A 2 Minute Review of Litigation Finance in 2017 and Predictions for 2018
- 2017 saw a flood of new capital into the litigation finance market, particularly from new US based funders.
- This has been aptly demonstrated by various large group claims in 2017, significant price competition has emerged between funders as they seek to secure a piece of the big-ticket litigation matters of the year.
- In addition to “mainstream” funders there has also be an increase in activity by specialist’s funds seeking to monetize sizeable awards.
- TheJudge launched the first WIP insurance product for UK law firms for DBAs and CFAs. Often referred to as “DBA insurance” or “contingency fee insurance”, the product is designed to guarantee the insured law firm with a certain fee realization when engaged on an outcome based billing arrangement. The last quarter of 2017 saw a significant rise in the number of new engagements by top tier UK law firms acting on a contingency or conditional fee basis, both for domestic matters as well as international arbitrations.
- Litigation finance became permissible in Singapore and Hong Kong for arbitration matters.
- Portfolio finance arrangements for law firms became news worthy with a few high-profile examples (see below predictions for 2018). However, all is not necessarily as it seems. Many arrangements are little more than first refusal agreements in favour of a given funder. True cross-collateralized portfolios, while developing, are still less common in the UK (compared to the US) than media would have you believe.
- No less than 5 new insurers entered the litigation insurance market with the capability of insuring own side’s legal costs and fees, in addition to adverse costs.
- Adverse cost insurance has been successfully used in an international arbitration (ICISD) claim to defeat a security for costs application.
- A recent COA judgment (Premier Motorauctions Ltd v PricewaterhouseCoopers LLP) reversed a previous High Court decision and limited the circumstances in which ATE insurance alone can be used to defeat security for costs.
- At least 3x new litigation finance companies have emerged since the Summer specifically targeting the often overlooked smaller to medium sized commercial disputes sector, where legal costs are below £500,000.
2018 – 5 Key predictions:
- “True” portfolio finance models will increase in popularity, but most likely on vastly different economics to the deals in 2017 – take note if you’re contemplating such an arrangement which has minimum contract periods – or better still, speak to one of our team to learn about all your options. The same is also true to for clients of the law firm, who are themselves seeking a portfolio finance or insurance arrangement.
- Some new additions are likely to be added to litigation insurers’ coverage, increasing its attractiveness. Expect to also see developments with regards non-avoidance clauses/deeds of indemnities to ensure ATE continues to be the cost-effective instrument of choice to defeat security for costs applications in the wake of the recent COA decision in Premier Motorauctions
- More capital will pour into the UK market, which will likely result in an oversubscription of capital for the volumes of realistically fundable cases by year end. Good news for purchasers seeking the most competitive deal.
- The use of contingency fee arrangements will significantly increase on 2017 volumes, whether through greater application by law firms seeking to keep all or the lion share of the available contingent uplift in-house, or by firms needing to respond to activity of rival firms.
2017 at TheJudge:
- A year of significant international development. In 2017 TheJudge opened 4x new international offices; New York, California and more recently in November 17, Toronto and Vancouver.
- 9 new members joined the team, with a range of backgrounds, including former litigation as well as M&A lawyers, insurance specialists and former personnel from litigation finance companies.
- In November 2017, TheJudge expanded its UK footprint to include a new office in Manchester.
- A year of new company records. By way of example:
- We secured £20m for an adverse costs indemnity from a syndicate of insurers within a week.
- Secured terms for a $100m commitment for a single case (monetisation of an award).
- Introduced over a $1billion of claims to law firms (where clients approached us prior to engaging lawyers).
- In May 17, we introduced the first contingency fee insurance product to UK law firms, which has already changed perceptions in the use of alternative fees by many leading law firms.
- Continued to be a market leading broker, with involvement in many of the year’s significant cases, including Lloyds Shareholder Action Group, RBS rights Issue, Trucks cartel, Essar v Norscot, Visa/Mastercard surcharges and VW to name just a few.
To all our friends at law firms around the UK, we wish you a pleasant Christmas, and look forward to working with you for a prosperous New Year.
The team at TheJudge.