The Brief.

Litigation funding insights & news

Issue 1 – February 2016

Inside This Issue

  1. Law firms see the Financial services sector and risk management as key drivers of growth in litigation funding in the UK
  2. Launch of Therium AHV Financial Markets
  3. Dispute funding goes mainstream, by Neil Purslow
  4. Keynote speaking engagements
  5. Press highlights
  6. In the spotlight: Q & A with Simon Cullingworth, Partner, Kobre & Kim LLP

What we’ve been doing

We are pleased to give you a brief update on our recent news and views on market developments in litigation funding.

2015 was an exciting year for Therium. In May we announced that we had raised £200 million privately to invest in large scale commercial and group litigation cases across the world. We believe that this is the largest single investment ever raised in the litigation funding industry globally, and is an indication of a market that is now attracting corporate investors drawn to returns that are not correlated with asset classes such as equities or real estate.

There is no doubt that the litigation funding market is becoming increasingly recognised for the value it brings, such as providing financial resources to enable litigation and arbitration to take place, on both an individual case and portfolio basis, and de-risking and monetising claims. Therium research of the experience of leading UK litigators with Just Costs Solicitors highlighted these points and the summary findings can be seen in the box out below.

Therium saw a step change in the level of funding activity in 2015, in both litigation and arbitration and particularly in our focus areas involving financial institutions, industrials, energy and natural resources. 2015 saw the total value of claims funded by Therium break the $5 billion mark with litigation and arbitration cases in the UK, Europe, Asia-Pacific and in the Americas, including high profile cases such as the shareholder group action against Lloyds Banking Group over the acquisition of HBOS at the peak of the financial crisis.

After the launch of our portfolio funding product with law firms at the end of 2014, we saw significant demand in the offering from lawyers interested in working on a partial contingent basis and we rolled this out across a number of leading firms with particular interest from the arbitration community.

We expanded our Investment Team with the appointments of Timothy Mayer and Nicholas Moore as Principals in October. Both Tim and Nick are highly experienced dispute resolution lawyers and are focused on sourcing and reviewing domestic and international litigation and arbitration funding opportunities.

In November we announced the launch of Therium AHV Financial Markets, a joint venture with AHV, a corporate finance advisory group. Therium AHV Financial Markets is the first business of its kind, focusing exclusively on complex financial products disputes. You won’t be surprised to learn that the team is already very busy.

2016 will be another year of big developments for Therium. It has already been a fast start and we have just moved to bigger offices at 77 Kingsway, London.

We very much look forward to keeping in touch with you.
You can follow us via our LinkedIn page.

1. Law firms see the Financial services sector and risk management as key drivers of growth in litigation funding in the UK

In Q4 we partnered with Just Costs Solicitors in a survey of 101 commercial litigation partners at the UK’s top 200 law firms about trends in UK litigation funding. The keynote findings of the research were:

  • 79% of partners saw a rise in new funded litigation cases over the last 12 months.
  • Funding was most prominent in cases involving Financial Services (26% of total ranked responses), followed by the Industrials (16%) and Energy and Natural Resources (14%).
  • The ability to meet costs (23% of total ranked responses), risk management (21%) and cash flow (18%) were highlighted as the most important benefits of third party funding for clients.
  • Nearly 70% of litigation partners are having more discussions with clients about alternative fee arrangements than in the previous 12 months, and three quarters (76%) are discussing funding as an option in all cases, following the Jackson reforms of 2013 and reflecting client demand to reduce cash investment in dispute resolution.
  • However, solicitors prefer being paid on a restricted basis, entering into a fixed (30% of total responses ranked by preference), or capped fee arrangement (23%), over risk sharing with clients through a Conditional Fee Arrangement (20%) or Damages Based Agreement (12%). The lack of interest in DBAs is largely due to how they are regulated and uncertainty regarding their enforceability.

We were very interested to see that lawyers closely rank as important aspects of funding the ability to meet costs, risk management and accounting benefits. From the perspective of big corporates, we are tending to see that while they are able to meet the costs of disputes in many cases, the key reasons they turn to third party funding is the ability to share risk with the funder and accounting benefits, such as not having to lock working capital into a lengthy litigation.

2. Launch of Therium AHV Financial Markets

In November, we announced Therium AHV Financial Markets, a joint venture with AHV, a financial markets and corporate finance advisory firm. Therium AHV Financial Markets will fund the full spectrum of global financial markets disputes, many of which are based on highly complex products and transactions. There has been a significant increase in such cases going to court in the last few years, and our new team is very busy.

AHV’s extensive experience and technical knowledge across markets and products coupled with Therium’s legal and litigation funding expertise makes Therium AHV financial Markets the first go to financial services focused litigation funder, delivering to corporate, institutional and private clients the most appropriate funding structure, best support, quick decisions and keen pricing.

Neil Purslow, Co-Founder and Chief Investment Officer of Therium, said: “We are delighted to be bringing Therium AHV Financial Markets to our clients and establishing the first third party funder which is dedicated to funding complex financial markets disputes, a sector in which AHV has considerable expertise. There is a significant opportunity for funding in this space and we are already working on a number of cases together.”

Hanif Virji, Co-Founder of AHV, said: “We are excited to be partnering with Therium, one of the most active and established third party funding firms in the market. We will be working on a global basis to provide markets and product focused advice and expertise to help create the right funding solutions for individuals and corporates.”

Hanif Virji is leading the venture at AHV, has over 25 years’ experience of working in the financial markets and is a leading practitioner in derivatives. His dispute resolution work at AHV provides comprehensive coverage of derivatives, including equities, interest rates, currencies, credit and emerging markets. Prior to founding AHV in 2001, Hanif spent more than a decade in investment banking, which included senior leadership roles in derivatives and innovative financial instruments at Crédit Agricole Indosuez, J.P. Morgan Securities, Lazard Brothers & Co., and Barclays de Zoette Wedd Securities.

3. Dispute funding goes mainstream

By Neil Purslow, Chief investment officer of Therium.
First published in The Lawyer’s Global Litigation Top 50, December 2015.

The number of legal disputes and the associated costs continue to escalate. The fall-out from the global financial crisis, not least through the sharpened teeth of more coordinated regulators, has played a major part in recent years and this will continue into 2016. Added to this, the global business environment is becoming more competitive and challenging, giving rise to a greater number of increasingly complex and expensive disputes. 25% of lawyers in Norton Rose Fulbright’s 2015 global litigation survey expect the overall number of disputes to rise next year. But at the same time, companies are under huge pressure to cut their legal costs and reduce the amount of cash they have tied up in lengthy litigation.

Major disputes can have enormous consequences for companies. Financial costs are not only substantial but difficult to predict and can often be far more than expected as cases run on. Companies can be left competitively disadvantaged as a result of being unable to deploy funds in areas that they should be investing in. Then there is the drain on senior management’s time absorbed in the dispute, to say nothing of potential reputational issues.

A solution to a number of these problems has been third party funding. The UK and US markets have developed rapidly in the last few years, with the UK benefiting of course from the Jackson boost in 2013. Funding has become mainstream. Our own research of UK litigation partners this year with Just Costs Solicitors showed that most UK litigation partners (79%) saw new funded cases in the last year, especially in financial services, industrials and energy and natural resources. And it may come as a surprise to some that three quarters of litigators said that funding is now a central part of their discussions with clients. Although most multinationals can meet the costs of disputes from free cash flow, funding removes or at least allows corporates to share the financial risk. With the funder shouldering the financial burden, the corporate can free up cash and remove that hit from its P&L and balance sheet, leaving EBITDA and other financial metrics unaffected.

Of course, third party funding can play a vital role by providing the means to pay for the dispute. Nearly a quarter of litigators (23%) said this was the most important function of third party funders, and interestingly, ability to pay was closely ranked with the risk transfer that funding brings.

Also, with a very different regime in the UK compared to the US, the cost of bringing large group actions can be prohibitive here and funding can and has made the difference between shareholders being able to seek redress through the courts and getting access to justice. Potential adverse costs can be high and insurance to cover these costs can make or break a potential claim, however meritorious.

High quality funders with a successful track record are able to source the appropriate ATE insurance at the right time during the case and provide cost management discipline to the overall process. Clients and litigators also value the ‘second pair of expert eyes’ that you get when using a third party funder.

So what can we expect going into 2016? More funded cases and London building on its popularity as a centre for dispute resolution. The investment in funding this year reflects the market’s momentum; London headquartered funders raised over half a billion sterling in 2015, including £200m by Therium, which we believe is the largest single investment in a litigation funder.

We expect to see more funded claims across continental Europe, particularly in Italy and Spain, with a rising number of arbitration cases in those jurisdictions, and in Hong Kong and Singapore, where attitudes towards funding are warming up. The energy industry will be a source of more disputes, driven in part by the impact of the low price of oil. In our own backyard, we are already seeing this played out with contractors and investors involved in the North Sea.

A similar dynamic can be seen in the mining sector in response to the collapse of commodity prices as Chinese demand contracts. Most significantly, there will much more action around defective and inappropriate financial products sold to individuals, corporations and financial institutions. The issues will continue to be manifold and complex requiring financial markets and products expertise in the early stages to give claimants the advantage. And last but not least, we are likely to see more competition claims following the introduction of The Consumer Rights Act this year.

Dispute funding is here to stay. It has shown its value in financing litigation for corporates and institutions and improving access to justice for smaller investors in David and Goliath cases. Given the size and importance of London as global financial centre, the establishment of the financial list will drive greater efficiency in the resolution of financial disputes. And as the world’s pre-eminent centre for the development of the rule-of-law, London deserves to be proud of the establishment and continuing innovation and growth of its funding industry.

4. Keynote speaking engagements

Therium is regularly invited to speak about litigation funding at law firms, barristers’ chambers and industry events. Do get in touch if you are interested in us speaking to your colleagues, or at one of your events.

Our speaking engagements in the last quarter included the following:

3 December, London.
Neil Purslow spoke at the International Bar Association’s “Third Party Funding and International Arbitration Conference” as a panellist on the roundtable, “It’s more than you think: the diversification of litigation finance related products.”

24-25 November, London.
Neil Purslow and Hanif Virji spoke at the C5 Financial Institutions Regulatory Disputes and Investigations conference on “Litigation strategies at the time of increased regulatory scrutiny” and led a masterclass on “De-risked strategies for recovering losses from defective and inappropriate financial products.”

9 November, New York.
Neil Purslow spoke at The 3 Stone Buildings Annual Global Litigation Conference entitled “Secrets and Lies, uncovering evidence in international Trusts and Commercial Litigation.”

5. Press Highlights

The media follows Therium’s news and views. Below is a selection of press highlights from 2015.

8 December.
CDR. Feature on Therium AHV Financial Markets, the appointments of Timothy Mayer and Nicholas Moore as Investment Team Principals, and our litigation funding research with Just Costs Solicitors.

23 November.
Financial News. Launch of Therium AHV Financial Markets.

23 November.
City AM. Timothy Mayer and Nicholas Moore appointed to Therium as Investment Team Principals.

14 October.
The Times Legal Briefing. Therium’s litigation funding research with Just Costs Solicitors.

24 July.
Investment & Pensions Europe. Therium funding a Lloyds group action against the bank over the takeover of HBOS.

5 May.
Financial Times. Therium raising £200 million for litigation funding.

6. In the spotlight

Q&A with Simon Cullingworth, a Solicitor and Partner in Kobre & Kim’s London office.

What top three trends do you expect to see in litigation in 2016 and why.

  1. The monetisation of large judgments and arbitral awards is becoming increasingly specialised and distinct from general disputes practices. I see an increasing demand for this area of legal and business services and it is becoming recognised as a unique and specialised practice area. Conventional efforts to collect on a judgment – identifying and executing on a debtor’s property – is increasingly ineffective in the face of sophisticated methods open to litigants to conceal, transfer and structure assets and commercial activities across multiple jurisdictions. Parallel to the continued growth of litigation funding, there is a growing market for buying and selling awards and judgments and for lending against them. A client holding a large judgment or award with substantial cross-border collection risk requires a highly-specialized and multi-disciplinary approach to monetising the asset; including advice in relation to asset investigations, cross-border enforcement litigation, risk-adjusted valuation and potentially brokering and transaction advisory services attendant to financing, or selling, a judgment or award.
  2. I also see a continuation of misrepresentation and miss-selling claims arising out of the global financial services space on the back of the increase in cooperation between regulatory bodies and the findings in relation to Libor, Eurobor and now Forex market manipulation. The insurance industry is also under greater regulatory scrutiny and that may lead to new civil claims in relation to premiums.
  3. The rule changes ushered in by the Consumer Rights Act 2015, which came into force in October 2015, should result in an increase in claims arising out of infringement of competition law (for example damages claims relating to cartels, anti-competitive agreements, or abuse of a dominant market position). They are bolstering the powers of the Competition Appeal Tribunal to streamline the litigation procedure before it and to grant injunctive relief.

What’s driving your clients’ interest in litigation funding?
While budget and investment/cash flow management has been the principal benefit clients have been seeking, I think we will see more vertical integration between funders, law firms and clients in 2016. I expect the development of effectively funder-owned law firms and law firms who are beginning to create their own funds to finance clients’ cases or portfolios of cases in new and different ways to continue. All this gives clients an increasing number of innovative options to both limit their exposure to litigation costs and increase their options once they have a successful result in Court.

What is your view of the new Financial List?
Accessing consistent effective justice in financial disputes is more demanding than ever before in the fast-moving, complex and cross-border business world and the financial List represents an exceptional new option that will make life easier for Solicitors, the Bar and clients. It builds on the strength of the English judiciary by matching the most complex, important and valuable financial disputes with the most specialized and best suited judges. Each case in the Financial List will be assigned to a specialist judge of the Chancery Division or the Commercial Court who has particular expertise, experience and training in relation to financial markets and the finance industry. Importantly, the designated judge will not just conduct the trial of an action; he or she will manage the case from cradle to grave, commencing with the first procedural hearing. This will ensure that the cases receive dedicated expert attention from the outset; it will also provide a consistency of approach between the procedural phases such as disclosure and the trial phase of the action. It can only continue to strengthen clients’ enthusiasm to ensure that dispute resolution clauses provide for English law and the English Courts as the forum.

What is the best book that you read in 2015 and why?
Anthony Powell’s ‘A Dance to the Music of Time’ – a twelve-volume cycle of novels. Best described (by another) as an often comic examination of movements and manners, power and passivity in English political, cultural and military life in the mid 20th century.