UK litigation and arbitration funding barometer

Transcription

1 RESEARCH SERVICE UK litigation and arbitration funding barometer Issue #1

2 About the research Burford Capital and the Lawyer Research Service, a division of The Lawyer, have collaborated to launch a series of reports on the UK litigation financing market. The first report, based on an online survey of 250 private practice litigation lawyers, in-house counsel and corporate C-level executives, gauges the UK legal industry s attitude towards and experience of using third-party litigation financing. It also examines many of the misconceptions about third-party litigation financing. The survey was conducted in November and December To complement the survey data, interviews were conducted with the following individuals: Daniel Lowen, Partner, Couchmans Steven Mash, Partner, Fladgate Gavin Foggo, Partner, Fox Williams Paul Brehony, Partner, Stewarts Law Laurence Lieberman, Partner, Taylor Wessing Christopher Bogart, CEO, Burford Capital Nick Rowles-Davies, Managing Director, Burford Capital Survey respondent breakdown 40% 40% 13% 13% 250 Private practice lawyer Private practice lawyer In-house counsel In-house counsel Corporate C-level Corporate executive C-level executive 47% 47% B / UK litigation and arbitration funding barometer - Issue #1

3 Contents Executive summary... 2 The UK litigation funding market today... 5 Awareness of litigation financing has grown How funded cases were structured in Why do UK corporates use litigation financing?... 8 Addressing litigation financing misconceptions Misconception 1: Litigation funders influence proceedings Misconception 2: Litigation funding is prohibitively expensive Misconception 3: Litigation financing is a one-size-fits-all solution What is front of mind when selecting funders? Pricing is essential Speed is crucial Financial security and transparency are important ALF membership provides some comfort Only certain funders can provide more complex litigation financing structures Brokers are rarely used to arrange litigation funding Conclusion UK litigation and arbitration funding barometer - Issue #1 / 1

4 Executive summary NICK ROWLES-DAVIES Managing Director Burford Capital Only three years ago, litigation financing in the UK was poorly understood, rarely discussed and even less frequently used. Today it is regarded by the UK s top litigation lawyers as a critical component of paying for litigation. Our survey data reveal that more than 90% of private practice lawyers are now aware of the potential of litigation financing, as are 58% of in-house counsel and corporate C-level executives of corporates that pursued litigation in Additionally, 22% of companies that pursued litigation in 2014 seriously considered using litigation finance. Great strides have been made when it comes to the UK legal profession s familiarity with litigation financing. However, its use continues to lag that familiarity. Only 9% of surveyed corporates involved in litigation during 2014 utilised third-party financing, undoubtedly a larger number than only a few years ago. In our opinion litigation financing can and should be used much more widely, not least due to the growing pressures on corporates to reduce or improve management of their legal expenditure. In fact surveyed in-house counsel identified pressure on legal spending and staffing as their number one business challenge when presented with a range of possible legal-related business challenges. It ranked ahead of general cost cutting, a need for discounted legal fees and difficulty enforcing judgements. So why is litigation financing not more widespread? Our survey highlights a number of common misconceptions that appear to be preventing corporates from moving from awareness to use. The most significant is the concern amongst law firms and their clients that funders will interfere with running a case: 21% of surveyed corporates did not approach funders in 2014 because they were concerned about losing control of the case once a funder got involved. This fear is totally unfounded. It s a fear definitively contradicted by the fact that every surveyed corporate that actually secured litigation financing during 2014 confirmed that they retained complete control of the case. Another common misconception is that litigation financing is only used by corporates that can t afford to pursue litigation without it. Our survey data also dispel this myth: 35% of surveyed private practice lawyers confirmed that their clients were typically not compelled to utilise 2 / UK litigation and arbitration funding barometer - Issue #1

5 While nearly every surveyed litigation lawyer understood the simplest model of litigation financing, whereby a funder finances a case in return for a percentage of the damages payable on a successful outcome, fewer understood the structures beyond that, which are in common usage in the US and are readily available from the larger UK funders. funding out of financial necessity. In actual fact, well capitalised corporates frequently secure litigation financing as a de-risking measure, because it ensures that claimants won t be out of pocket in the event of an unsuccessful outcome. Furthermore, 19% of respondents utilised litigation financing because it enabled their organisation to remove litigation costs from their reported profits. Another misconception highlighted by our survey data concerned the range of litigation financing structures that are readily available in the marketplace. While nearly every surveyed litigation lawyer understood the simplest model of litigation financing, whereby a funder finances a case in return for a percentage of the damages payable on a successful outcome, fewer understood the structures beyond that, which are in common usage in the US and are readily available from the larger UK funders. Indeed awareness of disbursement-only funding, security for costs bonds, work-in-progress funding and portfolio financing was materially lower than that of basic litigation funding. Moreover, anecdotal evidence suggests lawyers and clients remain generally ill-informed about their ability to use pending litigation claims as financeable assets, where the capital raised is used for business purposes unrelated to the litigation. In summary, the combination of these misconceptions is preventing lawyers and their clients from making full and appropriate use of litigation financing. Litigation financing may not be appropriate for every case, but many more clients could surely obtain better corporate outcomes and greater access to justice by seriously and routinely considering litigation finance. Dispelling the most common myths associated with litigation funding is the primary objective of this report. It also examines how widely litigation financing is used and evaluated, how cases funded in 2014 were structured, why corporates use third party funding and what factors are most important to clients when entering into a litigation financing arrangement. UK litigation and arbitration funding barometer - Issue #1 / 3

6 Litigation financing products are just as flexible as any other financing product. People have to stop thinking about this as just a way of not paying your lawyers and start thinking about it as a way of financing litigation assets. Christopher Bogart CEO, Burford Capital 4 / UK litigation and arbitration funding barometer - Issue #1

7 The UK litigation funding market today Awareness of litigation financing has grown The litigation financing market has grown significantly during the past three years. Some 58% of surveyed inhouse counsel and corporate C-level executives of corporates that pursued litigation in 2014 are aware of third-party litigation financing, and 22% seriously considered its use. A much smaller proportion (9%) of corporates that pursued litigation in 2014 actually used a third party litigation funder. More private practice litigation lawyers (c.90%) are aware of litigation funding, but issues remain with the frequency at which they discuss funding with their clients. Only a third of surveyed private practice litigation lawyers always make their clients aware of third-party litigation financing irrespective of the size and complexity of the case. A further 52% of private practice litigation lawyers discuss litigation financing with their clients when they deem it relevant. Awareness and use of third-party litigation funding Measured as a percentage of UK corporates that pursued litigation in 2014 used third-party litigation funding have heard of third-party litigation funding discussed the use of third-party litigation funding Private practice lawyers: How often do you make your clients aware of third-party litigation funding? Anecdotal evidence indicates that this nonetheless represents a significant maturation compared with three years ago. The litigation financing market is gaining traction, explains Laurence Lieberman, Partner at Taylor Wessing. There is definitely more awareness now although that has not translated into a huge uptake, probably because there is a lag between understanding how it works and actually utilising it. Around 6% by claim value of our total case load is funded at the moment, and that is increasing, whereas two years ago that was zero. So while funding is growing rapidly, it is not yet mainstream. 52% We only make our clients aware of third-party litigation funding when we think the circumstances are appropriate 14% 34% We always make our clients aware of third-party litigation funding, whatever the size and complexity of the case We never make our clients aware of third-party litigation funding UK litigation and arbitration funding barometer - Issue #1 / 5

8 How funded cases were structured in 2014 At what stages of litigation have your clients secured third-party litigation funding during the last 12 months? (Private practice lawyers) Outset Pre-trial 37% Enforcement of judgement 9% Pre-appeal 2% Other 2% Was third-party litigation funding secured on an individual case or a portfolio case basis for any case you were involved with during the last 12 months? 98% Individual case 77% 19% Although litigation financing remains a relatively niche product in the UK, our survey data identified the following trends in how cases were funded in 2014: 1 2 The majority (77%) of surveyed private practice lawyers with first-hand experience of litigation funding in 2014 worked on cases funded from the outset of the litigation process. Only 9% worked on cases where funding was secured at the enforcement of judgement and only 2% secured funding pre-appeal. That said, securing litigation financing once a case has commenced is growing in popularity. Securing litigation funding during the case itself is becoming more common practice and I can see this trend continuing, explains Paul Brehony, Partner at Stewarts Law. There are often scenarios where a case reaches a critical point, perhaps as a preliminary issue or during disclosure, when the merits of the case become clearer and more attractive to funders. While litigation financing was typically used on a case-by-case basis in 2014, structuring financing around a portfolio of cases is becoming more popular. Virtually all private practice litigation lawyers that used funding in 2014 worked on a single funded case, while 19% also worked on at least one case that was funded as part of a portfolio. Structuring litigation financing for a portfolio of cases is advantageous because it reduces risk for the funder, which can translate into lower pricing or other structural benefits. As Laurence Lieberman of Taylor Wessing explains, securing litigation financing for a portfolio of cases is sometimes the only option when a series of smaller cases are not sufficiently large to attract funding. I haven t yet worked on cases funded as part of a portfolio but it is something I ve heard about and have my eye on, he said. It would be appropriate in cases where a large number of SMEs or individuals have a similar claim against a single organisation. Individually those claims may not be significant enough to attract funding but together, as a package, it would be a lot more palatable for funders. Obvious examples where this might be the case are product misselling by financial institutions or damages claims following a finding of anti-competitive behaviour by a regulatory authority against a particular company. Portfolio of cases 6 / UK litigation and arbitration funding barometer - Issue #1

9 3 Two thirds of surveyed private practice law firms stated that between 20% and 40% of damages (in addition to the return of the funder s investment) were payable to the funder in the event of a successful outcome in their most recent dispute that involved third-party financing (structures not based on a share of the damages also exist). Naturally, the proportion of damages payable increases the closer a dispute gets to trial, since the dispute becomes a more risky proposition for funders. Our survey data show it is less common for a funder to be paid more than 50% of the damages in the event of a successful outcome (11%). When that occurs, it is presumably because some other structural component in the financing arrangement has been operative, such as a minimum return. For your most recent dispute that involved third party litigation funding, what percentage of damages were to be payable to the third party litigation funder(s) in the event of a successful outcome? 3% <10% 15% 10%-20% 38% 20%-30% 28% 30%-40% 8% 40%-50% 3% 50%-60% 0% 60%-70% 0% 70%-80% 5% 80%-90% 3% 90%-100% Almost 80% of surveyed private practice For the case in which your clients most recently used 4 lawyers stated that their clients made the litigation funding, did they make the opposition opposition aware they were funded on aware they were using third party litigation funding? their most recent funded case, although the primary reason for doing so differs: 44% did so because they wanted the opposition to know that they were sufficiently well capitalised to fund the case, 12% did so because they wanted the opposition to be aware that the merits of their case had been validated by a third-party funder and a further 23% cited other reasons. YES 29% 79% What was their reason for this? 21% NO 22% Our clients typically want to disclose they are funded because they perceive it as a sign of strength, confirms Gavin Foggo, Head of Litigation and Dispute Resolution at Fox Williams. They normally want to send the opposition the message that they have the financial clout to get to the end of the case if they need to. It also shows that an independent third party agrees that their case is sufficiently strong to back it with their own money. 15% 56% They wanted the opposition to be aware they were sufficiently well capitalised to fund the case They wanted the opposition to be aware that the merits of the case had been validated by a third-party funder Other reasons 78% They thought the opposition would consider this a sign of weakness Other reasons UK litigation and arbitration funding barometer - Issue #1 / 7

10 Why do UK corporates use litigation financing? Our survey data reveal that, contrary to perception, litigation financing is often used by companies that could have pursued their case even if financing was unavailable: 35% of surveyed private practice law firms stated their clients do not typically need to use litigation financing out of necessity. What was typically the most important reason why your clients used third-party litigation funding during the past 12 months? 65% Their financial resources meant they could not cover the estimated costs of the trial without litigation funding Litigation financing is an attractive proposition for well capitalised clients for many reasons. Some 19% stated their clients primarily use litigation funding because it enables them to remove litigation costs from their balance sheets. A very significant reason for using litigation financing concerns public company accounting, explains Christopher Bogart, CEO of Burford Capital. When corporations pay their own legal costs, from a financial perspective they are hit in the year they pay them. If they use litigation financing, there is no P&L impact in taking on a piece of litigation until its conclusion. 19% 14% 2% They were able to cover the costs of the trial but chose litigation funding as it enabled them to remove litigation costs from their balance sheet They were able to cover the costs of the trial but chose litigation funding as it enabled them to focus resources on supporting the business They were able to cover the costs of the trial, but chose litigation funding as it enabled them to retain a top quality lawyer instead of an average lawyer 8 / UK litigation and arbitration funding barometer - Issue #1

11 Many companies that can afford to pay their own legal costs use litigation financing because it insulates them from cost overruns, so it is essentially a de-risking measure. Nick Rowles-Davies Managing Director, Burford Capital Some 14% of surveyed private practice lawyers stated that their clients used litigation financing in the past twelve months because it enabled them to focus financial resources elsewhere within their Which of the following business challenges does your company face? Rank the top three challenges, with one being the most significant challenge Increased pressure on legal budgets, staffing, and spending Cost-cutting generally Need for discounted legal fees Need for alternative fee arrangements 5% 7% 23% Difficulty enforcing judgments 13% 32% Need for leaner law firm staffing on our legal matters 6% 6% 15% 7% 15% Need for new ways of financing litigation costs 7% 7% 13% 15% 17% 18% 14% 29% 27% 35% 37% 21% 12% 39% 24% 11% 67% 56% business. It is unsurprising that cost was frequently mentioned as a strong motivating factor for using litigation financing: the majority (55%) of surveyed in-house counsel cited increased pressure on legal budgets, staffing and spending as well as general cost-cutting as the number one business challenge they face. Although not covered in the survey, private practice lawyers often mentioned in interviews that de-risking litigation from a cost perspective is a strong motivating factor for structuring financing around litigation. Many companies that can afford to pay their own legal costs use litigation financing because it insulates them from cost overruns, so it is essentially a de-risking measure, explains Nick Rowles-Davies, Managing Director of Burford Capital. They would rather have a percentage of something than an open ended commitment, effectively a cash flow drain with a potential down side in adverse costs. Funding and insurance changes this. With funding, clients are guaranteed an amount of the upside if they win with no downside UK litigation and arbitration funding barometer - Issue #1 / 9

12 Addressing litigation financing misconceptions Misconception 1: Litigation funders influence proceedings The most significant misconception about litigation financing is that it will result in the claimant losing control of the case. Two thirds of in-house counsel and C-level executives cited concerns about losing control as being one of their top three reasons for not approaching litigation funders. However, our data confirm there is an enormous gap between this perception and the reality. First and foremost, every surveyed corporate that used litigation financing in 2014 stated that they retained complete control of the case despite the involvement of litigation funders. Under the code of conduct of the Association of Litigation Funders (ALF), funders are specifically prevented from influencing proceedings. There is a perception that funders will be influential in running the litigation process, but that s not the case in my experience, confirms Laurence Lieberman of Taylor Wessing. We have worked with several funders and the strategy, procedure and every aspect of the litigation process has always been firmly driven by me and my team. Why have you not approached third-party litigation funders or brokers in the past 12 months? (In-house counsel & corporate executives) Rank the top three challenges, with one being the most significant challenge We were concerned about losing control of the case 21% 25% 21% 67% We thought the terms would be too expensive 8% 21% 13% 42% We thought the potential quantum of damages was too small for third-party litigation funding 21% 13% 4% 38% We were concerned that bringing in a third-party funder would add complexity to the litigation process 4% 13% 21% 38% We didn t understand how third-party litigation funding would work in practice 17% 13% 4% 34% We were concerned that litigation funding would complicate settlement 8% 17% 25% We were concerned that a third party would undermine client-lawyer confidentiality privileges 4% 8% 4% 16% We thought it would take too long to secure litigation funding 4% We thought litigation funders would consider the case too risky and therefore unfundable We thought it would be too difficult to pair litigation funding with litigation insurance 4% 4% 8% 4% 8% 8% / UK litigation and arbitration funding barometer - Issue #1

13 Misconception 2: Litigation funding is prohibitively expensive An expectation that litigation financing would be too expensive was the second most frequently cited reason by corporates for not approaching funders: 42% of surveyed in-house counsel and corporate executives cited concerns that terms would be too expensive as being one of their top three reasons for not approaching funders. In the event of a successful outcome, litigation funding typically costs between 20% and 40% of total damages awarded. However, in the event of an unsuccessful outcome, litigation funding costs nothing. Litigation funding is deemed to be very expensive, confirms Nick Rowles- Davies of Burford Capital. You can understand why it looks expensive, but the reality is that if we don t win, we lose everything. It is a non-recourse investment, not a loan. So it is bound to be more expensive because the client only pays us if they win the case, at which point they get paid too. It is expensive if you look at it compared to a commercial lending rate, but it is not expensive if you compare it to other forms of speciality finance. Have you heard of and/or used the following types of third party litigation financial or insurance products? (Private practice lawyers) After the event (ATE) insurance Disbursement funding 14% Security for costs bonds 15% 43% 75% Work-in-progress funding 11% 63% 61% 82% We have heard of this type of litigation financing We have used this type of litigation financing in at least one of our cases during the past 12 months Misconception 3: Litigation financing is a one-size-fits-all solution Our survey data also reveal a serious lack of understanding about the range and sophistication of litigation financing products and structures that are available. Indeed, although nearly every surveyed private practice litigation lawyer was aware of the most basic form of litigation funding - in which the costs of a case are covered by a funder in return for a percentage of the damages in the event of a successful outcome - a significant proportion were unfamiliar with other forms of litigation funding. For example, 25% had not heard of disbursement funding, 37% were not aware of security-for-cost bonds and 39% did not know about work-in-progress financing. These more niche litigation financing products are explained below. In the UK the greatest misconception is that the only product being offered is a structure where 100% of the cost of the case is arranged in advance and then the funder receives a percentage of the damages, explains Christopher Bogart of Burford Capital. The reality is quite different. Litigation financing products are just as flexible as any other financing product. People have to stop thinking about this as just a way of not paying your lawyers and start thinking about it as a way of financing litigation assets. UK litigation and arbitration funding barometer - Issue #1 / 11

14 There is a perception that funders will be influential in running the litigation process, but that s not the case in my experience. We have worked with several funders and the strategy, procedure and every aspect of the litigation process has always been firmly driven by me and my team. Laurence Lieberman Partner, Taylor Wessing After the event (ATE) insurance: This is an insurance policy taken out to protect against the risk of having to pay the opponent s legal costs in the event of an unsuccessful outcome. Since insurers will typically only provide cover if they assess the case has a 60%+ chance of success, claimants will often reveal to the opposition that they have insurance in place to demonstrate that the merits of the case have been validated by a third party. Disbursement funding: This type of litigation finance enables clients or law firms to pay for disbursements on existing or new matters, individually or within a portfolio of cases. Disbursement funding can be used to fund a variety of expenses, including expert fees and court fees. Disbursement funding is often used by law firms with significant disbursement costs to ease their cash flow. This enables firms to put their cash to better use, take on more cases and employ the best experts rather than just the ones they can afford. Security for costs bond: Litigation funders can provide a guarantee in response to a security for costs application. This product is particularly useful for corporates engaged in insolvency proceedings when faced with an application for security of costs - an application made by the defendant to demonstrate the claimant has sufficient funds to pay the defendant s costs if required. Importantly, ATE insurance does not adequately provide security for costs as it can be avoided and subject to cancellation. Work in progress (WIP) funding: This type of financing involves the provision of capital to law firms that is secured against a portfolio of conditional fee agreement (CFA) or damages based agreement (DBA) cases. WIP funding can unlock cash tied up in WIP cases, allowing law firms to pay ongoing expenses. This financing structure effectively acts as an advance on fees. It is particularly attractive to firms undertaking a large number of CFAs or DBAs. 12 / UK litigation and arbitration funding barometer - Issue #1

15 What is front of mind when selecting funders? Pricing is essential Unsurprisingly, pricing and the terms offered by funders is the most important factor for corporates when evaluating which funder to work with: some 44% of survey respondents cited pricing and terms as their most important factor when selecting a litigation funder, more than double the proportion citing any other factor. Which of the following factors are typically most important to your clients when selecting their litigation funding partner? Rank the top three challenges, with one being the most significant challenge Pricing / Terms Reputation of funder Speed of decision making process Financial stability of funder Track record of funder (case win ratio) Ability of the funder to offer additional services such as ATE insurance 5% Transparency of funder Other 10% 12% 10% 7% 22% Membership of the Association of Litigation Funders (ALF) 6% 12% 7% 7% 10% 7% 5% % 15% 24% 12% 20% 17% 20% 19% 22% 15% 44% 49% 20% 12% 76% 59% This focus on price suggests litigation funding is considered a commodity. But this view is mistaken given the wide range of litigation funding structures available, not to mention the differences in funders themselves. Clients and their lawyers need to diligence a range of issues around funders, including capital availability, transparency, history of reliability and scale. Moreover, as Nick Rowles-Davies of Burford Capital explains, funding is relatively evenly priced by different funders. Clients will always try to negotiate on price but realistically, unless it is an unusual situation or the structuring is very different, the large funders are generally going to be in a similar ball park for the same risk. There may be peaks and troughs depending on value ranges of settlement, but in reality most funders are not far apart from each other and the non-price factors are what are increasingly driving sophisticated client decisions. Also, looking only at price and not at structure forces clients to the lowest common denominator and deprives them of what can be significant advantages by using bespoke structures. Speed is crucial Speed was on average ranked as the third most important factor by survey respondents when evaluating selecting their funder. On average, interviewees stated it takes around six weeks between providing a funder with all relevant documentation and receiving a decision in principle. This excludes UK litigation and arbitration funding barometer - Issue #1 / 13

16 informal discussions between funders and firms before documents are actually submitted. As Gavin Foggo of Fox Williams explains, speed is important because clients are often faced with tight deadlines. Very often we need an answer fairly quickly, so we are often in a situation where we can t afford to wait two or three months he said. However, firms considering litigation funding should be aware that some term sheets are only indicative and are subject to change pending further due diligence. Burford offers term sheets that are real term sheets based on actual due diligence, explains Nick Rowles-Davies of Burford Capital. No other funder does their due diligence before they put a term sheet out. So while we take a little bit longer to start with, overall we are quicker. Financial security and transparency are important The financial stability of funders and transparency with respect to how they are funded and operate also has a bearing on whether they are appointed: over 40% of surveyed private practice lawyers stated that financial stability is amongst their three most important considerations when selecting a funder. These concerns are not unfounded. In February 2014 litigation funder Argentum Capital was delisted from the Channel Islands Securities Exchange. Four months later litigation fund Centaur Litigation was put into receivership following the discovery of financial irregularities. If I have an agreement with a funder I want to know that the money is there to meet the liability. A lot of the arrangements relating to where the money is coming from and how it is going to be funded can be very opaque and that is a little bit disconcerting. Steven Mash Partner, Fladgate It is a concern when smaller funders do not have their own balance sheet and have to get approval from their own funders, explains Steven Mash, Partner at Fladgate. If I have an agreement with a funder I want to know that the money is there to meet the liability. A lot of the arrangements relating to where the money is coming from and how it is going to be funded can be very opaque and that is a little bit disconcerting. ALF membership provides some comfort Our survey data indicates that membership of the Association of Litigation Funders (ALF) does not have much bearing on whether a funder is approached: only 6% of surveyed private practice lawyers stated that ALF membership is one of their three most important factors considered when selecting a litigation funding partner, making it the least important factor. However, many law firms interviewed for this research indicated that ALF membership still has an impact. The first funder we spoke with was not a member of ALF, which was of some concern, explains Daniel Lowen, Partner at Couchmans. We ended up working with a member of ALF, which was a significant factor for both us and our client. We look at things like capital adequacy and control of the case strategy and take comfort from the fact that funders that are members of ALF will satisfy certain minimum requirements and abide by the principles enshrined in the ALF Code of Conduct. 14 / UK litigation and arbitration funding barometer - Issue #1

17 Only certain funders can provide more complex litigation financing structures Although not covered in the survey, a more fundamental factor determining which funder is approached is whether the financial structure of the funder enables it to provide more complex litigation funding structures. For example, certain funders are structured in a similar way to private equity funds, where capital has been raised from investors on the basis of a very rigid investment memorandum with a defined fund lifecycle. These funds are often only able to provide the most basic form of litigation funding, in which the funder funds an individual case in return for a percentage of the damages if a case is successful. As Christopher Bogart of Burford Capital explains, funders not structured in this way benefit from being able to offer a much wider array of litigation financing structures. Some firms such as ours have permanent capital from our shareholders so we can make our own decisions about Did you use a broker to arrange your third-party litigation funding? 83% No 17% Yes how we deploy that capital, he said. This enables us to offer a variety of products. For example, we financed a listed UK company a few years back but did not finance its litigation. The company had a large arbitration and didn t necessarily need help paying their lawyer s fees. What they needed was money that came faster than the result of the arbitration to grow their business. Traditional lenders would not invest because they couldn t evaluate the arbitration risk. We made a loan to them and were repaid following the arbitration. We could do that but some funds could not as it would not be in their investment mandate. Brokers are rarely used to arrange litigation funding Our survey data indicates that brokers are not currently widely used to arrange litigation funding: 83% of surveyed in-house counsel and corporate executives that used litigation funding in 2014 did not engage a broker. Survey respondents frequently stated that they did not see the need to use a broker because they already knew who was active in the market. UK litigation and arbitration funding barometer - Issue #1 / 15

18 Conclusion There is a clear discrepancy between the level of awareness of litigation financing and its use. Around six out of ten surveyed in-house counsel and corporate C-level executives of corporates that pursued litigation in 2014 are aware of third-party litigation financing. However, only a much smaller proportion (22%) have seriously considered using this type of funding and an even smaller proportion (9%) actually used it in Part of this discrepancy is due to a series of misconceptions about litigation financing. The most frequently cited reason for not approaching litigation funders was due to fears about losing control of the case. This should not be a concern. Every single surveyed UK corporate that secured litigation financing in 2014 stated they retained complete control of proceedings. Another common misconception is that litigation financing is only used by corporates unable to afford litigation without it. In actual fact, over a third of surveyed corporates that used litigation funding in 2014 did so for strategic reasons rather than financial necessity. The main misconception that is hindering wider adoption of litigation financing is its flexibility. Whilst there is a broad understanding about the most basic form of litigation financing, a significantly smaller proportion of litigation lawyers and in-house counsel understand how structures such as disbursement-only funding, security for costs bonds, work-in-progress funding and portfolio financing work. There is also a lack of understanding about how litigation can be used as a financeable asset that underpins securing financing unrelated to the litigation itself. We hope this report has achieved its objective in building awareness and understanding of litigation financing (and dispelling some of the misconceptions about its use). If you have any questions about litigation funding please contact any of the management team at Burford Capital listed at the end of this report. Burford Capital is the world s largest provider of investment capital and risk solutions for litigation, with the largest and most experienced team in the industry. Burford is publically traded on the London Stock Exchange s AIM market under the ticker symbol BUR. Burford provides a broad range of corporate finance and insurance solutions to lawyers and clients engaged in significant litigation and arbitration around the world. For more information, visit burfordcapital.com or contact: NICK ROWLES-DAVIES Managing Director Burford Capital E: nrowlesdavies@burfordcapital.com 16 / UK litigation and arbitration funding barometer - Issue #1

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20 burfordcapital.com