Third-Party Funders Eye Up Europe
CDR, February 17, 2010
by Greg Bousfield
Investors may be piling money into London-listed litigation funds, but their eyes have been firmly fixed on lucrative American disputes. Now third-party funders are seeing increasing potential in Europe, writes Greg Bousfield.
Despite another round of media rumours triggered by the Jackson Review, Europe still seems to offer investors little compared with the US for third-party litigation funding (TPF).
But Europe, and particularly the UK, is gaining credibility as a TPF market. Juridica Capital Management announced last month it is getting serious about the UK and earmarked $50 million for local projects.
Juridica, which has more than $200 million under management, was the first litigation fund to list in London (on the LSE’s Aim board) in December 2007 and has funded three UK cases.
Juridica chairman and chief executive Richard Fields says that “several opportunities a week” are now coming Juridica’s way in the UK.
He says multinational law firm clients have made the company aware of UK possibilities: “We need to have more presence in London and a more robust business there. Although the opportunities in the US seem to be larger, we are thinking about how to adjust our processes to fit the UK market.”
Support from Jackson
That is as concrete as it get at this stage, but funded cases will continue to fall into Juridica’s strictly commercial litigation framework, which includes international arbitration.
Competition law damages cases are of particular interest, Fields adds, stressing that Juridica does not fund retail areas like class actions arising from personal injury (which are excluded from consideration by the Solicitors’ Code of Conduct), product liability or mass tort claims.
In the US, Juridica targets cases with potential recovery between $15 million and $25 million. This threshold would have to be substantially lower in the UK, where cases generally involve smaller sums, says Fields. “Right now we are interested in who the lawyers and barristers are we can deploy, as opposed to the size of the case.”
Lord Justice Jackson’s review of civil litigation costs was “most encouraging” for the TPF industry, he says, as are the future possibilities of alternative business plans under the Legal Services Act.
Jackson concluded that the current low volume of TPF does not justify regulation, which would likely focus on capital adequacy requirements.
Although abuse-of-process rules (champerty and maintenance) would not be scrapped, nor would they automatically exclude TPF under the proposals laid out in the report.
Jackson’s view that TPF is most readily obtained for high-value cases with good prospects of success also corresponds with the commercial focus of funders like Juridica.
Less appealing for them was his recommendation that third-party funders should potentially be liable for the full amount of adverse costs, subject to the discretion of the judge, which would likely add the major cost of after-the-event (ATE) insurance to whatever part of the claim that was funded.
“We have done two deals without insurance but most cases would involve some element of ATE,” Fields says.
Market potential in Europe
Burford Capital has a similar business model to Juridica. Like its competitor, the company successfully floated on Aim last October, attracting £35 million from UK institutional investors.
One difference is that Burford has no immediate plans to fund domestic UK cases. For now, the US is simply a far more dynamic and lucrative market, chairman Selvyn Seidel says.
Burford has no immediate plans to fund UK cases - the US is more dynamic and lucrative. But change is on its way. “The UK and Europe are very focused on trying to resolve things outside the courts whereas the US is a very court-orientated country with far more litigation than any country in the world, with cases that are much vaster and complex than anywhere else with much larger damages,” he says.
“Billions of dollars are needed to fund US litigation; there is a huge gap between need and available capital.”
Contrary to the clichés, acceptance of TPF is weak among the American public and lacks legislative support. Third-party funding of US class actions, which are already notorious, is likely to be regarded as abusive.
“TPF really started in Australia in 2003 then moved to the UK and then to the US in end 2007,” Seidel says. “Public acceptance of litigation funding is good in the UK. It’s amazing in the US how little law firms know about TPF; it’s really just arriving there.”
This relative maturity keeps Europe attractive for Burford Capital. “Keep in mind the UK is a very important market where we will be operating in the future,” Seidel says. He seems certain that future is on its way. The only question is when.