What trends have most affected third-party litigation funding in the past 12 months?

Craig Arnott: The single most important trend is the growth of the market for legal finance. This pertains to increased demand from both clients and lawyers, as well as the maturation of the providers of capital. Our research shows that use of litigation finance by firms grew four-fold between 2013 and 2016.

Lawyers are now benefitting from the emergence of sophisticated finance partners who are as comfortable providing classic case-based litigation finance as bespoke portfolio solutions that provide flexibility and attractive terms. This gives assurance to lawyers and corporates not only about the reliability of capital sources, but also price and the ability to offer better terms.

Susan Dunn: Generally, the positive developments in Singapore, Hong Kong and Dubai related to third-party funding have consolidated acceptance globally. In those regions law firms and general counsel are now keen to discuss the benefits of funding. When we alleviate some of their concerns – typically over conflicts of interest, control of litigation/settlement and disclosure – they are enthused about its possibilities.

Singapore view in the evening showing buildings and the vegetation

Specifically, we have seen three trends: a continued increase in enquiries for funding for arbitration, more requests for inventive products away from pure single-case funding and, interestingly, an upsurge in direct enquiries from corporates, not always going via their lawyers when they want to speak to a funder.

Unfortunately, there is also an increase in the number of entrant ‘funders’ who source cases first and then seek investors, and who won’t join the Association of Litigation Funders (ALF) because they do not satisfy the capital adequacy test. I always recommend that those who come and talk to us ensure they are satisfied any funder they work with has sufficient capital and will only use it for their case.

Matthew Denney: The market is shifting away from single-case funding, and this trend will only increase. Greater competition in the market and a finite number of cases means more pressure on pricing; ways need to be found to cut the risk and allow for cheaper financing – something that is difficult in a single-case market.

There has also been a significant increase in enquiries direct from corporate clients, although often these do begin from the lawyers. The awareness of litigation finance in the corporate world has increased over the past 12 months and although we are in our infancy there have been a number of enquiries to understand the benefits we can offer. This area of litigation finance will continue to grow and is a key area for our new fund.

What trends are you seeing in terms of type of cases, such as shareholder actions or competition class actions, for example?

Arnott: Competition litigation is an area of robust and sustained development in the UK, Europe and the US, and in-house and private practice lawyers, claimants and defendants must all be ready, armed with both understanding and adequate resources.

Litigation finance is an important tool for all parties. Not only is outside capital required simply to pay the bills; the complexity and sheer duration of these claims may require large, established funders with adequate capital to deploy and the scale to commit in follow-on matters.

When it comes to follow-on competition claims – which give every indication of being on the rise – litigation finance is a tool of necessity. This is mainly a simple matter of economics: follow-on claims are often fantastically expensive by their nature. Many are so large that the stark reality is that it’s difficult, if not impossible, to see how they can even get off the ground without being financed by a third party.

Claims can run across multiple jurisdictions and, in some cases, involve multiple defendants. They require significant fees for lawyers, economists and other experts – expenses that will hit claimants’ profit and loss statements month after month, possibly for years. Moreover, in jurisdictions such as Germany, where lawyers are not permitted to work on contingency the monthly legal bills can be too much to stomach, even for corporate clients with multimillion-euro claims. Losing and paying some of the other side’s costs, particularly when the other side involves more than one player using teams of expensive lawyers, is a risk many cannot not and will not take.

Hong Kong

Dan Craddock: We’ve seen an exponential rise in interest in shareholder disputes (such as breach of shareholders’ agreements or unfair prejudice), competition cases and follow-on damages in the past 12 months.

Class and group actions stand out among the types of cases we review and fund, with our Australian team especially seeing an uptick in the filing of these disputes.

The past 12 months have also seen a marked increase in arbitration funding. Historically, this has been focused on investor-state arbitration but now it has spread to commercial international arbitration.

What trends are you seeing in terms of take-up across different jurisdictions?

Dunn: Enquiries are increasing across all jurisdictions. Positive developments endorsing funding in Singapore, Hong Kong, Dubai and Paris have helped in elevating third-party funding’s profile among law firms and claimants. We now receive numerous requests to speak at arbitration and litigation conferences worldwide: South Korea, Japan, China, the British Virgin Islands and Western Europe.

Regrettably, the recent decision of the Supreme Court of Ireland in Persona/Sigma deviates from developments elsewhere in that they ruled that third-party funding, save in limited circumstances, should remain unlawful because of their rules regarding champerty. This is one of the most meritorious cases we’ve ever considered, and in the public interest too. It’s a shame if such claims cannot be pursued in Ireland simply for lack of funding.

Craddock: In the past 12 months there’s been a significant expansion in the understanding of third-party funding, especially in Singapore, Hong Kong and Dubai, due to legislative developments.

“The legalisation of third-party funding in Singapore and Hong Kong for international arbitration claims has probably been the most significant development globally” Dan Craddock

The legalisation of third-party funding in Singapore and Hong Kong for international arbitration claims has probably been the most significant development globally. We expect the use of third-party funding to increase further, which is why we are expanding our presence in Asia in addition to the other jurisdictions in which we operate.

Global advancement remains at the core of our business plan. Last year was a record year for international hires at Vannin, which will continue this year and into 2018.

Denney: Asia remains an area of interest for a number of funders. It is a relatively new market with changes being made to historic restrictions on funding in Singapore and Hong Kong. These are not huge markets at present but they will be attractive to the traditional third-party funding model as they will provide fertile ground and new opportunities where those funders have struggled.

Competition is driving traditional funders to open in jurisdictions such as Asia to seek more opportunities but this seems to me to be a short-term solution. Our model and the market in which we operate means we don’t have that problem. You don’t have to be in multiple jurisdictions to take advantages of the opportunities they present. Most of our international workload and opportunities originate from the US and Australia – markets where litigation finance is well-developed. But we see investments from a range of jurisdictions across Europe, Africa and South America. Our corporate clients invariably operate in a number of countries.

What are the biggest misconceptions about litigation funding? How can funders work to disprove them?

Arnott: The biggest misconceptions pertain to need and use – specifically, lawyers and corporates who say they “don’t need” litigation finance, and consequently have too narrow a view of how and when they can use it. In the ‘don’t need’ camp are those who still conceive of litigation finance as nothing more than a tool to help undercapitalised claimants pay legal fees and expenses. This may have once been true but it is no longer. Litigation finance isn’t just a lifeline for disadvantaged claimants, it’s a tool corporates who have no shortage of their own capital but prefer to finance litigation and arbitration off-balance sheet because it’s simply a more efficient and cost-effective way to manage legal expenses and exposure.


When litigation finance is understood to be simply a better way to manage legal expense and exposure, clients and their counsel come to understand the range of ways in which it can be used: for defence as well as claimant matters, on a portfolio as well as on a single-case basis, for going-forward as well as current matters.

As in all the best kinds of corporate finance, the possibilities are limitless.

As to disproving misconceptions, the maths is compelling: we provide comparisons of what litigation costs when self-financed and when financed by a third party.

We find that insights into how others are using litigation finance provide the best way to disprove misconceptions.

Dunn: There is significant misunderstanding about the level of risk funders take. Losing a case leads to a total write-off of all legal costs. Even when successful, in terms of settlements or wins at final hearings, amounts are often significantly below the initial assessment of the case.

This brings us to probably the greatest misconception – that funders are making outsized returns. Whereas budgeting is getting better, costs overruns remain relatively common while the value of the claim remains static. Every claimant believes they have the best-ever case, guaranteed to succeed, but we’ve lost cases everyone thought we’d win. Perhaps lawyers could manage their clients’ expectations better while funders could better explain what risk means to them.

“Some corporates have  asked us to be part of the litigation committee formed to manage each large matter. This works well” Susan Dunn

Corporate clients often worry about ceding control to the funder so we clarify that is not the case and emphasise that we only want to add value. Some corporates have recognised that and asked us to be part of the litigation committee formed to manage each large litigation matter. This works well.

Craddock: Once you establish that funding is not merely a financial tool for impecunious claimants and that our product is 100 per cent non-recourse, the biggest misconception centres around control and the fear that we interfere and seek to control the course of litigation – which clearly we don’t.

Another misconception is that all funders are the same. They are not. I cannot stress enough the importance of using professional funders who have a proven record, deep pockets and a thorough approach to due diligence. It’s rare now that clients use funding for purely financial requirements, at least not with us.

Denney: Most litigators are now aware of litigation funding and will often have their own view (often too narrow) of what it can do. Single-case funding – litigation finance in its most basic form – is understood by most litigators. However, this is only a small part of what litigation finance can offer.

The fact that the subject is now regularly discussed with clients at the beginning of the litigation process means significant progress has been made in the market, and in-house counsel are also beginning to understand the benefits. But there’s still a long way to go.

“The clients who can  benefit most from litigation finance are those who don’t need it, but choose to use it” Matthew Denney

They key here is assisting in the understanding that the clients who can benefit most from litigation finance are those who don’t need it, but choose to use it. They want to offset some of their risk, they want to reduce their legal spend or they want to bring or defend cases their budgets don’t allow them to. But this has to be coupled with the need to make litigation finance affordable – the traditional money back plus 3x (or more) is not an attractive solution to a sophisticated corporate client. It is out of date and has no place in the corporate finance world.

The best advice to any client considering funding is – make sure you know what problem it is that you’re attempting to solve. Often the issue is not just the case in question. Litigation finance should be bespoke to the situation and individual needs, and any client looking to use funding should be careful to ensure this is being addressed.

How should litigation funders reassure potential clients about reputational and ethical issues?

Arnott: As it relates to reputational issues, the most important reassurance clients and their counsel can gain will always stem from their own diligence of potential funders.

Clients need to focus on two fundamental issues. First, in transactions when some capital is to be paid in the future clients must be confident that capital will be available to them when it is needed. This is a question of structural diligence.


Even when capital availability is not an issue, such as when the client is receiving all the capital upfront, clients need to focus on the size and structure of their financial providers to assess their stability, incentives and the materiality of the investment to them. This is important because if your transaction is material to the financier there are contractual provisions in your arrangement that will, if it comes under pressure, permit the financier to act in a manner that may be inconsistent with your interests.

It’s also a bad idea to sign up early in your examination of litigation finance exclusively with one provider until you have been able to explore all these issues and gain confidence that the indicative terms you are seeing will translate into a real deal. This is all too often not the case.

These concerns are largely overblown. The best way to conceive of the role of the legal finance provider is as a passive outside investor who in no way alters the attorney-client relationship. Litigation financiers have no right to manage the litigation in which they invest and they do not seek to stand in clients’ shoes. Just as a leasing company does not tell you how to drive your car, the litigation financier does not drive the litigation. Nor does the funder get any rights to control settlement of the litigation, which remains wholly in the litigant’s purview.

Denney: Litigation finance is no different from any other form of financing, except that we are securing our investment against an asset that traditionally has not been seen as an asset. We are a professional finance business and, like any professional financier, we are not interested in assisting unmeritorious claims to be brought. Ethics and reputation are as important to us as they are to the corporate client and to their law firms.

Our clients are careful with whom they do business. They choose their finance partners carefully, whether they are a law firm or corporate client.

In the market in which we operate, there is rarely a question of an ethical or reputational issue. Occasionally, there are questions about the control of litigation and decision-making, but these are swiftly resolved given that we are simply providing finance to our clients for use on legal spend or other expenses.

In the traditional third-party funding world, to stave off any ethical or reputational issues the funders should ensure they fund only meritorious claims and adopt the ALF code. There will always be someone who raises the question of ethics about funding someone else’s lawsuit, but that ship has sailed. Now, the questions are not whether funding should be allowed but how it is best regulated – that is, self-regulation or independent regulation – and whether there should be automatic disclosure.

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