There is one word commonly associated with litigation finance: nascent. But, when all is considered, is it the most accurate? In 2015, with litigation finance having been part of legal parlance for more than six years, is it time to reconsider how we look at the industry? Moreover, should lawyers not be thinking about how costs work in terms of their strategy, how litigation, a fully financeable capital asset, can be sold, hypothecated and securitised just like any other asset?
Success in the market, however, comes down to industry innovation. Many companies have outgrown case-by-case funding in exchange for a portion of damages if the claim succeeds. Litigation finance now covers a wider range of available capital in relation to claims. It is used in different ways that allow businesses to monetise pending claims and raise capital for other corporate purposes. Additionally, it lets lawyers fund portfolios of matters and, less commonly, manage the ongoing costs of defence matters.
Structuring finance around a portfolio of cases has become more attractive to private practice lawyers
A growing trend
Such broader uses herald a coming of age for the industry. For, though litigation finance may not yet be mainstream in the UK, its rapid global growth is indubitable.
Not only do 90 percent of lawyers recognise the value of litigation finance, but 86 percent have, in the past year alone, recommended using a third-party funder to their client. These figures demonstrate how alternative funding has become almost universally familiar to private practice lawyers as a tool to help manage the rising costs of litigation.
Moreover, the traditional case-by-case model of funding seems to be becoming less vital, as suggested by the fact that larger players are increasingly involved in multi-case and more complex matters. In this sense, litigation finance truly is an ‘investment class’. An example of this can be seen in a form of multi-case backing: portfolio funding. Structuring finance around a portfolio of cases has become more attractive to private practice lawyers during the course of 2014. Bundled group claims distribute the possibility of failure in a way not dissimilar to active fund management. Portfolio bundling, therefore, translates into a form of corporate finance. It is an example of how litigation finance is now far from a one-size-fits-all funding model. An understanding of this growth is reflected in recent research conducted into the shift in attitudes towards third-party funding.
Seriously considered
In the US, litigation finance is recognised as a ‘useful tool’ by 72 percent of outside lawyers, 69 percent of general counsel, and 78 percent of CFOs. Here, the very use of the euphemistic word ‘tool’ acknowledges that finance is an increasingly common piece of legal apparatus. Likewise, in the UK, 96 percent of in-house and private practice lawyers feel aware of litigation finance as an option, with 34 percent claiming to make their clients aware of it regardless of the size or complexity of their case. This contradicts the conventional wisdom that litigation finance is exclusively for clients that could not otherwise afford to pursue claims. Its application is now a matter of choice, rather than necessity.
Lawyers clearly value litigation finance in broader terms than they did in the past. However, despite this noteworthy change in attitude and awareness on the part of lawyers and executives, the amount of work left to do in filling the gap of knowledge is central to why litigation finance is still not mainstream.