SJ interview: Adrian Chopin
Adrian Chopin is co-founder and managing director of litigation funder Bench Walk Advisors. He tells David Vascott about the firm's funding model and how it's staying ahead of its rivals.
Tell us about yourself and your background.
I was a transactional lawyer at the start of my career doing derivatives. I then became an investment banker for about 10 years before setting up my first litigation funding business. I launched Bench Walk in 2018 with my partner Stuart Grant, who is based in the US.
So you do a mixture of UK and US-based funding?
Yes, we have currently about 50 per cent US, 35 per cent UK and the balance is continental Europe and a little bit of Australia. We also fund some international arbitration claims.
Tell us about Bench Walk and what you do.
We are a litigation funder. In a nutshell, that means we provide money to enable claimants to pursue claims and, in return, we receive a share of any damages if the claim is successful.
For example, a couple of years ago, we had a high-profile win in the United States where we were providing funding to the founders and early employees of Tinder. They brought a claim for breach of contract against their former employers, alleging that they hadn't received full value for their notional shares in the business. We funded that claim, which won.
We're also currently funding the Leigh Day water claims and some other Leigh Day consumer claims in the Dieselgate area. We're funding a number of actions in the Competition Appeal Tribunal with other law firms too. So we're very active in the group claims space in the UK and across Europe.
How have these relationships developed? Do firms typically approach you?
It's a combination. There are some specialist brokers in this area who are very good, but the majority of our business comes from repeat users: when we have worked with a law firm on a claim, they typically come back to us when they have future funding opportunities. We view that as an endorsement of our model.. Approximately two-thirds of all of our investments are from repeat users.
How do you decide which firms and cases to invest in – for example with the water authority cases?
At the outset of a funding enquiry, a law firm would normally provide a memorandum summarising the claim; an opinion from a barrister confirming it is a strong claim; a preliminary expert report assessing the likely quantum; and finally a budget to run the claim.
We’ll run a due diligence process that includes reviewing these materials interviewing the lawyers and experts and building a financial model. In many of our cases, lawyers will put us in competition with other funders because they want to make sure they're getting the keenest terms available.
If we then win the tender, we get into an exclusive relationship to give us time to finalise our due diligence and prepare documents. Typically a month or so later, we sign a funding agreement.
How do you quantify the risk in an individual case?
Funders have different approaches. Some funders will do all of their due diligence in house. I don't think that's a realistic model unless you're focused on a very narrow band of cases. For example, I don't think it's realistic that at Bench Walk we could justify an internal employee who'd be an expert in environmental law and competition law and the various other facets of our recent water case with Leigh Day and also have another expert who can deal with other forms of UK group actions or Italian competition law or French consumer actions et cetera. And that covers only three of the cases we've funded recently.
Your model would become very unwieldy if you employed a specialist to deal with every area that might be of interest to a funder. So I tend to favour an approach where, yes, we have an excellent internal team, but we recognise that that we cannot efficiently be experts in every area and so we supplement our internal view of the merits with highly specialised external advice where required.
For English claims, for example, we frequently engage a specialist barrister to review the merits of the case alongside us and to take part in our various interviews with the lawyers running the case.
Do a funder’s investors undertake their own due diligence too?
Not for our investments. There are some funders who have the arrangement you describe. It depends how your fund is structured. We have an investment committee of two people – me and Stuart – and if we decide we want to invest in a case, then that's the authority we need to invest. But there are some funders who, for every single investment, need to go back to their money, which obviously requires another level of approval.
What distinguishes Bench Walk from its competitors?
We run a financial services business, not a legal services business. I think too many of my competitors have a tendency to operate as if they want to be the lawyers running the case. . For example, some funders ask to be copied on every piece of correspondence with the defendant or - in the case of one funder of which I’m aware - insisting that the funder, rather than the solicitor, be the person sending all correspondence to each client in a group claim.
There are dangers in that approach. There's the doctrine of champerty, of which a funder could fall foul if it's deemed to be controlling the litigation. But even short of that, you are likely seriously cheesing off the solicitor with conduct of the case. My view is that if you think you're a better lawyer than the lawyer running the case, you probably shouldn't be funding that lawyer in the first place.
Secondly, I think we're as creative and commercially savvy as anybody in the market. My career was spent doing derivatives and investment banking, so I always like to find solutions to financial problems.
We find ourselves structuring sometimes quite innovative deals to try and thread the needle of interests of the different stakeholders in the claim.
Quite often there are ways of structuring a waterfall so that we manage risk in a way that makes a case that was difficult to fund, fundable. For example, we sometimes split the risk of a case into two stages where Bench Walk lays off the risk of one or other stage to another funder or an insurer in return for a different share of the returns.
There are some interesting ways to make risk digestible on cases that otherwise might be too problematic. We don't see enough of that structurally innovative thinking in the litigation funding market. But it's an important part of the industry growing up. There are more and more interesting structures being done and I think we’re at the forefront of that process.
You launched Bench Walk in 2018. The economic climate has changed significantly since then. How is that affecting your business?
We have tonnes of cases coming in and are having to recruit again to handle it all.
There hasn't yet been a flood of cases arising out of the cost-of-living crisis or the wave of insolvencies that people were predicting two years ago in the teeth of COVID. But we’ve certainly seen an increase. One or two funders over the last few years have stepped back from the market, either quietly or noisily, and so we may be a beneficiary of that.
How do you foresee things developing over the next five to 10 years, both for your business and in the wider market?
We'll see some consolidation in the industry. Some funders are finding their models don't work, and so they're reappraising. And I think one outcome of reappraisal will be a push for consolidation.
People have been talking a lot about artificial intelligence (AI) and how it will make all our funding decisions. I think that’s mostly nonsense, except in the very long term. Even in five to ten years we won't find AI making big case investment decisions. What we will find it doing is supplementing what we're already doing and making our due diligence a bit better and helping us sift through data to generate case ideas.
For example, we're already able much more readily to sift through stock market news announcements to see where there's anything that could potentially give rise to a litigation claim, whereas previously you needed to have a team of paralegals reading the FT and Bloomberg and regulatory new services every day. Now, some of that can be replaced by AI, so I do think there will be a beneficial use of tech in our industry. But we won’t see computers being judges or computers running litigation funders any time soon.
The UK's really coming up to speed in group action cases. We've been a bit of a laggard behind the US for decades, but we’re now rapidly developing group action claims on all fronts. The Competition Appeal Tribunal (CAT) and other courts, of course still need to hammer out some of the detail of the various regimes, but that's happening right now and it’s happening very fast. We’ll see, over the next five to 10 years, one or two seismic rulings from the courts and I think they'll help shape the rules.
Some funders, because of that uncertainty around the CAT, in particular, are stepping back from funding CAT claims. I imagine they've decided that because these budgets are all big, and the rules haven't been fully fleshed out, they would rather not take that risk and instead wait until there is greater clarity on the rules. That is a totally legitimate decision.
But we've decided we do want to take that risk. I don't think there's any real chance that the CAT will say, ‘Do you know what? We're going to make the regime almost impossible to use.’ I think the CAT and the higher courts have shown that they are very enthusiastic about trying to make this regime work but to do so responsibly.
I think the most interesting immediate area is going to be how the CAT deals with the first settlement or judgement and the process for distribution of proceeds for an opt-out claim, because it will have a much more interventionist role than any English judge has ever had.
For example, the CAT could, in theory, say it’s going to reduce a funder’s payday on success. I don't think it’s very likely to be routine because High Court judges in particular have shown themselves realistic about businesses being paid large amounts of money for taking appropriate risk. But it's far from impossible.
In Australia a couple of years ago, a judge with a similar power of oversight of funding in certain types of cases ticked off one of my competitors for taking significantly more than half of the claim proceeds. Whether or not they were right to do so, it could be that an English judge follows that approach, but I suspect it will be a rare occurrence.