Most law firms are now aware of litigation finance and around half of corporate counsel, says Nick Rowles-Davies.
There is one word which is commonly associated with litigation finance – nascent. It is used, more than frequently, to describe the position of the industry, both in the UK and the US. Nascent. Fledgling. Beginning to develop. Make no mistake; it is a great word to deploy in the right context. It is certainly not the most irksome or damaging word to be connected to litigation finance.
But when all is considered, we must ask ourselves is it, now, the most accurate? In 2015, with litigation finance being part of the legal parlance for more than six years, is it time to reconsider how we look at the industry? Time has marched on from the Jackson Reforms’ rubber-stamping of the central and original idea of litigation finance – that is, the funding a single meritorious case in the pursuit of access to justice.
The Jackson Reforms have just marked a second anniversary, although one should be reluctant to use the word ‘celebrated’ for fear of upsetting a fair volume of lawyers who are perhaps still trying to get to grips with cost budgeting and all that brings with it. Moving into the third year of the Reforms, coupled with more recent developments in the industry, could well form a basis for the call that the legal financing industry is “nascent no more.”
One key point to understand before entering the wider argument is that there is a difference between litigation finance, and the more commonly used term (in the UK anyway), litigation funding. Litigation ‘funding’ relates to the industry in its original form – the funding of single cases in order to help litigants pursue claims, with a share of the damages then handed to the funder in the event of victory. Litigation ‘finance’ covers a broader use of available capital in relation to litigation, whether that be by law firms or litigants.
More and more frequently, litigation finance is being used in other ways: to monetize pending legal claims to raise capital for other corporate purposes, for example, or to fund portfolios of matters. Additionally, litigation finance can be used to manage the ongoing costs of defence matters; although it is far less common, that has its own appeal. It is this broader use, which only a few litigation finance companies will have the capacity to tackle, this, some would say, is heralding the coming of age for the industry. To underline the progress made, it is important to turn to the announcement of Burford Capital’s 2014 results to the London Stock Exchange.
Without dwelling on the detail contained in the numbers, the story is that they show a healthy landscape for the company’s global litigation investments, with the UK’s The Lawyer publication reporting “revenue at litigation funder Burford Capital booms by 35 per cent to $82m”. The influential Forbes writer Daniel Fisher, whose pen is trained on “finance, the law and how the two interact,” went a step further to tweet “litigation finance is on an upswing if Burford’s earnings are any indication.”
Amongst the results was the key line that of Burford’s entire portfolio, just 37 per cent involves single case financing. The remainder relates to multi-case or more complex matters. In 2009 the single case funding figure was 100 per cent.
Of course, whilst a strong indicator, the financial results, however black and white, only tell part of the story.
However, newly released research also backs up the view that, in the round, litigation finance is far more entrenched in the legal psyche than some would give it credit for.
The Burford Capital-commissioned research showed how 92 per cent of private practice lawyers and 58 per cent of corporates were aware of litigation finance. Around one in five lawyers said clients used finance even though they could cover costs as they wanted to take the drain of running the case off the balance sheet.
A similar piece of research in the US showed litigation finance is considered a “useful tool” by 72 per cent of law firm lawyers, 69 per cent of general counsel, and 78 per cent of CFOs. The number of in-house counsel and finance executives saying they’ve made use of litigation finance for their own cases has more than doubled since a corresponding 2013, while rising more than 36 per cent from outside counsel.
The shift in attitude towards litigation finance is evident. As Taylor Wessing Partner, Laurence Lieberman states: “There is definitely more awareness now although that has not translated into a huge uptake, probably because there is a lag between understanding how it works and actually utilising it. Around 6 per cent by claim value of our total case load is funded at the moment, and this is increasing. Two years ago that was zero.”
There is no debate that there is still work to be done in informing corporates and lawyers of how to turn knowledge of litigation finance into the power of using it. Grasping the wider concept of litigation finance – i.e. capital being used across a range of legal case matters and portfolio case funding – is part of that journey. But the growth story is clear to see. And the term “nascent” is perhaps one that could be confined to the past.
Nick Rowles-Davies is Managing Director of Burford Capital (UK) and author of Third Party Litigation Funding.