Litigation funding has grown rapidly with rising demand, greater awareness, supportive investors and acceptance of the courts in England & Wales
2017 will further shape the industry which, although widely accepted, is only in its infancy. In 2016 Litigation Funding became more accessible and its benefits as a strategic tool are now widely recognized, particularly when demonstrating that a party has the financial muscle to fight a case.
Last year saw the emergence of ad hoc funding via crowdfunding platforms in the US and the UK, which enabled claimants to raise funds to cover legal costs for cases as varied as planning challenges, appealing fines, proposing law reform and even the recent Brexit appeal on Article 50. As exciting as this is, it is not without risk, as the Excalibur case certainly highlighted. In this ruling, whilst acknowledging the benefit of third party funding, the funders were ordered to pay indemnity costs in circumstances where they maintained that they were not responsible for any of the factors that led to the indemnity costs being ordered.
Looking ahead, while the courts may have created some issues in the development of third party funding – on issues such as indemnity costs, recoverability of funding fees, or the obligation on claimants to reveal the identity of funders – the bigger picture is one of significant growth and opportunity.
In 2016, Calunius raised a further £100m from investors – double the previous fundraising, while US based AIM listed Burford also raised £100m through a bonds issue and Vannin raised further funds through a secured debt facility.
We have also seen the emergence of a new entrants into the funding space, who are able to service all size of claims and are providing innovative solutions to claimant’s needs.
The most recent development was in the US, where Burford bought its closest rival, the well-financed Gerchen Keller Capital, for $160m.
Investors, seeking higher returns, are keen to look favourably at litigation funding because interest rates are low and whilst litigation funding is risky the returns can be significant. In addition, the risk is ‘uncorrelated’, in investment terms, as it is not connected to the underlying economy or susceptible to financial crises.
Operationally, as we saw in the Excalibur judgment litigation funding is receiving the stamp of approval from judges and from an ever-growing number of jurisdictions, so expanding the global market.
This will continue into 2017 with more investment flowing into the funders, new markets opening as legislation changes, and new players entering the sector.