Third-Party Litigation Funding Revolutionizing Commercial Litigation, Despite Some Challenges In Common Law

Author:Mr Lincoln Caylor and Ranjan K. Agarwal
Profession:Bennett Jones LLP

One of the most critical developments in civil - and potentially, commercial - litigation in recent years has been the growth of third-party financing of legal costs for cases that might not otherwise have their day in court. Originating in Australia and the UK more than a decade ago, third-party litigation funding agreements (LFAs), in which institutions offer financing for a percentage of any monetary recovery in the case, are enabling plaintiffs to seek justice through court actions that otherwise would be cost-prohibitive. This includes fraud, environmental, and corporate cases worldwide.

Several recent news events illustrate the dramatic paradigm shift that third-party funding can bring even to complex commercial litigation, where the parties typically bear preemptive upfront costs just to determine the merits of mounting a case.

On May 3, Burford Capital reported  that 28 percent of law firms used litigation financing in 2016, four times the number that used it in 2013. On May 15, the Wall Street Journal reported that Los Angeles trial lawyer Raymond Boucher, architect of a $660 million settlement for California clergy-abuse victims, has taken out several million dollars in funding from publicly-traded litigation financer IMF Bentham, Ltd. In February, Burford Capital, Ltd. announced it was providing $45 million in litigation financing to British Telecom. This was a watershed event, demonstrating that outside investors using financial analysis can assess the underlying value of a company's pending portfolio of litigation and invest in that litigation's outcome. It also demonstrates that household-name corporations accustomed to using financing to maximize the value or minimize the risk associated with other forms of property can now do the same with their litigation portfolios. Particularly crucial for commercial litigation, Augusta Ventures recently announced that it would fund pre-proceedings costs so often required to determine the merits of making a complex business claim. The Wall Street Journal also reported that pension funds, university endowments, and private offices "have collectively pumped more than a billion dollars" into litigation finance vehicles in recent years. In the realm of commercial litigation, contingency retainers are less common than in class actions or personal injury litigation. Thus, the associated risks and expenses fall primarily and preemptively on clients, particularly at the complex and...

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