Trinity Term · MMXXVI · 6 min
The Seriousness Test
The anterior question a matter must pass before it is modelled, priced, or discussed with its principals.
❦
By Bill Hudson, Founder and Managing Principal.
Before a claim is modelled, before an expert is retained, before a term sheet is drafted, a matter that reaches this desk must pass a single anterior question. It is not whether the claim will win. It is whether the claim is serious. The two are not the same, and mistaking one for the other is the most common error in litigation finance.
The Seriousness Test is what we call the gate at the top of the funnel. It is applied before the Optimism Discount, before the Enforcement Score, before any pricing exercise at all. A claim that fails it is declined; a claim that passes it earns the right to be underwritten. Nothing about the subsequent discipline can rescue a matter that should not have been let through in the first place.
What seriousness is
Seriousness is a composite reading of four things: the claimant, the counsel, the record, and the theory. Each is assessed on the papers as they are submitted, before any conversation with the principals and before any interference with the strategy of the case. The purpose is to decide, early and unsentimentally, whether the matter is one a professional funder can price at all.
- The claimant. Is the party bringing the claim solvent enough, patient enough, and disciplined enough to litigate for the tenor the matter requires? A claim owned by a distressed entity that will settle the first offer put in front of it is not a serious claim for a funder, however meritorious it may be on the law.
- The counsel. Is the firm one that plausibly tries cases of this size and forum? An under-resourced firm on a large arbitration, or a litigation boutique in a jurisdiction it does not regularly practise in, is a signal that the matter has not yet found the counsel it will need. That is a curable problem, but it is a problem, and it is priced as one.
- The record. Is there a documentary case, or is there only a narrative? Contemporaneous documents, correspondence, board minutes, admissions on the other side, a paper trail that predates the dispute, these are the substance of a serious matter. A well-told story without them is not.
- The theory. Is the legal theory one that a tribunal in this forum has, in recent memory, actually accepted? Novel theories are not disqualifying, but they are heavily weighted; a matter that turns on a doctrine no court has yet adopted is priced as venture, not as litigation finance.
What seriousness is not
Seriousness is not the size of the ask. A hundred-million dollar claim with a testimonial record and a counsel of convenience is less serious than a fifteen-million dollar claim with contemporaneous documents and a firm that has tried the same theory in the same forum three times. Funders that price on headline damages, rather than on the composite reading above, systematically over-deploy on the wrong matters. We have watched them do it.
Nor is seriousness a proxy for merit. A matter can be entirely meritorious and still fail the test, a good claim in the hands of a claimant who will not see it through, or with counsel who cannot try it, is a good claim we decline. The test is not whether the claimant should win. It is whether the matter is the sort of matter a funder should underwrite.
How the test is applied
The Seriousness Test is applied on the intake papers alone. No call is taken with the principals until the test has been passed. This is deliberate: a conversation with an articulate claimant will always improve one’s impression of the matter, and the effect is precisely the one we are trying to avoid. The papers either carry the claim or they do not.
A matter that passes the test enters the modelling stage and, in due course, the Investment Committee. A matter that fails is declined by written response, with the reasoning recorded in the file. Where the failure is curable, a counsel selection, a records gap, a solvency question, the response says so, and the matter is welcome to return once the deficiency is addressed. Where it is not, the response is polite and final.
Why the discipline matters
Every hour a funder spends modelling a matter that should have failed at the top of the funnel is an hour not spent on the matters that should have passed. The Seriousness Test is, at its heart, an allocation of the scarcest resource in our practice, which is attention. Applied honestly, it yields a smaller pipeline and a materially better book. Applied loosely, it yields the opposite.
A funder that will underwrite anything is not a funder. It is a lottery counter with a legal-affairs desk. The Seriousness Test is how we remain something other than that.
❦
W. Hudson
Bill Hudson, Founder and Managing Principal.
Before a claim is modelled, before an expert is retained, before a term sheet is drafted, a matter that reaches this desk must pass a single anterior question. It is not whether the claim will win. It is whether the claim is serious. The two are not the same, and mistaking one for the other is the most common error in litigation finance.
The Seriousness Test is what we call the gate at the top of the funnel. It is applied before the Optimism Discount, before the Enforcement Score, before any pricing exercise at all. A claim that fails it is declined; a claim that passes it earns the right to be underwritten. Nothing about the subsequent discipline can rescue a matter that should not have been let through in the first place.
What seriousness is
Seriousness is a composite reading of four things: the claimant, the counsel, the record, and the theory. Each is assessed on the papers as they are submitted, before any conversation with the principals and before any interference with the strategy of the case. The purpose is to decide, early and unsentimentally, whether the matter is one a professional funder can price at all.
What seriousness is not
Seriousness is not the size of the ask. A hundred-million dollar claim with a testimonial record and a counsel of convenience is less serious than a fifteen-million dollar claim with contemporaneous documents and a firm that has tried the same theory in the same forum three times. Funders that price on headline damages, rather than on the composite reading above, systematically over-deploy on the wrong matters. We have watched them do it.
Nor is seriousness a proxy for merit. A matter can be entirely meritorious and still fail the test, a good claim in the hands of a claimant who will not see it through, or with counsel who cannot try it, is a good claim we decline. The test is not whether the claimant should win. It is whether the matter is the sort of matter a funder should underwrite.
How the test is applied
The Seriousness Test is applied on the intake papers alone. No call is taken with the principals until the test has been passed. This is deliberate: a conversation with an articulate claimant will always improve one’s impression of the matter, and the effect is precisely the one we are trying to avoid. The papers either carry the claim or they do not.
A matter that passes the test enters the modelling stage and, in due course, the Investment Committee. A matter that fails is declined by written response, with the reasoning recorded in the file. Where the failure is curable, a counsel selection, a records gap, a solvency question, the response says so, and the matter is welcome to return once the deficiency is addressed. Where it is not, the response is polite and final.
Why the discipline matters
Every hour a funder spends modelling a matter that should have failed at the top of the funnel is an hour not spent on the matters that should have passed. The Seriousness Test is, at its heart, an allocation of the scarcest resource in our practice, which is attention. Applied honestly, it yields a smaller pipeline and a materially better book. Applied loosely, it yields the opposite.
A funder that will underwrite anything is not a funder. It is a lottery counter with a legal-affairs desk. The Seriousness Test is how we remain something other than that.