The Rise and Rise
of Litigation Finance
Litigation finance is one of the most significant developments to affect the legal industry in the past decade. At a time of unsettling change in the practice of law, it provides a sustaining innovation that allows law firms and their clients to better manage the rising costs and risks of litigation, and to fundamentally alter the way they think about the business of law.
At its heart, litigation finance is simply the application of well-trod principles of corporate finance to litigation. While this may seem like a new idea, in practice litigation finance has been utilized in the United States for well over a hundred years –structured as a lawyer’s contingency fee. Seen in this light, lawyers have long had the right to “invest” in litigation.
What is new is the formation of third-party funders specializing in providing capital to legal claimants and law firms. These new sources of financing are willing to invest significant sums into favorable litigation in return for a portion of a successful judgement or settlement. First undertaken in Australia in the early 2000’s, this modern form of litigation finance quickly spread to the U.K. (taking root in the international arbitration and bankruptcy communities), before entering the U.S. market in earnest at the beginning of this decade.
We are currently aware of more than 30 litigation finance firms operating in the U.S. market – with new market entrants almost monthly. Recent reports in the Financial Times and elsewhere have suggested that the amount of funding available in the U.K. market alone is in excess of $17 billion (and the global figure substantially higher), although we would caution that such a number is misleading at best. Suffice it to say that capital providers have taken a shine to litigation finance, and that the influx of new funds into the market is considerable.
As the availability of funding has increased, so has the use of litigation finance among U.S. law firms and their clients. Top AmLaw firms, ambitious litigation boutiques, and traditional plaintiffs’ firms are all regularly finding ways to take advantage of the practice. This surge in popularity has been accelerated by a continuous introduction of new products by the funders, including the monetization of claims, the funding of portfolios, and the acceleration of fees. At the same time, concerns regarding potential ethical issues have largely been dismissed as either off-point or not applicable under numerous court rulings (although areas for caution remain).
In an effort to provide on-going insight into the practice of litigation finance, we are publishing regular articles on developments in the industry. Topics include new trends in the practice, new market entrants, and advice on critical issues for legal practitioners and their clients (“tips of the trade,” if you will). You can find these articles collected on our “News and Insights” page (see the link immediately below).
If rather than reading about litigation finance, you’d like to have a conversation to discuss what the practice can bring to you, we are available for introductory consultations by phone at your convenience. Please be in touch.