Do believe the hype: litigation funders remain committed to UK possibilities

Do believe the hype: litigation funders remain committed to UK possibilitiesThe hype surrounding ­litigation funding has been inflated in part by those ­providing the funding. With the litigation market now hotting up, is there really a place for litigation funders in the UK?

US-based funder Juridica last week raised £35m through a secondary ­placing on London’s junior market (, ;10 March).

Richard Fields, company co-founder and co-principal of Juridica’s investment management arm, says the success of the company’s IPO in December 2007 (The Lawyer, 14 January 2008) prompted it to make a ­secondary offering.
“We had a really exciting first year and increased our asset value by 35 per cent,” he tells The Lawyer.

So successful was the flotation that Juridica was one of a few companies on AIM that could pay shareholders an interim dividend of 4.6 per cent on the pound.

But Fields still believes the UK litigation framework is ill at ease with the funding sector. “We’re very interested in the UK market,” he says. “But there’s an adverse cost risk for funders, which drives down the return.”

According to Fields the UK system of lawyers instructing barristers is “very inefficient” and “cases in the UK don’t work ­economically”.

Of the 17 cases funded by Juridica in 2008, only two came from the UK.

James Delaney, director of litigation funding broker The Judge, says it is unsurprising that Juridica is focused on the US. “They’re likely to get a much better return in the US than the UK,” he says. “It’s much more attractive in the US from a ratio point of view.”

From its original £80m fundraising, Juridica has invested, or committed to invest, up to $108.25m (£78.36m) worth of claims, including ongoing commitments of up to $95.25m (£68.95m) across 10 investments, giving exposure to 15 current cases.

In 2008 the company ­settled two cases, earning a $5.19m (£3.76m) return. Of the 15 cases on Juridica’s books, five have trial dates. All are based in the US.

Appetite in the UK for a pure funding package is ­limited, Fields claims, because UK lawyers are more risk-averse.

Allianz ProzessFinanz head of litigation funding Christian Stuerwald agrees, saying that UK lawyers are more conservative than most.

Stuerwald feels that the biggest problem is that UK lawyers are unaware of the funding options. “If you asked 100 solicitors about funding options, I’d be ­surprised if they knew about it,” he says.

Research commissioned by Addleshaw Goddard ­supports this assumption. Half of the FTSE350 ­executives interviewed about managing the cost of litigation knew nothing about the funding options open to them, even though 76 per cent said legal costs are the main concern when disputes arise.

One ;source ;says: “Lawyers aren’t keen on ­recommending funding options – if something goes wrong they’ll find themselves in the firing line.”

Nevertheless, lawyers are obliged to tell their clients about the various funding options open to them.

Delaney argues that there are several funding options open in the UK and that each case is considered on an individual basis. “Third-party funding is here to stay,” he declares. “But whether it will penetrate into the big cases as opposed to class actions remains to be seen.”

According to IM Litigation Funding managing director Derek Patterson, there is a growing appetite for third-party funding. Since the company was established in 2003 it has received between 80 and 100 enquiries per annum about ­funding options, of which it has endorsed 10 per cent.

“We’re beginning to get bigger-ticket claims coming through,” Patterson says. “We’re getting enquiries from counsel who are much more interested in a partial conditional fee arrangement [CFA].”

Delaney says more City firms are offering partial CFA deals as clients pressurise them to cut costs. With ­partial CFAs the firm will ­offset the client’s risk of ­having to pay legal fees by agreeing to pay a proportion of the fees for the client.

Stuerwald says: “Most cases we support have a group of risk-takers. One’s the claimant who’s invested in the case – maybe he has after-the-event insurance for adverse costs and the firm is taking on an element of risk.

“We’d pay between 50 and 80 per cent of the hourly rate and the rest would be paid by the firm. Every firm says it’s looking at partial CFAs.”

While Patterson says IM Litigation ;Funding ;is ­beginning to take on cases that are larger in value, Stuerwald says his company is beginning to receive more enquiries from the regions on lower-value cases.

“We started in the UK about 17 months ago and the value of the cases still ­surprises me. We started with an £11m claim. That’s 10 times what we’re used to in Germany,” he remarks. “That’s changing now and we’re starting to get mid-size cases.”

As a standalone option litigation funding has failed to explode onto the UK litigation scene. Yet Juridica, IM Litigation Funding and Allianz remain committed to the sector, convinced that it is a slow burner that will offer high returns on cases that carry minimal risk.

The Players

Allianz ProzessFinanz
Established in London in 2007 after launching a fund in Germany in 2002. Head of litigation funding Christian Stuerwald has also contributed to the formulation of a draft code of conduct that the Civil Justice Council proposes all funders should adhere to.

Harbour Litigation Funding
Established in 2007 by a Jersey-based, London-run hedge fund. Hired IM Litigation Funding co-founder Susan Dunn, who arranged the highest-value claim known to have been funded by a third party in the audit negligence claim brought by Stone & Rolls against Moore Stephens.

IM Litigation Funding
Established in 2002 to focus on funding UK litigation. Strong management team, including chairman Christopher Morris, the former head of Deloitte & Touche’s insolvency practice. Legal director Peter Horrocks, formerly a Lovells insolvency partner, advised the liquidators in the BCCI case.

Guernsey-headquartered vehicle launched on AIM in December 2007, raising £80m to invest in claims. Chairman Dan Brennan QC of Matrix Chambers is also a deputy High Court judge. Primarily invests in US litigation, but is committed to expanding in the UK.