The market for litigation funding and finance has exploded in recent years, with a wide range of options now available for people and businesses to get backing for disputes they might otherwise not be able to run so successfully, or even at all.
It has been an incredibly important development in the legal market, levelling the playing field between the Davids and the Goliaths of this world.
Readers will be familiar with the kind of bully boy tactics that large corporates can play in the courtroom, eg delaying proceedings, adding extra steps into the litigation process, racking up legal costs, all designed to put pressure on smaller opponents to settle early and for less – or even to drop cases altogether.
Putting some money behind the weaker litigation party completely changes the dynamics of the game.
However the development of the litigation funding market took a significant hit recently when one of its most high-profile players, Burford Capital, was accused by a short seller of overinflating its figures and of suspect accounting practices generally.
Counter claims were then made by Burford that their accusers were trying to manipulate the market.
Even though it is very particularly Burford’s working practices that are under the spotlight, the whole sorry saga has threatened to ‘muddy’ the reputation of the industry as a whole.
But the reality is that litigation funding run well has a big part to play in achieving parity between litigating parties, so it’s an important access to justice point, for individuals and for smaller businesses.
It’s time now for some perspective! Let’s take a look at some of the big questions around the litigation funding market, the questions thrown up by the Muddy Waters / Burford spat and provide some clarity, so readers can be equipped to discern between the good, the bad and the ugly of the litigation funding and finance world.
It's all about sound management
It goes without saying, (or should do at least), that rigorous accounting practices and prudent risk management need to be a primary focus for any players looking to succeed long term in this new market.
A critical calculation for litigation funders is the balance of risk across their entire case portfolio, because they will have to bear adverse costs orders on cases lost and off-set these against wins.
This will be central to managing client and stakeholder confidence.
That said, there is a clear segmentation beginning to develop within the industry which provides for different funding strategies and propositions.
An alternative is the introduction of interest based lending where both client and lender have absolute clarity on the cost of providing the finance at the outset and can therefore make risk based decisions accordingly.
Take the SME market for example.
Typically the requirement for litigation support is for loans between £250k-£2.5m.
This is markedly different from that required for the big-ticket cases generated by big businesses, which are the primary focus of the global litigation funders.