Financing more complex, multi-jurisdictional legal battles may soon be the new norm for litigation funders, write Jonathan Tickner and Holly Buick
Litigation funding – when a third party finances a law suit in exchange for a slice of the proceeds if the case is won or settled – was thrown into the spotlight last year. Thanks to the accounting practices of one of its biggest players, Burford Capital, it has been exposed to high-profile adverse publicity.
Investing in litigation funding was once the preserve of hedge funds, but is now a frontier for an increasingly diverse range of investors; from sovereign wealth funds to individuals through crowd-funding and even a recent blockchain platform. While the UK has one of the fastest-growing litigation funding markets, others like Hong Kong, Singapore and offshore jurisdictions follow close behind – part of a global trend that is seeing rules relaxed to accommodate litigation funding.
For those short on cash, the benefits of litigation funding are clear: someone else foots the legal bills. Wealthy individuals or well-capitalised corporates may ask why, when armed with a high value legal claim with good prospects of success, they would agree to hand over part of their winnings to a third party. But they would be wrong to ignore litigation funding on that basis.
The funder will pay all legal fees and expenses throughout the dispute – particularly helpful if it runs for longer than expected (and high value, complicated disputes tend to take years to resolve). This allows litigants to reduce their exposure to the costs of litigation and ensures they are able to see the case through to conclusion. Even those with deep pockets still wish to minimise the risks involved in protracted legal proceedings.
Should the case be won in court or settled outside of it, the funder would receive a share of the proceeds. But, if the case is lost, no repayment is required. This ‘no win, no fee’ approach offers welcome security even for the wealthy, and importantly allows claimants to pursue a more wide-reaching litigation strategy, without staking their own assets on the outcome. For example, fraud victims may wish to pursue claims against various co-conspirators as a way of targeting the (insured) professional advisers who facilitated involvement in a suspect scheme as well as the company providing the investment vehicle. Where a dispute has a cross-border element – as is now equally likely in private wealth and trust disputes as in commercial litigation – funding may be available for multi-jurisdictional battles.
Not every case will be eligible for funding, but providing the claim has good prospects of success and meets funders’ financial thresholds (usually a minimum ratio of the cost of bringing the claim vs potential returns) the claimant will find themselves in a buyer’s market.
When selecting a funder, it makes sense to seek out a reputable, properly capitalised outfit, and to consider the team’s record of success in financing similar claims. It is also vital to establish a good working relationship between the funder and the legal team to keep a case on track during what can be a stressful and lengthy process.
Litigation funding is already well-established in the UK legal market, and growing in popularity around the world. As increasing capital is made available to funders, they will have to innovate in order to find ever more cases to fund. Looking ahead, there is a good chance that funders will find new ways to back more speculative claims, meaning that this valuable solution could soon be accessible to an even broader market.