The Third-Party Litigation Funding (TPLF) industry is growing, and the reasons for this growth are manifold and intertwined.
- The more regulations, the more awareness of the practice. More people are learning about TPLF and its potential, from law firms to investors and financial experts, and the potential of the practice is being discovered.
- Companies are realizing that TPLF helps them with liquidity and budget problems, optimizing their own resources.
- The Covid-19 pandemic has increased litigation, at national and cross-border levels. And more litigation means more opportunities for the TPLF industry.
Here are 5 industry trends for 2022.
1. The Regulations:
There is greater concern between policymakers around the impact of the TPLF industry. During 2021, many jurisdictions have regulated the industry or express intention to regulate it , for better or worse. Singapore has broadened the list of proceedings that can be subject to litigation finance. On its part, the Federal Government of Australia released the Corporations Amendment (Improving Outcomes for Litigation Funding Participants) Bill 2021 proposing important changes to Australia’s class action regime. Among others, the bill grants the courts the power to regulate the fees that funders can charge in class action claims and establishes a presumption that a return below 70% for the claimants is not fair.
The New York State Legislature is also analyzing a bill to regulate litigation funding, focusing on fees charged by funders and the control over the claim.
In the same line, the European Parliamentary Research Service published a study on Responsible Private Funding of Litigation. This study was later supplemented by a draft report prepared by the European Parliament’s Committee on Legal Affairs in June 2021. Both studies are mandatory for proposals made by the European Parliament, and contain certain recommendations to regulate litigation funding, also relating to fees, control, conflicts of interests and confidentiality.
Although regulation is usually welcomed to bring transparency into the equation, there are concerns that over-regulation could affect the industry, including access to justice for the claimants.
It is expected that 2022 will bring more regulatory developments.
2. New areas to explore:
Certain types of litigation have risen due to the Covid-19 pandemic, such as breaches of contract, employer responsibility and supply-chain related claims. As legal experts have pointed out, these could be expensive and complex cases, and thus good candidates for funding.
3. Class Actions and the Public Good:
The rise of antitrust cases will bring an increase in TPLF dedicated to them. Class actions are on the rise, especially in the EU, thanks to new legislation like the EU Directive 2020/1828.
The fact that TPLF could help clash actions access justice shows that legal funding is not just a lucrative business, it’s also a win for society. Legal funding can help fighting corruption by promoting access to justice to clash actions litigators.
Moreover, funders are increasingly investing in environmental, social justice and governance litigation (ESG), and some have started projects that promote social justice cases.
4. A step beyond portfolio finance:
Portfolio finance is already a reality, and during 2022 will be consolidated. Portfolio finance allows to diversify the risk over a number of cases: if a case is lost, the second one could be won, and/or the third. Although it’s not easy to access this type of funding due to its complexity (there needs to be balance among the cases and they all need to be well structured), it’s worth trying it as it brings the cost of the finance down.
In addition to this, there will be a new tendency: to make related claims more efficient to bring by joining similar cases. We can join a series of corporate clients to make their claim efficient and worth bringing.
Policymakers are concerned that this could increase “frivolous claims”, but the industry is and will be cherry-picking when it comes to investment decisions, and a frivolous claim means funding a claim without strong merits, which would be like investing in a company that you know won’t succeed.
5. Best friends
Law firms and funders are mutually tending to establish long-term relationships. These partnerships are already a reality in the US and the UK. Deals between them allow the firms to offer flexible fee arrangements to clients and a streamline due diligence process on the cases, without risking the firm’s budget. At the same time, policymakers are concerned that these arrangements could impact client-attorney relationships, creating potential conflicts of interests.
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