Litigation funding: Competing Interests
The Law Society Gazette examines the changing landscape for litigation funding in the UK, including proposed reforms to the competition collective actions regime and their potential impact on funders, law firms and access to justice.
Hausfeld Senior Partner Anthony Maton shares his views on the proposed reforms and the evolving litigation funding landscape, including the importance of distinguishing between different parts of the market when considering future regulation.
Anthony observes that there are effectively two funding markets: a sophisticated market, largely supporting high-value commercial litigation and arbitration, and a separate market supporting high-volume mass consumer claims, which has received increased attention recently.
Anthony highlights that it is important not to use a one-ticket approach for the whole funding market when considering regulation, and stresses that nuance is needed. With access to justice having had a rough ride in the last few years, the last thing it needs is for third-party funding to disappear.
The article also considers the Department for Business and Trade’s proposals to reform the Competition Appeal Tribunal collective actions regime. These include earlier consideration of funder returns, changes to the assessment of claims at certification and, significantly, removing the current restriction on damages-based agreements (DBAs).
He also points to the prospect of litigation finance attracting a broader range of capital. With structures such as DBAs and insurance-backed investment, funding could increasingly come from more traditional investment sources rather than predominantly from hedge funds.
Anthony notes, referring to the current £500m damages threshold:
‘This is something we’ve advocated for and are very keen on... it could really shake up the market, and allow smaller and more interesting claims to be brought.’
‘Instead of this £500m threshold we’ve got at the moment, you’re suddenly in a world where you can bring a £100m, or £150m, or £200m claim. That has to be a good thing for the regime – and we won’t be dependent on funders fronting them up all the time. Law firms will have more of their own volition about what they can do.’
For funders, Anthony sees both opportunities and increased competition:
‘There’s definitely yin and yang for funders. It should open up more opportunities for them, in the sense that law firms can do DBAs and so do a wider range of cases, and will require funded money at least in some instances, so there should be more opportunity. Because suddenly law firms can actually front up the investment risk, rather than only the funder, and they’re able to do it in a way that puts competition on the pricing.’
‘Under a DBA arrangement with a law firm, you have much more chance of attracting non-hedge-fund money into structures to invest, making it cheaper… you open that market up to a different type of money.’
