20 Dec 2018

UK litigation funder 'war chests' hits record high £1.3 billion

With a 31% annual increase, supply of capital is far outstripping demand as litigation funders increasingly look to arbitration to deploy funds.

Litigation rising in UK

The value of UK litigation funders’ ‘war chests’ has risen another 31% in the last year to £1.3 billion, up from £1.0 billion a year ago, as interest in the sector from hedge funds and other investors continues to grow, according to a study by City-headquartered law firm RPC.

Looking further afield

The increased capital being deployed through UK litigation funders has presented the sector with a problem of how to deploy all the funding they now have in profitable legal disputes. RPC says, that to deal with the challenge of originating a greater number of investment opportunities, litigation funders are looking further afield in four areas. Firstly, increased funding for cases are being brought through arbitration, as opposed to cases that might be fought through the court system.  The 2016 landmark arbitration decision in the dispute between Essar and Norscot ruled that the cost of litigation funding could be covered by an arbitration award. Secondly, funding intellectual property cases, such as patent infringement disputes, not just on behalf of businesses but also other creators of intellectual property such as universities. Thirdly, offering law firms deals to fund entire books of litigation business. Lastly, helping to fund asset recovery and the enforcement of judgments overseas

Satisfying demand

Geraldine Elliott, partner at RPC, says ‘one of the big challenges for the sector is deploying the huge amounts of capital waiting to get into the sector without sacrificing returns or taking too great a risk by investing in speculative cases.’ She explained, ‘in order to satisfy that demand for cases litigation funders and law firms are beginning to build those legal claims from scratch – locating an area where large financial damages can be shown and then marketing to potential claimants to join a group action. It is an approach that was previously largely restricted to the US.’ Ms Elliott concludes, ‘the money flowing into litigation funding is also creates opportunities for private individuals and SMEs who might not otherwise have been able to afford to bring their cases forward.’