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18 August 2020

DLA Piper enters disputes funding market with Litigation Capital Management deal

Partnership is latest in a series of law firm alliances for the litigation funder

By Ben Rigby

Portrait of Patrick Moloney

LCM CEO Patrick Moloney

Litigation finance provider Litigation Capital Management has agreed a non-exclusive arrangement with DLA Piper to give the firm’s clients access to up to £150m of funds to support large-scale commercial disputes. 

As part of the deal, DLA announced the creation of a new litigation fund—Aldersgate Funding—which will provide the firm’s clients access to finance with streamlined due diligence and decision-making processes, capitalising on its innate familiarity with DLA’s litigation style and personality. 

In return, the funds will be provided on a ‘non-recourse’ basis, covering the costs of the dispute in their totality, while also providing access to adverse costs insurance. 

The arrangement is the latest in a series of innovative moves that have characterised LCM’s relationship with law firms—it has struck similar arrangements with Clyde & Co and at least one other law firm. The deal expands LCM’s capabilities in working with law firms of significant scale and global reach.

As well as offering clients risk-free access to fund potential big-ticket claims, agreeing enhanced and rigorous due diligence and harmonised working processes has typified LCM’s approach to building long-term relationships for value with leading law firms, and shows why the funder is a partner of choice for DLA.

Nick Rowles-Davies, the firm’s executive vice chairman, said the partnership “demonstrates that LCM collaborates with the most forward-thinking law firms globally, but also the maturing of the industry where clients now demand sophisticated disputes finance solutions that move beyond the traditional templated funding model.”

Moloney highlights deal

Patrick Moloney, chief executive officer of LCM, said the deal was an example of LCM’s broader support for commercial law firms.

Corporate clients had consistently suggested law firms could improve their service by providing alternatives to the ways clients manage their legal spend. That feedback, said Moloney, became even more relevant in times of economic instability.

“Progressive law firms are responding, and exploring ways they can assist their clients with respect to legal spend in particular in the area of disputes,” he said, noting that disputes were notoriously expensive and inefficient ways for corporate clients to allocate resources. 

Working with litigation funders like LCM was “an excellent way for law firms to accommodate their corporate client’s needs,” he argued, saying that the facility agreed with Aldersgate and DLA Piper was an example of LCM “applying a solutions-based approach.”

The facility, he added, was “made possible to DLA Piper and its clients by LCM—where a number of its competitors had failed.”

Moloney said LCM is “driving the evolution of the litigation finance industry when it comes to creating transactions and facilities with innovation and sophistication,” while its access to capital through its asset management business offered scope for larger deals—and more innovation.

DLA deal takes shape

For DLA, the arrangement means change in terms of both personnel and structure. In terms of personnel, the firm’s new fund will be led on the disputes side by Jean-Pierre Douglas-Henry and Jamie Curle, who head up the firm’s global and UK disputes teams respectively. 

They are understood to have brokered the deal internally with LCM, as well as spearheading the genesis of Aldersgate itself, which will be led by former DLA corporate partner Jim Holding. 

Stephen Sly, former global co-chair of DLA’s disputes offering, will chair the investment committee, which will lead on due diligence and process management.

Sly resigned from the partnership in April, according to corporate records, although is still listed as a consultant on DLA’s website at the time of going to press, despite the firm saying he had retired.

The firm said funding would be provided by its client management offering, and access to Aldersgate would be reserved to DLA Piper clients alone via the firm.

Simon Levine, DLA’s global co-CEO, said the collaboration gave clients “access to capital to fund claims with a speed, ease and at a quantum hitherto unheard of and represents a sea change in the traditional approach to litigation funding.”

Holding, in turn, repeated the virtues of the relationship, stressing the ability to bring cases that might not otherwise have been open to them. 

He added: “Aldersgate Funding provides a streamlined and efficient service that provides corporates with efficient access to capital, providing increased financial freedom within their businesses, an ability that is especially relevant against the current backdrop of global economic uncertainty.”

It is expected, though unconfirmed, that Aldersgate will join the Association of Litigation Funders, the self-regulatory industry body for the market.

Market comment

Sources familiar with the funding market, speaking on condition of anonymity, suggested that the move would benefit DLA in a number of ways. 

For a start, funding could be collaterally secured across a portfolio of cases, thus reducing risks as seen with previous deals—but at a scale considerably bigger than, say, Augusta’s arrangements, a source said.

For LCM, the deal would also reduce its own exposure, which in turn could help generate better returns. A source added that the deal could generate efficiencies by streamlining applications around a common source and agreed standardised processes, enhancing the client experience.

Another industry source said the deal could give DLA clients access to quick and cheap funding, while preserving their right to use other funders if desired.

With Aldersgate, the risks associated with third-party approvals of funding by those unfamiliar with DLA would also be minimised, as would any potential indemnity insurance aspects, the source said.

Returns from the portfolio would help fund greater numbers of cases, as winners subsidised losers. As one lawyer put it: “It allows for the firm to take on risk, and for that risk appetite to be managed appropriately.”

There was speculation that partners could choose to invest in Aldersgate, side-stepping existing regulatory issues with Damages Based Agreements, where firms can take a percentage of damages from litigation, which—as currently drafted—are complex and unattractive.

The existence of an aligned but independent funder arguably offers partners, as private investors, the chance to generate returns from funding as an independent asset class—and help clients fund cases

With reform of DBA’s also looming, law firms could increasingly develop their own litigation finance strategies, one source said. Aldersgate may not be the last such venture.

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