A month of surprises follows explosive growth in third-party funding
2016 has proven to be a significant year for the third-party funding market
October 24, 2016 at 08:36 AM
3 minute read
The third-party funding market has seen exponential growth since its inception but 2016 has proven to be one of the most significant yet, with at least 10 new active funders adding to the existing pool of mainstream funders.
Earlier this month, in the case of Essar Oilfields Services v Norscot Rig Management [2016], the tribunal took the unprecedented step of allowing the claimant to recover the cost of its third-party funding arrangement from the opponent. The funding arrangement for Essar was brokered by one of the author's colleagues at TheJudge, who incidentally was also called upon to give evidence as to the reasonableness of the funding deal. Needless to say, the funding arrangement followed a market tender, which goes some way to justifying the reasonableness.
Even today, pricing between funders varies wildly case by case. Therefore, what is considered reasonable in one case may not be considered so in another. If Essar does prove a landmark decision, with lawyers increasingly seeking to recover the cost of their clients' funding arrangements, which can be a significant additional cost, then prudence would suggest lawyers should be anticipating the need to evidence reasonableness in the future when contemplating a litigation funding arrangement today.
October also saw the announcement by Burford Capital that it has created its own law firm to specifically undertake enforcement work. This move is only one of what appears to be an ever-expanding departure by funders away from pure financing of legal fees and expenses. For example, many funders are now actively financing working capital for their counterparties during the life of their litigation, with others seeking to purchase awards. The move by funders to create or potentially acquire law firms could well be a sign of things to come.
Another lesser known – but also significant – event for the market has been the arrival of three new litigation insurers to bolster the existing pool of insurance capital. While insurance rarely grabs the headlines, insurance capital has been key to underpinning much of the litigation funding market as well as expanding the suite of hedging options for claimants pursuing commercial disputes. With the right network, it is now possible to comfortably arrange £30m of legal costs indemnity for any single case. With only a handful of cases achieving such costs exposures, the litigation insurance market is now accessible for the entire spectrum of commercial legal disputes, both domestically and internationally. This form of hedging has been receiving increasing traction with bluechip companies, which while cash rich, prefer to move the risk over to insurers, albeit without the higher associated cost of third-party funding.
Finally, the funding market also received a boost from Asia, with the Hong Kong Law Reform Commission Sub-Committee giving a thumbs up to the development of third-party funding to support Hong Kong's efforts to remain competitive as an arbitration hub alongside other common law jurisdictions.
Even the more cynical among us would struggle to argue that funding and alternative fees are anything but mainstream.
Matthew Amey is a director at TheJudge.
- For more, see Litigation funders planning new role: law firm ownership
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