Firepower of litigation funders increases
UK funders' total balance sheet assets rise 25 per cent in a year
The financial firepower of the UK’s litigation funders has increased by a quarter in the last year as third parties gear up to fund more businesses pursuing legal disputes.
The balance sheets of the UK’s 20 biggest independent litigation funders rose from £575m in 2015 to £723m last year, according to research from City firm RPC. The trend has seen funders’ assets increase by 55 per cent since 2011, when their combined balance sheet totalled £437m.
One of the largest litigation funders in the UK, the AIM-listed Burford Capital recently announced the acquisition of a US counterpart, Gerchen Keller Capital, for £142.5m ($175m). Assets of the combined company will be worth more than £977m ($1.2bn) in total.
The use of litigation funders, which are often backed by hedge funds or private equity, has become increasingly mainstream as more businesses look to share the financial risks involved in litigation or arbitration.
Geraldine Elliott, a partner and head of commercial litigation at RPC, said: ‘Third-party litigation funding has become an increasingly vital component of the justice system. Few businesses want their cash tied up in funding litigation that will run on for months or even years, but litigation funders are set up to make that longer-term investment.
‘Now with litigation funding, parties without deep pockets can pursue claims even against larger and richer organisations like global corporates – whereas previously the legal costs may have been too high, or they may have been forced to settle early for just a small slice of the damages due to them.’
A wide range of cases from environmental claims through to banking litigation have used such funding, which has grown in popularity following a substantial rise in court fees and the civil justice reforms by Lord Justice Jackson, who welcomed the use of third-party funding as a way to boost access to justice.
However, the majority of claims backed by funders involve large business disputes rather than impecunious individuals, who must instead rely on the kindness of strangers via crowdfunding sites such as CrowdJustice. But this may be set to change in the future, according to Elliot.
‘Increased litigation funding may lead to better deals for businesses looking for this third-party funding and funders becoming more willing to look at funding smaller claims,’ she said. ‘At the moment, generally the funding model only suits the very largest cases.’
In response to a written parliamentary question from Conservative peer Lord Hodgson of Astley Abbotts last month, the government confirmed it has no plans to regulate third-party providers of litigation funding.
‘The market for third-party litigation funding remains at a relatively early stage in its development in this jurisdiction and we are not aware of specific concerns about the activities of litigation funders,’ said justice minister Lord Keen of Elie.
‘The government has not therefore undertaken a formal assessment of the effectiveness of the voluntary code of conduct or the membership of the Association of Litigation Funders.
‘The last government gave parliament an assurance that it will keep third-party litigation funding under review and this government is ready to investigate matters further should the need arise.’
John van der Luit-Drummond is deputy editor of Solicitors Journal