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The elephant trumpets

The US has recently thrown light on the status of litigation funding in the Miller case at the same time as research reveals an increase in support, says Nick Davies-Rowles of Vannin Capital.

Litigation funding is the elephant in the room in some quarters Gualtiero Boffi

Just a short distance into 2014 and there has already been a spate of key developments in the funding world. This is especially true of the US side of the Atlantic, where two key events have emerged to underline various beliefs and also cast new light on the industry. As reported in the Wall Street Journal, the funding world received a fillip in a case involving a British company heard in Chicago, Illinois.

The company, Miller UK Limited, was found by a federal magistrate not to have breached state law in turning to Third Party Funders. It did so as it pursued a trade secrets case against Caterpillar, the heavy equipment specialists. In a pre-trial hearing, the judge rejected claims from Caterpillar to see details of the litigation funding arrangement.

The argument deployed by Caterpillar’s lawyers was one of the usual ones – namely, that the arrangement wasn’t covered by client confidentiality, and was in breach of the principles concerning the meddling with other people's lawsuit (which is also a potential issue in the UK occasionally). In short, they tried to use the funding arrangement as a mode of attack, which failed.

The elephant in the room

The argument over where funding is coming from is often the elephant in the courtroom. Why aren’t funders more open about whom they fund, and why aren’t claimants more open about who they are funded by? This varies from case to case, but the bottom line is that confidentiality is a right, and must be respected as long as it is not breaching the rules.
The importance of the case in Illinois shows that shows this arrangement  is protected by the court.

This decision follows the trend that is being set across most of the US where funding is becoming an acceptable method of financing litigation. In New York for some time it has been an accepted practice subject to certain limitations - this continues the spread across the States.

It also underlines that Third Party Funding is becoming more commonplace in nearly all of the common law jurisdictions with a significant rise in interest and use in Canada the US and the Caribbean, to add to the more established markets of Australia and the UK.

Those with vested interest in preventing litigation are always going to be averse to the practice of TPLF. Indeed, critics such as the US Chamber Institute for Legal Reform (and I believe Caterpillar is a member of Institute’s parent body the US Chamber of Commerce) have been vocal in their attacks on the funding industry.

It is one thing to be critical of frivolous and spurious litigation, it is quite another to use that as a blanket excuse of protecting members by seeking to prevent perfectly legitimate actions being brought against them.
In many cases the sheer size of the defendant and their likely litigation tactics are a threat to the very financial existence of a plaintiff. The ability to make use of litigation financing allows those with legitimate grievances to have their case heard and to receive the appropriate compensation.

It must also be noted that around the same times as the Illinois decision, a key survey of lawyers in the US on their attitudes to Third Party Funding was released.Of the many findings there were a few which stood out. One was the statistic from lawyers at private law firms, showing 65 per cent of them believe TPF levelled the playing field. It also showed 64 per cent of them felt funding meant good cases could be brought whereas before they may not have been pursued.

That is a stark contrast in attitudes from those of the detractors, although some would say the arguments are obvious, they are no less compelling.But another finding uncovered was that corporate leaders are increasingly receptive to the idea, with 50 per cent of financial executives saying law firms should explain third-party funding as a payment option at the outset of a case.

This is very much in keeping with findings from a survey commissioned last year by Vannin Capital, and our market knowledge. We are finding that financial officers in big companies, including listed entities, are increasingly seeing funding of litigation as a financial tool to be used when appropriate. Of course, this depends on the strength of the case and appetite of the funder – but this ‘choice’ attraction will only grow in the corporate world.

The combination of various developments so far this year – along with strong indications that more funders will enter the market both in the US and UK -certainly point to the idea that litigation funding continues to be a growth industry for 2014.

Nick Rowles-Davies is a consultant to litigation funding company Vannin Capital




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