Megan Mayers assesses the state of the UK litigation funding market to create The Legal 500's inaugural funder rankings.
‘One of our investors once said to me that funding is a bit like a tennis match. The key thing is to not hit it out – and the person who hits it out least, wins’ quips Neil Purslow, a co-founder of litigation funding outfit Therium.
But while tennis may have been around for hundreds of years, litigation funding is a much more modern invention. And, in only a relatively short period of time, it has firmly established its position as a popular way to finance major claims, even for the most conservative of litigators.
‘If I look back at our meetings in 2009-10, we were still explaining why funding was legal,’ expands Purslow. ‘It would be amazing to come across a claimant-side law firm now or a lawyer that does a lot of claimant work who isn’t familiar with how funding works – it’s just unthinkable’, he says as he discusses the progress of third-party funding with The Legal 500.
According to a report published this year by LB100 firm RPC, the value of court cases and cash directly held by UK litigation funders was worth a record £2bn in 2020. And, with the economic landscape looking decidedly bleak amidst the ongoing Covid pandemic, the opportunities for investors only look set to increase.
Against this backdrop, The Legal 500 has published its inaugural ranking of the leading litigation funders in the UK.
What makes a good funder?
For funders, what makes a good investment is, on paper, relatively straightforward: a dispute that is likely to result in damages awards that are substantially higher than the cost of running the case. For most funders this would mean claims worth between four and 10 times the predicted cost of taking it through the courts.
But what should claimants be looking for in their funders?
Speed of decision-making has long been regarded as a concern for funders by both claimants and litigators, with some complaining that the application process can be “painstaking” and slowed down by “lots of approvals to obtain”.
According to Sarah Murray, head of dispute resolution at Stevens & Bolton, these delays are no longer acceptable and those funders that are able to move quickly should have the upper hand. ‘There is no shortage of funders in the market now, and there is a sense that with a good case, it is a litigant’s market’, she explains. ‘This means that the days of funders taking many weeks – and in some cases months – to come to decisions as to whether they want to fund an action should be behind us.’
This is just one of a number of key factors for claimants to consider. Others identified by our research include cost, experience, availability of capital, appetite for risk, positive feedback and flexibility, as well as a willingness to adapt and provide tailored solutions.
According to one litigator: ‘What we really want to know is how easy funders are to work with and how flexible they are. When the budgets go up and we need more money, can they give us that? And what if the claim value comes down, or we want to settle, and need everybody to take a bit of a haircut in the waterfall – to what extent are they then willing to compromise?’
To compile these rankings, we have taken all of these desirable qualities into account, as well as assessing the quality and volume of cases being funded, and the size and scale of the funder.
Taking the top spots in the table are London and New York-listed litigation funding giant Burford, market veteran Harbour and Therium. This top-tier trio distinguish themselves in the market through their experience, innovation and impressive client feedback, and all have played an active role in driving the market forward.
Augusta Ventures, the largest dispute funding institution in the UK by number of cases, sits in our second tier alongside Vannin Capital, Omni Bridgeway and AIM-listed Australia-based funder Litigation Capital Management (LCM). These funders have an impressive reputation in the market and defined niches but lack the same breadth, size and, perhaps, appetite for innovation of the top tier.
Others securing spots in our rankings include Balance Legal Capital, Bench Walk Advisors and Woodsford.
We have made the decision not to include a number of other institutions in our core rankings on the grounds that, while they excel in their market specialisms, they have a narrower offering.
Notably, we have not included insolvency litigation financing specialist Manolete Partners; US hedge fund Elliott Management Corporation-backed funder Innsworth — which focuses on consumer claims and recently announced that it is funding the revived high-profile consumer group action against Mastercard; Affiniti Finance, which is best known for financing consumer claims for financial mis-selling, civil litigation and personal injury, and Redress Solutions, which also counts funding of claims from insolvency practitioners among its areas of experience.
Group actions and third-party funding have grown up together in the UK over the last decade. As the longest-running claims stemming from the banking crisis have drawn to a conclusion, funders have looked to GDPR breaches, securities litigation and competition follow-on damages claims which benefit from the Competition Appeal Tribunal’s opt-out collective action regime. And, with the UK proving itself to be ever-more claimant-friendly, group claims are predicted to continue to increase.
Readying for this, there has been an influx of class action law firms opening in London. In 2020 alone, US claimant firm Keller Lenkner hired Gowling WLG partner Andrew Nugent Smith to lead its London operations, while Milberg Phillips Grossman also crossed the Atlantic to open its doors in the UK, with the hire of three lawyers from Mishcon de Reya, including commercial litigation partner James Oldnall. The firm wasted no time before launching a group action against Facebook relating to the Cambridge Analytica scandal. Meanwhile, Australian class action specialist Phi Finney McDonald has also opened in London, with the hire of former Leigh Day partner Chris Haan.
Innovation and development
Gone are the days of litigation funding being limited to single ‘David v Goliath’ style disputes. Instead, the market has grown to accommodate a wide range of claimants who are not driven to financing out of necessity. As Stephen Elam, partner at disputes boutique Cooke, Young and Keidan, explains:
‘In the early stages of litigation funding, the mantra seemed to be that it was all about access to justice and helping impecunious claimants have their day in court and achieve some justice, but it’s evolved since then into something much more commercial. It’s now a way for large corporates to manage risk on their balance sheets and de-risk litigation expense and adverse costs exposure.’
Funders now offer financing for a wide range of commercial disputes for corporate claimants, ranging from intellectual property enforcement, to asset recovery, competition litigation and international arbitration.
And regulatory developments in 2012 and 2013 which legalised contingency fees and alternative business structures paved the way for funders to be more creative in looking for funding options beyond the financing of single cases.
From funding portfolios of disputes for companies or law firms, to collaborating more closely with – and even investing directly into – law firms, funders are providing claimants with greater flexibility. They argue that options such as portfolio funding can provide better rates – as well as faster decision-making and access to capital – than traditional single case funding.
For Burford, portfolio funding arrangements now make up a significant percentage of its funds allocated globally, and other funders — including Therium, Augusta, LCM and Bench Walk — all agree that the percentage of their capital allocated to portfolio funding facilities is on the rise.
However, some law firms remain cautious when it comes to the idea of portfolio or investment tie-ups with specific funders. As Elam elaborates:‘It’s a bit double-edged. There are clear benefits, particularly in terms of speed of access to funding. While this can be attractive to clients, there is a risk of complaints from clients who might query how law firm/funder relationships sit alongside the firm having an obligation to advise more broadly on funding and to give the client access to the wider market and a spread of appropriate funders with a view to achieving the best terms and the best deal.’
Notwithstanding the market’s impressive growth and expected trajectory from the post-COVID fallout, the UK litigation funding market remains in its relative infancy. While the volume of work and capital has increased significantly, the market has faced criticism from some quarters for a perceived lack of sophistication and inconsistency.
In the UK, the market is self-regulated by members of the Association of Litigation Funders (ALF) and its code of conduct. This association was set up in 2011 on the request of the Ministry of Justice and on recommendation from Lord Justice Jackson as part of his Civil Litigation Costs Review, to raise standards of practice and promote transparency among funders, as well as to offer protection to those using its funders. Membership of the association is optional, however, and as the market grows, some funders are opting not to join.
Association of litigation funders (ALF) members
Augusta Ventures Ltd
Balance Legal Capital LLP
Calunius Capital LLP*
Harbour Litigation Funding Ltd
Redress Solutions PLC
Therium Capital Management Ltd
Vannin Capital PCC
Woodsford Litigation Funding Ltd
* excluded from rankings as it is not taking on new cases
One litigator tells The Legal 500 the ALF ‘is a pretty loose affiliation’ and that its rules are ‘unenforceable’, adding: ‘I don’t think it’s crucial that you are part of the association and I could see why you wouldn’t want to be.’
Certainly, ALF members have not been immune to scandal in the past. One former ALF member, Argentum Capital, was caught up in controversy around one of its investors. It left the ALF in 2014 and dissolved the following year.
More recently, ALF member Burford faced international press scrutiny when hedge fund Muddy Waters alleged that it had been ‘egregiously misrepresenting’ its financial reporting. The US class action brought against Burford by investors was dismissed in January 2020.
Safety in numbers
In a market that is still comparatively young, negative headlines – even if, as in the instance of Burford, the funder is not found to have fallen short – can be damaging to the sector.
Funders are therefore taking steps to work together to improve things. After all, while self-regulation through ALF membership may not be perfect, many players see it as preferable to formal regulations, such as those currently being discussed in Australia.
As part of this effort to work together – and in response to criticism that the ALF is not global enough in its outlook – Burford, Harbour, Omni Bridgeway, Therium, Woodsford and US funder Longford Capital have recently founded the International Legal Finance Association (ILFA).
Incorporated in Washington, the association intends to be ‘the global voice of commercial legal finance’ and requires that its members comply with ILFA’s best practice principles. A European equivalent is also in the pipeline.
Meanwhile, US law firm Brown Rudnick has set up a working group aiming to draft standardised documentation for the UK litigation funding market. The group brings together litigation funders, insurers, institutional claimants, legal advisers and other participants.
Elena Rey, a transactional finance partner at the firm, is leading the project. Rey compares the ease of dealing with Loan Market Association (LMA) documentation with litigation funding documentation to explain the need for improvement.
‘The LMA model documentation contains a comprehensive boilerplate which is rarely negotiated, which normally is hardly negotiated, which means that the parties can focus on the commercial provisions and adjust the model documentation accordingly,’ she explains. ‘In contrast, in litigation funding, a considerable amount of time could be spent negotiating provisions (such as insurance or class action logistics) which, if standardised, should really take only a couple of days.’
Adrian Chopin, managing director of Bench Walk — which is involved in the working group alongside Augusta, Omni Bridgeway and Therium — adds: ‘It’s a good example of the industry growing up and developing as a sophisticated financial market.’
The next decade of disputes funding
With the economic devastation of COVID looming large and disputes partners predicting an increase in insolvency and asset-tracing claims, funders are preparing for an uptick in demand from those seeking funding out of necessity, rather than choice, including corporates.
As Vannin’s UK regional director Rosemary Ioannou explains: ‘COVID has resulted in a squeeze on client cash flow and liquidity, and the desire to find alternative ways to generate income and to monetise assets. This has meant funding has moved even more quickly up the corporate agenda.’
Overall, opportunities are plentiful. With a combination of collaboration, capital and an abundance of cases, it is possible that the next decade could be even more transformative than the last.
But while opportunities and capital may abound, Purslow issues a warning with another tennis analogy: ‘Firms that deploy too quickly and are too cavalier are likely to hit it out a lot – and could end up disappearing.’
The key players
Since its launch in 2009, London-listed Burford Capital is known for leading by example when it comes to innovation; from pioneering portfolio finance in 2010, to the completion of a market first equity capital transaction with law firm PCB Litigation in 2020. In October 2020, it also became the first legal finance firm to be listed on the New York Stock Exchange, at the same time making it the first dual listed legal finance provider.
Quick off the mark, Harbour Litigation Funding was established back in 2007. Then focusing on funding insolvency matters and armed with a team that had been funding claims since 2002, it became one of the UK’s first litigation funders. Today it funds a full range of disputes facilitated by a team of practice area specialists and benefits from a host of partnerships with leading UK law firms. It has also significantly expanded its global reach, including into developing market Brazil where funded its first case in 2019.
Therium Capital Management
Therium Capital Management has a track record of funding landmark cases in the UK and beyond. With a goal of driving change in the sector, it offers innovative funding structures, including those integration insurance solutions. At the same time, it remains committed to levelling the playing field in terms of access to justice, using its not-for-profit arm Therium Access to fund cases and support organisations that provide access to the most vulnerable members of society.
Augusta arrived onto the scene a little later in 2013. It is known for its traditional approach to litigation finance and predominantly focuses on single case funding. The funder distinguishes itself with its distinct teams of specialists focusing on investment in particular types of claims such as group actions, competition and construction claims.
Omni Bridgway’s business encompasses legacy Australian-headquartered IMF Bentham, which acquired Netherlands-originating Omni Bridgeway in 2019. Its combined global reach across 18 offices makes it a strong choice for cross-border disputes and enforcement.
Consolidation in the market saw Vannin Capital, which has a decade of experience in UK market, acquired by New York-based investment management giant Fortress Investment Group in 2019. Shortly after the acquisition, Vannin went through a restructuring which saw it close its US and German offices but it remains dedicated to the UK market.
LCM is a relative newcomer to the UK, having launched its UK operations in 2018. That said, it is not lacking in experience as the London office of one of the earliest established funders in Australia, opened under the leadership of Burford’s former managing director Nick Rowles-Davies.
Woodsford has over decade of experience in the UK market, invests off of its own balance sheet and is recognised for its steadier capital deployment.
Balance opened in 2015 and was founded by ex-magic circle litigators. It provides capital to single commercial and group claims and has full control over its investment decisions. It leverages the litigation experience of its team and investment committee to help make its decisions as quickly as possible.
Bench Walk opened in 2017 and is headed by ex-banker Adrian Chopin whose philosophy is that they are ‘not trying to out-lawyer the lawyers‘. Instead, the business model focuses on innovative funding structures, diversifying investments across larger volumes of lower value cases. In Chopin’s words: ‘One of our key principles is that we would rather back a really good lawyer with a decent case than a really great case with an indifferent lawyer’.
Bench Walk’s business model also intends to address a bugbear of litigators and corporate claimants seeking litigation funding: the lengthy decision-making process.
Innovation, portfolios and law firm tie-ups
Headline examples of innovative law firm tie ups and portfolio solutions 2019/2020
Providing capital for a non-exclusive tie up with LB100 firm HFW and Big Four accounting firm KPMG to offer a one-stop-shop for pandemic-related disputes
Financed a portfolio of matters and acquired a 32% stake in London disputes boutique PCB
Provided funding to DLA and Aldersgate funding (DLA’s new litigation funder) which will provide the firm’s clients with access to finance with streamlined due diligence and decision-making processes
Agreed a £50m funding arrangement with law firm Provenio to enable the firm to provide a contingency fee offering to corporate clients and to investors with high value and complex claims.