The Counterclaim,
properly considered.

A counterclaim is not the inverse of the defence that houses it. It is a case in its own right, with its own theory, its own damages, and its own path to enforcement. The most common error in this area of finance is to treat the two as a single position and to price them together. We do not.

Hudson Litigation Capital Defence Corp. exists precisely so that the two cases can be considered by different minds under different rules. HLCDC is a separate affiliate, capitalised separately, staffed separately, and governed by an information barrier that is not decorative. No underwriter who has seen the defensive file may sit on the counterclaim committee, and no counterclaim underwriter has any view of the defence strategy save for what the pleadings make public. That barrier is the source of the discipline we describe here.

When a counterclaim is underwritten as its own case, three questions become possible to answer honestly. The first is whether the affirmative theory would stand on its own if brought as a plaintiff-side action tomorrow, without the defensive matter in the room. If it would not, we decline. A counterclaim that exists only as a bargaining chip is not a case; it is a tactic, and it should be funded, if at all, by working capital, not by us.

The second question concerns enforceability. An affirmative recovery is only as valuable as the assets against which it can be collected. Our Enforcement Score is applied to counterclaims with no softening for the fact that the counterparty is already at the table. Presence in the litigation is not presence in a jurisdiction that will honour a judgment.

The third question is one of proportion. A counterclaim underwritten as its own case must survive a comparison with the defensive posture that surrounds it. If the affirmative recovery is dwarfed by the exposure it is meant to offset, the matter is properly a defence-side inquiry, not a plaintiff-side one, and it is beyond our mandate whichever affiliate is asked.

None of this is unfamiliar to experienced counsel. We publish the reasoning here because claimants and their advisers are entitled to know, before they approach us, what the two committees will and will not do. A serious counterclaim, brought on facts that would have been worth pleading affirmatively in the first instance, is one of the more interesting positions we underwrite. A defensive counterclaim, however well drafted, is one we routinely decline.

— The Investment Committee