Litigation Finance remains relatively new in the commercial finance space, nevertheless, it has grown more common in the United States. Such financial arrangements were historically prohibited and seen as illegal, a “disturbance of the common right” under the doctrines of champerty, maintenance and barratry. However, since many states have abolished this prohibition, Litigation finance has grown tremendously and has provided immense opportunities for users and funders alike. In fact, from 2018 to 2019, a whopping $2.3 billion has been committed to litigation finance in the US market.
This correlates with the 2019 study that stated over 65% of surveyed lawyers were familiar with litigation finance, a figure that doubled just two years prior. This multi-dollar business is the new emerging standard in the commercial finance space and provides benefits not only for defendants but also for the plaintiffs in a legal proceeding.
Four major trends to look out for;
By 2030, the utilisation of technology will not only become a norm in all industries but it will also provide an edge in the litigation finance sector as well as the legal sector. Certain AI tools will bring a remarkable change in the way firms and lenders handle litigation finance. For instance, AI tools will aid in choosing the best cases with the highest rate of success, reeling in better chances of winning and thus, it could make a real difference. The effective use of technology will invite the increased usage of orgination tools such as LexShares’ proprietary Diamond Mine technology platform to effectively source high-quality cases and establish a competitive edge over other lenders in the market. Similarly, in addition to origination tools, there will also be the increasing use of data analytics tools especially platforms such as Lex Machina will allow funders, investors and attorneys to weigh risk and benefits efficiently and effectively. It will also allow them to evaluate and establish damage models and analyse data relating to jurisdictions, counsel, jury attitudes and beyond.
More Awareness and Clarity in the Space
As the law is still in the early stages of development, and those especially considering litigation finance in the US shall consider the applicability of precedents and laws in different states. Nevertheless, we would expect judges and law-makers to define the laws relating to this area in more clearer terms and ensure that laws governing litigation finance are certain, predictable and stable. As a result, we could also expect that different third parties such as various lobbying groups, investors and industries will engage in advocating and representing the interests of law firms, commercial funders, corporate clients and law firms. Such groups will emerge with the intention of influencing law-makers and government individuals for more litigation finance friendly practises. Similarly, data analysis, funding structure and transactions documents would become a standard practice and could, in turn, lead to more client-friendly practises, transparency alongside being beneficial for funding recipients.
General Counsels Entering the Space
While law firms have been able to adopt litigation finance, the same can not be said about corporate legal departments as they have been slower and less responsive to adopting this area. However, we expect this will change especially with an increasing number of general counsels using non-recourse capital to mitigate risk and simultaneously enhance outcomes of legal proceedings. This will further allow general counsels to effectively convert their legal departments into profit centres and encourage a more business-focused approach to litigation. At the same time, the defence side of things will also see substantial growth as they adopt similar approaches to offset risk and successfully reduce litigation risks and costs. This may also attract the interest of General Counsels at other larger corporations as they effectively see how litigation risk can be effectively diminished and thus, consequently will become more accepting of litigation finance.
Consolidation Within the Space
As ligation finance becomes more widespread and continues to grow at an accelerating rate, we should expect to see a lot of overlap between different sectors such as the insurance sector and thus, this opens up the possibility for consolidation. This is further evidenced by the recent merger of Omni Bridgeway and IMF Bentham in 2019. Such mergers and acquisitions set the tone for future trends where more market players will join in joint ventures in a strategic way to further develop and grow. This move will be beneficial in two main ways; firstly it will encourage the adoption of newer offerings and also invite acceptance for the litigation finance sphere alongside creating more opportunities for finance and major market players.
What does this mean for the legal space in the US?
Over the past decade, we have seen litigation finance grow at an accelerating rate and has thus, successfully been imprinted in the modern legal system.
In 2010, there was not a lot of awareness regarding litigation finance as this area was not well known and lacked widespread usage. However, today law firms have understood the benefits of this area and how it is not only an attractive option for clients but also it opens up the doors to exploring litigation finance for legal practitioners themselves. Similarly, the value of litigation finance has not gone unnoticed as legal practitioners can now work with funders on an ongoing basis, opening up the scope for more profits and collaboration.
We anticipate that 2030 will bring more business into this area as law firms and in-house legal teams will adopt innovative mindsets and truly collaborate with innovative startups and third-party funders. Firms will be more proactive and quickly adapt technology to maintain a competitive edge and be more equipped to navigate the future and volatile markets.