Legal 500: LITIGATION FUNDING – THE UK AND US RANKINGS 2023
LITIGATION FUNDING – THE UK AND US RANKINGS 2023
Megan Mayers takes a closer look at the UK and US litigation funding markets to create The Legal 500 2023 Litigation Funding Rankings
‘The litigation funding market is exploding. It’s funding mass tort cases to patent troll cases and it’s just going to continue to cause an explosion in litigation.’
This sentiment of Weil’s Diane Sullivan, a leading New York-based litigator, is one echoed on both sides of the Atlantic as third-party funding becomes an ever-more mainstream part of the disputes landscape.
In the US, it is no longer associated purely with mass tort David v Goliath cases but has proliferated across corporate America as an option for corporate claimants across all types of disputes.
Meanwhile, the UK funding market has caught up. Driven alongside an increase in class actions, third-party funding has progressed from a last resort for the impecunious to front of mind for a range of claimants. As Chris Ross, a partner at UK LB100 firm RPC, comments:
‘Often one of the first questions that I now get from clients is “can I get funding?” The fact that this has filtered down into the consciousness of clients means that people approach you with cases that they wouldn’t have done a few years ago’.
With client demand up and the possibility of high returns, litigation has become an attractive investment. In the UK alone, the top 15 funders wield £2.2bn in assets, according to a report published by RPC in June 2022. This is up 11% from last year and almost double the £1.3bn reported in 2018.
This has attracted new entrants to the space. Whether specialist investment vehicles targeting the legal sector or financial institutions diversifying their offering, there’s a whole lot more choice both in the UK and the US than there once was.
In the UK many of the key players in our ranking remain the same as last year, but one significant shift is the removal of Vannin Capital, which was integrated into New York-based investment management giant Fortress in October 2021.
The biggest development this year though is that The Legal 500’s 2023 litigation funding rankings expand into the growing US market for the first time to identify the best funders on both sides of the pond.
Both rankings take into consideration extensive data from funders, ranging from their cases to date, to availability of capital and diversity of funding solutions. Importantly, for this year’s research we also expanded our client feedback, to really understand what matters to clients and the law firms that have used these funders’ services.
While the client data collected is confidential, we also spoke to private practice litigators in the UK and US to work out what differentiates the best funders from the rest.
A balancing act
James Berger | Partner | DLA Piper
‘Money is money. So, it’s easy to think that if a funder is going to provide you with the capital you need to bring a claim that you’ve decided you want to bring, then they’re a good funder, right? But what I have seen is that certain funders really understand the market and really understand what they’re investing in, while some don’t’ says James Berger, disputes and asset recovery partner based in DLA Piper’s New York office.
All of the funders ranked in The Legal 500’s rankings have expertise specific to the disputes funding space. While there’s no one-size-fits-all approach to funding, no matter the reason for the claimant to seek funding, in addition to providing capital, what partners and clients want from a funder is quite simple: to help – not hinder – them in getting the result they want.
Sometimes, this can be as straightforward as letting the client and their advisers get on with it, says London-based BDB Pitmans partner Jonathan Sachs: ‘Third party funders have got to have trust in the solicitors they are working with, otherwise it’s just not going to work. A good funder is one that allows us to get on with it. Third party funders shouldn’t be controlling the litigation, the clients should be. Some funders have been known to request very regular meetings and some might even pressurise claimants to accept settlement offers. Others impose strict restrictions to budgets, which can be a nightmare.’
Jonathan Sachs | Partner | BDB Pitmans LLP
In Berger’s experience, when the interests of the funder and their clients align, then in some cases it can proactively add value: ‘In my practice, the good funders are making everyone smarter about how to go about pursuing and prosecuting international disputes. It used to be the case that enforcement of arbitration awards and judgments was considered something of an afterthought and the main thing you had to do was to bring your merits case and win. Good funders do not let clients think that way anymore, because they have skin in the game. They have a financial stake in not only the outcome of the merits hearing but in the financial outcome of the case.’
Some of the top funders ranked by The Legal 500 this year have been either established by ex-litigators or have hired former litigators to advise claimants. Others have honed in on specialist areas of focus or built teams with knowledge of particular cases, such as IP and enforcement claims, to add value to claimants.
Of course, there are inevitably some circumstances when interests don’t line up, with unavoidable conflicts in funder and client priorities. For example, while funders want to be certain of the viability of their investment, clients want quick answers. On the flipside, while clients want to know the inner workings of how funders make decisions, this is burdensome admin for the financial institution.
A buyer’s market?
Lucy Rigby | Competition partner | Hausfeld
The good news for claimants with an attractive funding opportunity is that it’s increasingly a buyer’s market, says Lucy Rigby, a competition partner at disputes boutique Hausfeld: ‘As the funding market is becoming more and more competitive, we’re seeing funders increasingly recognise the need to differentiate themselves on the basis of speed of decision-making and transparency as to their processes. It’s vital to have a degree of certainty at the outset regarding how long it will take to receive a go/no-go decision on investment and what steps are involved in getting to that point.’
This has also driven funders to be innovative in the services they offer. As the market has developed, options have become both more bespoke and more wide ranging. Among the highlights from the submissions of our top-ranked funders are a range of innovative structures from single case arrangements, portfolio funding of multiple cases for firms and corporates as well as purchasing claims and law firm financing.
Michael Barnett | Co-founder | Quillon Law
As Michael Barnett, co-founder of UK commercial disputes-only firm Quillon Law, summarises, ‘it’s an exciting time for the litigation funding market. It has developed well beyond finding individual cases to fund to now funding cross-collateralized portfolios, financing law firms’ cash flow risk, to law firm startups and working capital.’
Of course, despite their success in gaining claimant-side favour, litigation funders still face challenges and criticisms in the market, particularly as the regulatory landscape develops in the UK and US. On both sides of the pond, courts are increasing intervening in funders’ roles in driving and supporting disputes. In the UK, there has been increased judicial scrutiny both from the Competition Appeals Tribunal (CAT), in considering funding agreements when deciding whether to certify a group claim under the new opt-out regime, and in the High Court which held leading funder Therium jointly liable for significant costs in the recent case of The ECU Group plc v HSBC Bank. In the US, there is a similar trend with some courts now require disclosure of the presence of a litigation funder in certain cases.
Beyond the courts, the growing market has caught the attention of regulators. In September 2022, the EU Parliament voted in favour of regulating the disputes funding market in member states, with proposals including a 40% cap on the percentage of a court award or settlement that funders can claim.
Julian Chamberlayne | Risk and funding partner | Stewarts
The suggestions have been controversial, with some funders and litigators fearing that the plans might limit access to justice and make the third-party funder model unviable in EU member states, particularly for low to mid-value claims.
Julian Chamberlayne, risk and funding partner at UK disputes-only firm Stewarts, explains: ‘It superficially sounds great from a consumer protection perspective, but it’s likely to result in most funders declining to fund anything other than the enormous cases. If you took a moderate value case – even one worth in the low millions – all the way to trial, let alone appeal, the litigation budget would be significant. In that scenario, with a cap of 40%, the funder might not even get their money back.’
But if funders have proved anything over the last decade, it’s their ability to adapt and innovate to challenges. Litigation funders are clearly now a permanent and growing feature of the disputes landscape. With plenty of capital still being pumped into the space, this is only going to continue, Barnett adds: ‘If nothing else, litigation funders are ingenious in finding new ways to meet the challenge of deploying the substantial liquidity in the funding market in a way that drives aspects of the disputes market.’