In the money

Appetite for alternative litigation funding packages is on the rise, with the sector beginning to mature just as the Government passed the Legal Aid, Sentencing and Punishment of Offenders Bill, which will mean the end of no-win no-fee agreements.

The time is ripe for litigation funders to push forward and expand. It was little surprise then, that this week two investment houses revealed a significant rise in the funding pot.

Launched in 2007 Harbour Litigation Funding is among the more established funders with Susan Dunn at the helm alongside chief executive Brett Carron and Martin Tonnby. Dunn had previously worked with IM Litigation Funding and is widely regarded to be at the forefront of developments in the funding world.

Yesterday the group announced that it had launched Harbour Funding II LP after raising £120m to plough into commercial litigation cases and arbitrations (8 May). It has been two years since Harbour’s last capital raising exercise, when the funder put together £60m to invest in cases valued at above £3m (13 May 2010).

In fact the funders have been quiet about raising capital for some time. Then, like buses, two come along in the same morning.

Vannin Capital, the most recent funder to enter the market with the support of private equity house Bramden, has quadrupled its money pot from an annual £25m to £100m. This will be invested in cases at home and abroad with a view to reviewing the arrangement over the next twelve months to see whether more cash is needed.

Something has changed in the  litigation world to give these funders a boost. Litigators who were once nervous about inviting a third party to assess the merits of their case are starting to have a change of heart.

According to Vannin Capital’s Nick Rowles-Davis the market has been given a boost by the oxygen of publicity. “It’s very helpful to have funding in the news,” he says. “Talk about being regulated and having a code all helps.”

Dunn was on the Civil Justice Council’s working party which put together a voluntary code of conduct for the funding community. The purpose was two fold: firstly to give the funders a common set of ethics to comply with; second, to instil a new found confidence in the market.

The only sticking point was that to join the Association of Litigation Funders and to abide by the code, these investment houses would need to agree capital adequacy standards.  This was not appetising to all funders in the market who feared that they would need to lay their books bear to their competitors.

The resulting code stipulates that funders must have enough cash to fund all disputes on their books and all liabilities for 36 months; not to leave a dispute without good reason; and not to seek to control litigation tactics.

So how many funders have signed up? According to Dunn, four – Harbour, Calunius Capital, US-headquartered Burford, and Australia-headquartered IMF Litigation Funding.

Rowles-Davis says Vannin’s application is in the post. Before it could apply to be a member, he adds, the company had to carry out its own due diligence to ensure its house was in order.

Dunn believes others are shying away because they are concerned about the capital adequacy requirements and whether they want to be scrutinised by their competition. He says the group is resolute when it states it will not interfere in how businesses are run.

The time is ripe for the funding market to flourish and, for some at least, it already is. Those who do not commit to the funders code will only do damage to themselves and will discourage any commitment from larger commercial firms. For the market to operate properly it needs to pull together, win a few cases, and be transparent. Anything else just won’t do.