The first ever legal litigation fund, where decisions on backing cases will be made by lawyers rather than financiers, has been launched in Wales with £50m of financial firepower.
New North Litigation Capital Ltd has secured a facility from alternative asset manager Pollen Street Capital. The £50m will be deployed to fund the legal costs of litigation cases mainly in the £1m to £30m damages bracket. Many will be business to business cases, but could also be on behalf of an individual or a group of people in a class action.
New North is wholly-owned by Cardiff-based law firm Capital Law. Its senior partner Mr Nott is chief executive of the new venture. Day-to-day operations are also being driven by fellow Capital Law partners Andrew Brown, as chief investment officer, and Guto Llewelyn, as head of new business. Between them, they have 80 years of legal experience.
While there are established investors financing litigation, many are focused on large damages claims well above £30m. New North, under its new lawyer driven model, will look to finance cases Ƶ-wide.
Over the next five years, it could potentially fund around 100 cases from its fund. An investment committee, chaired by Mr Nott, will quickly assess the merits of cases brought to them by other lawyers acting on behalf of clients—mainly businesses seeking damages.
New North sought financial backing from investors in both the Ƶ and the US before securing a new senior credit facility from London-based Pollen Street Capital, which has asset under management of more than £6bn.
Capital Law has a strong track record in commercial litigation, having closed over 400 claimant cases since 2001 with a 95% win rate.
Mr Nott: “This is a product of many years’ work in what has been very much a team effort. There is a lot of litigation finance money available, although there is speculation about how much. But all the money is controlled by financial institutions who, while they have lawyers to carry out assessments, ultimately leave decisions to financial people who are not lawyers and lack a litigation background.
"Our pitch to investors was a new approach to litigation finance, where investment decisions are made by lawyers on an investment committee, without financiers. Many said they liked the model, but didn’t want to be the first to back it. However, the Pollen Street team immediately understood our risk management approach. What we have secured is a finance line which will be drawn on a case-by-case basis, on the advice of the committee.”
Mr Nott envisages that the majority of cases funded will result in settlements.
He said: “At the moment, ‘David gets beaten up by Goliath’ because he hasn’t got a slingshot. A lawyer might tell a prospective client they have a good case, but it could take years, and if it goes to trial it could cost £1m. That is a real conundrum for a chief executive seeking damages. However, if I step in and agree with the lawyer, and also put up the money, it changes everything. Suddenly David has the slingshot.
“The holy grail in litigation finance is the smaller case market, which existing funds struggle to address within their business models. Too many organisations abandon strong cases because they can’t afford the fight – the deepest pocket wins. With New North, that no longer has to be the case.”
He envisages that around 95% of cases are likely to be settled without going to trial, as parties generally want to avoid long, drawn-out, and expensive legal costs.
Asked whether other law firms may follow New North’s lawyer-led litigation finance model, Mr Nott said: “One of the barriers to entry is that another firm will need to have at least Capital Law’s track record, invest substantially in auditing and proving that and then have three experienced litigation partners who want to become litigation financiers and whom the firm is prepared to pay to travel the world pitching to financiers.
“Our investment proposition was based on the track record of the Capital Law disputes lawyers (there are nearly 40 of them) over many years and particularly their success in handling cases supported by litigation finance . It’s a Capital Law project worked on by a brilliant team.”
New North will operate a profit share with Pollen Street Capital . On the cost of funding cases, Mr Nott said: “We will price the money depending on the case. For example, with a relatively small £1m case for a company, where we know they will win, we will price it cheaply. But if it’s a larger, riskier case, the cost could be a multiple of the funding provided or set aside. However, the upside for clients is they ultimately stand to receive a positive return on money they had written off.”
Investment director at Pollen Street Capital, Connor Marshall-Mckie, said: “New North addresses an important gap in the litigation funding space, focusing on smaller mid-market commercial litigation. With the significant opportunity available and the deep experience of the leadership team from Capital Law we are excited to partner with the team to support their growth.”
New North has appointed financier and former Cardiff Rugby board member Martyn Ryan as its chair. Mr Ryan is a former partner and chief operating officer of Genesis Investment Management.
Mr Nott said: “This is a new type of litigation finance. Neither Andrew, Guto nor I have ever been investors. The finance market views this as an asset management business, and Martyn comes from that world. Demonstrating that we had someone of Martyn’s standing in asset management looking over our shoulders and marking our homework was a big tick.”
Mr Ryan said: “What Chris and the Capital Law team have achieved is extraordinary in raising finance from the market in Wales for a first in legal finance. This has the potential for significant returns and the creation of larger funds in the future.”
