Roundtable: The growing influence of litigation funding and managing London’s reputation

This year’s Litigation Team of the Year, sponsored by Gallagher’s Dispute Resolution/Major Risks Practice, shows the strength and breadth of London’s disputes market and the shortlisted litigation teams joined The Lawyer for a discussion in the lead up to this year’s virtual awards.

Representatives from Akin Gump Strauss Hauer & Feld, Freshfields Bruckhaus Deringer, Freeths and Hogan Lovells joined The Lawyer’s editor Catrin Griffiths to discuss their practices, litigation funding and the impact of coronavirus.

The growing power of funders

Along with insurance, funding is changing the landscape. When asked whether the funding is overplayed, one representative said: “I don’t think it is overplayed, it’s real. I keep hearing comments from funders that there is a lot of capital out there and lots of appetite to invest. It’s an emerging investment class that isn’t correlating with the market. It’s real and true, funders are becoming sophisticated.”

The panel noted that funders have become more sophisticated in picking and choosing cases since they emerged in the UK after the 2008 recession. Funders still have stringent case assessment and selection protocols, but they are not evaluating legal teams, which drives a modern law firm’s thought process on its external profile.

One panellist said: “I think it brings in a whole new skill set that we are developing in terms of project management and outcome analysis, because we are talking about big money. These are all important ingredients for a successful outcome of cases.

“We do the modelling internally, but we are building skills, there could be a new theme in outsourcing, but one needs an intimate understanding of a case and how it’s resourced. We will need to skill up and use tech a lot more. That’s the real cutting-edge stuff that not many of us have nailed yet.”

Funders’ models are evolving – you have players like Therium and Burford, who are buying stakes in niche litigation law firms, which helps morph the firms into US-style operations, who can take massive jobs on a contingency fee basis in the same way. Keller Lenkner have set up in London, with their own fund and sold it to Burford – that model means they can fund litigation themselves. The panel noted that we will see more of this.

One of the partners noted that funding drives a case. He said: “The market is awash with funding money. It’s not just traditional funders, you are getting hedge fund money and will get a better commercial return from hedge funds.

“There is a lot of money out there and it shifts the way the market works. Imagine a funder that has three or four claims worth hundreds of millions. It can accept that the chances of success should only be 10 to 15 per cent, because you only need one of them to come in, and you make a huge amount of money that pays for the others.

“The minute that becomes a reality it changes the sorts of cases that get funding, that are brought and that end up in the courts because you cannot settle them.”

The rise of competition litigation and London’s reputation

While the shortlisted firms acted on a broad range of cases, one theme that emerged was the growing importance of competition litigation. While group actions and follow on damages claims have been around for more than a decade, they are starting to really kick-on now and are having implications outside the competition sphere.

The claimant Bar and funding is driving change in this sector – with things blurring together, according to one panellist. He said: “There is a growth toward more group and mass claims, we have proper opt-out claims in the UK now. We are waiting on the Supreme Court’s judgment in Merricks/Mastercard and the questions there are a real test for class actions – seven proceedings are on hold while we wait on this decision.

“Essentially, these are individual tort claims bundled together and tort claims are compensatory – that has been swept away by a move toward more mass litigation.”

Another panellist noted that the increase in competition disputes is a broader reflection on a move in businesses where in-house legal teams are looking to be profit rather than cost centres. That’s being facilitated by shifts in the market, which has led to an uptick in deal litigation.

Anti-trust litigation is linked to this trend and is another example of corporates trying to extract case and value.

He added: “I think we have got a perfect storm now. There is a move to a more litigious direction, driven by new entrants in London, such as US firms, and the increase in social media, which make it possible for claimant firms to pull together serious class actions. Those cases can deliver a high return which will fuel group actions.”

In September 2020, journalist and author Tom Burgis released Kleptopia: How Dirty Money is Conquering the World. He follows dirty money that is flooding the global economy – with part of the book focused on Eastern European oligarchs who are using the London courts as a battle ground. Griffiths asked the panel if this use of the courts is damaging for London’s reputation.

While the profession and the UK have to keep a check on how the London courts are being used, one of the panellists noted that it isn’t that much of a concern.

He said: “We are getting something of a reputation of indulging people too much, when we maybe shouldn’t be. A lot of clients look at London courts. The issue for a lot of claimants is that they don’t trust their home courts. If a government owned entity has a finding from home courts that implicates someone as a fraudster, there is a tendency for the rest of the world to think ‘well they would say that.’

“A big theme of litigation is the reputation of the English courts for determining disputes in a fair and just manner; if you come out with a positive English court judgment it is accepted by the press and public in a way that findings in home courts aren’t. It’s a big attraction of London. In my experience it is those state entities bringing disputes.”

Another panellist noted that the English courts have become more streetwise in dealing with fraudsters. This is because the judiciary has a younger cohort of judges who grew up running fraud claims and have a great deal of experience in this area. The English court is developing these skills which means it is an attractive court in which to bring fraud claims.

Focus on junior staff

Of course, the panellists discussed working from home and how it has impacted their respective teams. Wellbeing has been a major focus for firms, especially for junior staff.

One panellist said: “We are trying to engender a level of fun and enjoyment about what we do – but that is difficult remotely. The quality of our service is dependent on the happiness and engagement of those who are working for us.

“I think it has gone in waves. Initially we were quite surprised by how well people coped. This has accelerated tech trends by three or four years overnight. It now seems archaic to have a phone call as opposed to a video call. We are eight months in and what we are now seeing are the quasi-structural challenges. In February, we will have trainees who have been in the firm for a year with no contact with people. That will be hard.

“People are coming into the firm and they don’t have their network yet. There are no quick chats anymore – you realise there are people in your team that you may not have spoken to in weeks because they aren’t on a case and that is a concern for me.”

One panellist noted that his main concern now is junior lawyers. He said: “We shouldn’t underestimate the impact on junior lawyers – they need the contact to spark off each other. We will find equilibrium over time, the new normal may be that it is three days in the office.”