Tom Baker charts the evolution of dispute funding from case-by-base institutional backers
Litigation funding has been a growing aspect of the dispute resolution sector for a decade now, but news this summer that two law firms have entered into broader partnerships with funders highlights the emergence of a more fundamental role for such bankrollers.
First, the US-bred competition specialist Hausfeld struck a deal with Burford Capital in July to offer a financing package for UK claimants to pursue follow-on damages claims against the participants in a truck-manufacturing cartel.
Manufacturers MAN, Volvo, Renault, Daimler, IVECO and DAF were found by the European Commission (EC) in July 2016 to have operated a price-fixing cartel for 14 years. The EC fined the group a record-breaking €2.93bn, aside from MAN, which under EU leniency rules received immunity as a corporate whistleblower.
The financing offered by Hausfeld and Burford was set up to fund the ongoing costs of litigation against the companies, and will also protect claimants against adverse cost exposure.
Later that month, Shepherd and Wedderburn touted a ‘substantial eight figure’ litigation financing deal also secured with Burford. The deal, which came into effect in September, applies to a specific portfolio of Shepherd’s cases and gives the leading Scots law firm greater ability to offer alternative fee arrangements.
Shepherd’s head of commercial disputes Guy Harvey said that a number of upcoming competition damages claims would be part of the portfolio, as well as existing arbitration and intellectual property disputes.
Harvey says that the agreement with Burford has ‘no fixed term’ and there is ‘no obvious reason, in due course, why the firm could not increase the eight-figure-sum arrangement’.
Harvey notes: ‘Portfolio funding will be an important weapon in the arsenal of solicitors. It provides clarity of funding and ensures funders do not need to have a direct relationship with the client. Clients can also rest assured in the knowledge that the funders are not going to take the whole pot if they win. It’s simply a more modern way of funding.’
Harvey argues that portfolio-based investment is ‘definitely the beginning of a trend’ and that he sees ‘no reason for firms not to enter into such arrangements’.
The funding industry is, unsurprisingly, quick to talk up evolution beyond the traditional model of backing individual claims. Nick Rowles-Davies, chief executive of litigation funder Chancery Capital, observes: ‘Offering funding for a variety of claims spreads the risk for funders. Because our risk is reduced, the pricing is going to be lower. We are able to provide a solution at an acceptable price.’
However, while Stewarts Law litigation partner Sean Upson believes that the portfolio approach is a ‘good idea’, he argues that the arrangement is of little interest to most clients. ‘It’s more of a solicitor/funder-driven issue. To clients, it’s more important to know whether or not something is being funded and on what terms. The underlying methodology and structure is less important.’
And, of course, there are sceptics. Quinn Emanuel Urquhart & Sullivan competition head Boris Bronfentrinker, who is representing Daimler in the truck cartel litigation, says: ‘This is all about funders de-risking on big cases by spreading their investments around. It’s good business for the funders, but I’m not sure it’s the greatest development for access to justice.’ Despite reservations, Bronfentrinker agrees that the big trend at the moment is the shift from funding on a case-by-case basis.
Lianne Craig, a disputes partner at Hausfeld, says that the market for securing these arrangements is increasingly competitive: ‘Getting a portfolio deal with a funder is likely to depend on existing relationships. I would not imagine they would want to do a deal with a firm they do not know or have a good track record with.’
Hausfeld itself has an increasingly steady relationship with Burford. In October 2015, the pair pushed the boundaries of the firm/funder relationship by launching a €30m joint German venture. The tie-up saw Hausfeld open in Berlin in January 2016 with German lawyers focused on competition claims, with Burford providing financial backing.
Such developments reflect the extent to which once-controversial funders are becoming increasingly central players in the UK disputes sector. Research from RPC earlier this year showed that funders committed £723m to claims in 2016, up over 25% from 2015’s figure of £575m.
In July, Burford revealed that it had generated more profit in the first half of 2017 than any full year in its history, with total income growing 130% from the previous June to $175.5m.
With the number of headline-grabbing group securities and competition disputes on the rise, there looks to be no shortage of lucrative work for funders to sink their teeth into. Barring some kind of Excalibur-style reverse for the industry, the mainstreaming of the dispute funders shows no sign of slowing.