settlement approval order, (ii) settlement of representative proceedings of interested persons who cannot be ascertained requires court approval, and (iii) permission may be required to settle derivative claims.

Multiple claimant groups and claimholder democracy An important feature of GLOs is that the claimants need not all have the same solicitors.

This can lead to different groups of claimants represented by different firms of solicitors.

Different groups of shareholders may coalesce for different reasons, and there may be good reasons justifying different representation which go beyond preferred representation.

Some groups may take more active roles in the litigation than others.

In his Access to Justice Report, Lord Woolf raised the prospect of a role for the court in approving GLO settlements, but this was not implemented. GLOs permit claimants to come together for limited case management purposes, but the existing framework fails to deal with the problem of varying interests between claimants and claimant groups, leaving it to the parties’ contractual autonomy to come up with a solution.

Nevertheless, the potential for numerous claimant groups exacerbates the problems of claimholder democracy. While it is likely that within their groups the claimholders will have agreed at least some contractual restrictions on their decision-making, the same process then needs to be repeated at the inter group level, and may not result in the same level of agreement.

Ultimately, the solicitors for each group owe fiduciary duties to their respective clients, rather than to the claimants collectively.

Conclusions The reluctance of English procedural law to permit opt-out procedures has left the Court to grapple with multi-party situations on the basis of an incomplete framework. Equally, the introduction of such procedures would be likely to generate a big increase in shareholder claims of more or less merit, and there are good economic and policy reasons for not introducing US-style class actions into the UK. At present, the only way to navigate the issues discussed in this article is to recognise them in advance, and seek to set up the most advantageous contractual mechanisms for claimholder democracy that can be achieved.

So while, as already stated, claimants embarking on securities litigation may have a theoretical common interest because the liability issues are the same or similar, as a practical matter, the interests of the shareholder groups may often diverge. A retired postwoman whose shares make up her pension may have different concerns from a foreign institutional shareholder. This divergence of interests may surface in relation to settlement proposals, in respect of which different claimants may have different price points and different reasons for wanting to continue or cease litigating.

Andrew Onslow QC and Scott Ralston (with Adam Kramer, also from 3VB) acted as Counsel for a lead group of claimants in the RBS Rights Issue Litigation.

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ARTICLE SIX - TRENDS IN FOCUS: BREXIT AND COMPETITION CLAIMS

Trends in focus Brexit

The end of funding for UK competition litigation?

By Stephen O’Dowd, Senior Director Litigation Funding, Harbour

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he UK is an indisputable jurisdiction of choice for the private enforcement of competition law, with litigating parties attracted by a rich pool of legal and financial talent available to help determine their claims.

But with Brexit looming, can the UK remain a forum of choice for competition litigation?

CJEU decisions, and arguably place a little less onus on the individual discretion of UK judges.

From a funding perspective, such a development raises concerns around case duration and ambiguity. Dealing with duration first. If too much is left to the individual discretion of judges, we might expect more scope for parties to appeal, which in turn could lead to more issues for the Court of Appeal and Supreme Court to consider - and ultimately longer cases.

The answer to this question is important for litigants and third-party funders alike.

Funders, including Harbour, have played an increasingly important role in the investigation and prosecution of claims in this space and, as we assess future UK competition claims against the background of Brexit, we will need to take additional risks into account.

About ambiguity: litigation is inherently uncertain, and we look for signposts to guide us in assessing the merits and anticipated outcome of a case before we fund it. Competition litigation is a highly complex area and EC and CJEU decisions can provide very valuable signposts for our case assessments. One can appreciate how any dilution of the value of such decisions could hamper our evaluation.

EC/CJEU It is currently intended, when the UK leaves the EU, that decisions of the European Commission (EC) and the Court of Justice of the European Union (CJEU) will no longer be binding on UK courts. Our courts must ‘have regard to’ EC and CJEU decisions, but post-Brexit that would mean UK courts can diverge from EC and CJEU decisions without giving reasons for doing so.

Jurisdictional uncertainty Competition litigation frequently involves multiple defendants, many of whom are domiciled outside of the UK. Post-Brexit, such defendants may be more inclined to apply for anti-suit injunctions to put a stop to UK proceedings.

Senior lawyers in the UK have lobbied for a change to this position, whereby UK courts must have ‘due regard to’ EC and CJEU decisions. This would at least require UK judgments to set out their reasoning when diverging from EC and

This risk, coupled with possible delays in service out of the jurisdiction and enforcing UK judgments, could serve as an obstacle to funding UK claims.

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Evidence We are asked to fund a number of so-called ‘follow-on’ claims from EC decisions. If, postBrexit, EC decisions will no longer stand as factual evidence in UK proceedings, we may be reliant on UK competition authorities to conduct separate investigations.

In addition, certain claimants may feel compelled to bring dual claims, in circumstances where they have suffered pan-European damages. That is, one set of proceedings for the UK, and another for other non-UK damages. This would undoubtedly increase the cost and, potentially, complexity of what are already expensive and complex cases.

And yet, it is unlikely that there would be increased damages to compensate for this factor.

Conclusion Brexit is shadowed by uncertainty, and with uncertainty comes additional risks. Third party funders should expect, then, the risk profile of competition litigation in the UK to change post-Brexit.

How dramatically that profile will change, and whether it will spell the end of funding for UK competition, are important questions. There are however compelling reasons for Harbour to continue to fund UK claims in this space.

One reason is that EC decisions will still be persuasive, especially when they are settlement decisions. As such, they should continue to serve as clear signposts for our case assessments.

“There are compelling reasons for Harbour to continue to fund UK claims in this space.”

Another, and perhaps key, reason is that the reputation of the UK’s justice system for speed, independence and expertise is built on very solid foundations. Those foundations are unlikely to be significantly eroded by Brexit, and should continue to fill us with confidence for many years to come.

The end of funding for UK competition litigation?

Not quite.

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Law firm special

What your client thinks We asked those responsible for selecting and/or working with external law firms which qualities law firms need to possess to build an effective relationship with their corporate client. This is what they said.

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ARTICLE SEVEN - A LAW FIRM SPECIAL: WHAT CLIENTS THINK

Dr. Robert L. Rom Attorney at Law, FCIArb, rlr arbitration, Previously UBS and Swiss Life, Switzerland First hand knowledge of the client’s industry

In today’s fast and complex corporate legal landscape, the need for reliable and efficient counsel is bigger than ever. While cost efficiency, loyalty, availability or professionalism are taken for granted, there are other characteristics I valued in 20 years as Group Legal and M&A counsel with a focus on litigation and arbitration within large multinational corporations.

Senior lawyers working with a corporate client should be familiar with its trade, through in-house or other direct exposure. It will then be much easier for the GC to relate their specific needs, but also for his lawyer to contribute valuable and customised input. Similarly, well rounded firsthand legal expertise is required. For example, a litigator with M&A experience is better suited to litigate a post transaction dispute than someone who never sat through Due Diligence or SPA negotiations.

“Expecting the best while managing expectations”

Understanding your client’s culture

Relationship manager as one-stop shop

Corporates are unique animals with processes difficult for outsiders to comprehend. Even an experienced external lawyer may not fully understand the fine mechanisms or needs of a committee or board of directors without having worked in-house. When it comes to PR or communications, among the most sensitive areas for corporations, especially listed ones, external lawyers often focus on the best legal outcome without considering the communication impact. A lawyer with relevant senior in-house experience could have an edge.

It is essential for in-house counsel to be able to rely on one relationship partner who selects and helps supervise the optimal team for any legal matter and who takes ultimate responsibility for services rendered. The client should only have one single contact person when it comes to discussing efficiency, quality or strategic matters. This is especially true where numerous jurisdictions are involved - the corporate may not have personal contacts locally - but it also applies to domestic matters requiring experts from various legal fields.

Guidance is a two-way street

Consistency of the legal team

Corporations hire legal advisors to prevent or to guide them through difficult legal, regulatory or commercial situations and expect only the best.

Lawyers can be troubleshooters or resolvers, but may lack in-depth understanding of their client’s customs and processes. It is essential that in-house counsel guide and help familiarise advisors with their culture and corporate processes from the beginning. It will create the most effective relationship.

When a project or matter stretches over a long period of time, the composition of the legal team should be maintained as long as possible. Some firms install junior associates or paralegals who only work on a case for few months who are then replaced again, and again. Valuable knowledge gets lost each time and fees and resources are wasted by restoring it.

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Mark Amsden Former GC and Company Secretary, Morrisons Supermarkets Company Secretary, Yorkshire Water, UK Understanding internal pressures

The impact of CFOs

A CFO is charged with hitting his or her numbers.

That means the GC needs to get the legal budget right, and then stick to it, or better still, beat it. Furthermore, it is not unusual to be tasked mid-year with finding additional savings even against a previously approved budget. Law firms need to understand that all GCs might face this responsibility.”

A CFO needs to understand the company’s risk profile and ensure provisions are made accordingly.

The CFO doesn’t want any surprises, especially when it comes to OpEx items in the budget.

No surprises includes provisioning properly for claims against the company.

The constant demand to drive costs down Every year the costs of running a business increase. At Morrisons it would cost, on average, an additional £130m (approx.) per year to run the supermarket, as rent, rates, wages and energy bills increase. So, the CFO will task people in the business, including the GC, with delivering productivity savings. As a GC you need to make sure your team delivers those savings. It is why external law firms get pushed down on rates. It also explains why the Procurement department of a company will zone in on percentage savings for any external suppliers. If a supplier isn’t reducing its rates by a certain percentage, Procurement will take some persuasion before signing off the contract.”

Lawyers complain that surprises are inherent in litigation, but a CFO doesn’t care. Therefore, it is key that the GC gets his or her provisions right.

It is unforgivable to have to advise the auditors of a surprise provision in relation to a claim or risk as it completely ruins the numbers for the business and causes a huge audit-related headache. Anything that can help prevent that from happening, we love to hear about from our external lawyers.

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Melissa Strong Head of Insurance Litigation, Group Legal Department Lloyds Banking Group plc, UK Consistency of global service

Strong relationships between a corporate and their panel law firms are fundamental to the success of an in-house legal function. A trusted firm is one who is seen as an extension of the in-house legal team. That said, care should be taken not to overstep the relationship. It is also key to understand the in-house team’s vital role as the interface between law firms and the business they are advising.

Firms who offer a global service should take the time to understand which colleagues are being instructed overseas and how to support that relationship to ensure consistency of service for the in-house team.

We would always prefer to instruct an overseas office of a panel law firm, but it is amazing how few take the time to investigate those countries where we need support, and offer assistance through the engagement of overseas Partners.

The locally UK-based panel teams should stress test the advice from overseas offices to ensure, at a very basic level, the terminology is coherent with local terminology, as confusion in this regard can ultimately undermine the advice and the relationship.

Invest

Firms need to understand the value of investing in client relationships, away from a specific project.

They will gain an insight into the corporate’s commercial aspirations, their risk appetite and also into those small problems, that don’t yet justify referral outside the in-house team, but can grow into something quite substantial as matters evolve.

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Dr Ulrick Bez Brand Ambassador, former CEO Aston Martin, Germany Advice in a nutshell

We also want to be kept informed on the latest developments: that ranges from technological advancements which may facilitate legal contract negotiations, to how we can manage risk - such as third party funding - and how different fee models can work for different legal work optimally. We may decide that not all solutions work for us all the time, but we want to know about them and make that informed decision ourselves.

Firstly, for a super busy CEO, advice in a nutshell is a key requirement. If I need transactional advice or a legal solution to a dispute, I want to be presented with clear options in a timely manner.

“No sitting on the legal fence� 

Creative commerciality For this a lawyer needs to understand the business. This may sound obvious but it requires the combination of being a fantastic lawyer and the dedication to understand how the business works, what is important to us and what we are trying to achieve.

Other qualities I look for are proactivity, creative thinking and commerciality. For example, a solution can be perfectly legal but we now also need to ask ourselves: is it ethical? Nowadays corporate reputations are being scrutinised by the media, politicians, clients and the public. We all know that if the legal advice has a consequence that does not match our brand values, this could be damaging and, as we have seen over the years for some organisations, it has been difficult to recover.

Bespoke service Secondly, I highly rate a bespoke service.

This includes receiving a personal service when needed. Not only in the country where our headquarters are located, but in other jurisdictions also. The right team, with the right expertise dealing with the problem at hand.

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Meg Redwin General Counsel, Executive Director Multiplex Australasia, Australia This question is often answered in a master/slave context of the corporate needing the law firm to meet certain criteria and toe an imaginary line.

Often the relationship exists within a very formal panel system. That doesn’t work for me. I know panels are good and useful, but it seems that you can end up with quite a rigid panel.

“Ability and work being done in a timely way, are a given.”

The real power of a good relationship is someone who actually understands the industry that you work in and can help when you need to bounce ideas around, need something done urgently, or are in a large, complex matter.

Anecdotally, a great deal of stress is caused by asking law firms to meet huge lists of tender criteria that may or may not be relevant to how the work is done. I also find it ironic that I might be asked to provide a reference to a law firm so that a competitor can use that law firm that I have a strong relationship with!

Away from the status quo I think in the context of litigation, really strong relationships are needed, as without those, the inevitable drain of costs can impact the relationship. You need a team of externals who are constantly thinking of the strategy and how resolve in the best way, rather than run it in the standard way because that is the status quo.

Once you have that formal panel - how do you deal with the need for flexibility when a key partner leaves a law firm to join one not on the panel? So on that basis it mightn’t surprise you to know that I have an informal panel, to which we add as relevant issues arise and we need a specialist we may not have needed before.

Commerciality The other often cited issue is commerciality – you want externals who are not wasting time on irrelevant issues just because there is a small legal risk. Much better is someone who can explain the risk and the mitigants because they understand the industry. That can sometimes be a fine balance.

Understanding the business I build strong relationships with the external firms we use, and expect those firms to understand the dynamics of the business, the context of our parent entity, etc.

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HARBOUR NEWS - NEWS FROM INSIDE HARBOUR LITIGATION FUNDING

Harbour news

In the first week of March 2018, we launched Harbour Fund IV with £350 million of additional capital. This brings our total funds raised to £760 million.

Our new fund gives us greater flexibility to support our clients’ needs. We are able to address every type of dispute funding whether it is: • • • • • • •

seed money for investigations single case funding support for the largest class actions portfolio funding claim acquisitions credit working capital for law firms

Our team is ready to discuss how we can build solutions to match your needs.

Selected from over 1,500 individual nominations from corporate counsel and law firm partners in Europe, the 10th Annual European Counsel Awards 2018 shortlisted the Harbour Team for the ‘Litigation’ award.

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The information, materials and opinions contained in this publication are for general information purposes only; are not intended to constitute legal or other professional advice; and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. Neither Harbour Litigation Funding Limited nor any other of its related entities accepts any responsibility for any loss which may arise from reliance on information or materials contained in this publication. If you wish to find out more about the information in the materials published, please contact Silvia Van den Bruel on +44 (0)20 3829 9336.

Harbour Litigation Funding Ltd 180 Piccadilly, London, W1J 9ER harbourlitigationfunding.com

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