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Burford Capital, BT and the transformation of litigation finance

James Barrett of Practico considers what Burford Capital's agreement to provide $45m in litigation financing to British Telecom means for the industry.

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Burford Capital Limited, the leading global finance and professional services firm, announced last month that they had agreed to provide $45m in litigation financing to a FTSE 20 company.  It has subsequently been reported that the deal is with British Telecom. Christopher Bogart, CEO of Burford, has commented that ‘this transaction is another example of the continuing transformation of litigation finance.’ The deal certainly represents a change in utilisation of third party funding in the commercial litigation arena.

Third party funding can have real advantages for those that choose to deploy it in a commercial litigation situation. Benefits include the fact that this type of funding can enable businesses to run litigation that they could not otherwise afford. For organisations that have sufficient funds but low risk thresholds, third party funding provides an option to mitigate that risk. In addition, third party funding facilitates organisations in keeping the costs of litigation ‘off the balance sheet’ and enables an organisation to, in effect, recover monies from its assets.

On the other hand, third party funding is not without its downsides. Substantial payments are required by the funder for financing the litigation (these can be in the arena of 20 to 40 per cent) or even an element of equity of the property in certain cases. When establishing the funding arrangement, a period of ‘exclusivity’ is required for the funder to consider the case, which may include cancellation terms and delay the progress of the litigation.

The announcement from Burford represents a substantial change in the market. Third party funding is perceived as being less suitable for commercial litigation than for its traditional markets of consumer group action claims and individual claims. This development represents a shift away from this narrow perception. Earlier in the month, the third party funding market had a further boost with the announcement from Augusta that they would be funding pre-proceedings costs to enable claimants to assess the merits of an action.  Both are clearly good omens for this funding sector.

For British Telecom, this deal indicates a significant transformation from their traditional litigation funding model. Burford is reported to be in negotiations with other corporates to establish similar deals and it can only be assumed that other in-house counsel and financial executives will see the real benefit of funding commercial litigation through such arrangements.

This change has been slow to arrive. One wonders whether this move to a third party funding model is as a direct consequence of the changes within the litigation landscape.  The impact of costs budgeting, and the spectre of fixed and therefore more predictable inter partes costs are providing encouragement to take on cases.

In the longer term, it will be interesting to see how things play out in the market. The use of third party funding requires a change of approach by both in-house counsel and business leaders. In conducting litigation there will be a need to adjust to the concept of division of the spoils. The impact of this change should not be underestimated. Businesses will need to accept that a substantial proportion of their damages will be shared with the funders; this may not be so popular after the deal is signed and the payments are due.  Finally, third party funding is suitable for a limited number of cases. As more commercial organisations consider third party funding as an option, it is possible that funders will become choosier about the cases they fund.

British Telecom is one of the biggest litigators within the FTSE 100, with a reported 23 actions between January 2012 and July 2015. According to data from The Lawyer Market Intelligence, this $45 million of funding is understood to be in support of up to ten disputes. The cost for British Telecom in running litigation on this scale is substantial and must have a considerable impact on its operational overheads. 

Moreover, this is an interesting development in commercial litigation and funding generally. There is no doubt reputational benefit to British Telecom and Burford in being in the vanguard of third party funding in a commercial arena. Now the model has been established it will be interesting to see how cautious other in-house counsel and CEOs are compared to those that are prepared to take the plunge.

James Barrett is managing associate at Practico, a London-based Costs Lawyers.

Posted by:

James
Barrett

18 February 2016

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