“Another year over, and a new one just begun,” as the song goes.
- But what tune will litigation finance dance to in 2024?
- What counterpoints will emerge?
- What trends will shape its future?
Following on from our review of 2023 it’s time to set our sights on the future and review what will be moving and shaking the litigation finance sector over the next 365 days.
Trend 1: Technology
The use of lawtech incorporating technology like AI and machine learning will continue to see legal finance become an even more attractive option for investors and make available the funds needed to bring cases for more people.
The key benefits will include:
- Enhanced decision-making through data-driven insights
- Improved efficiency through an accelerated case assessment process
- Better informed decision-making on risk mitigation
- An expanded market with funding more widely available
New technology, however, requires new skills and new roles.
Thomson Reuters’ 2023 State of the UK Legal Market report recently noted that 43 of the top 50 law firms now have a Chief Technology Officer in place – and we expect this position to become increasingly essential for all firms servicing the legal profession of all sizes.
Commenting on this, the report states:
“More law firms are becoming aware of the benefits AI can provide in boosting efficiency and adding value for clients. The technology can analyse vast amounts of legal information, streamline the document review and due diligence process, and automate routine and repetitive tasks. Through machine learning algorithms, AI can also analyse historical case data, identify patterns and predict case outcomes.”
But as AI develops, it will also bring some element of risk to law firms, alongside the improved risk mitigation it can provide.
The reputational damage caused by data hacks will need careful management by a dedicated CTO. The litigation finance industry handles sensitive and confidential information. Failing to protect this data can have legal repercussions.
Litigation firms must embrace best practices to protect their clients and themselves as they undergo digital transformation and adopt data-based machine learning.
Under the guiding hand of a CTO, firms must adopt robust encryption and stringent access controls, as well as perform regular, thorough audits to identify potential vulnerabilities.
Read more about how lawtech is being used in the litigation funding industry.
Trend 2: Environmental, social, and governance (ESG)
One effect of AI will be to bring more and more small-value cases – namely, those brought by ordinary people, often against those with much deeper pockets – into the pool that litigation funding serves.
And we expect funders with ESG goals to come increasingly to the fore.
Until fairly recently, third-party litigation funding has been an asset class largely reserved for high-net-worth funders backing large-sum cases for high-risk and high-reward investments.
Our use of lawtech at VWM Capital makes litigation financing available to a high number of claimants in low-sum cases. That means we can fund cases with a social impact – such as housing disrepair or undisclosed commission selling – that offer relatively low-risk investment opportunities.
Litigation funding will increasingly be seen as a force for social good.
It will enable many more individuals with limited financial resources to pursue justice without the fear of legal expenses dropping down like the proverbial ton of bricks.
Learn how litigation funding is making a positive social impact through making more housing disrepair claims possible.
Trend 3: Financial transparency and ethics
Alongside a clear need for litigation funders to maintain a passive role in legal proceedings, we will also see the need for greater financial transparency in the year ahead.
Speaking in a wide-ranging interview with The Recorder, Breandan Dyer, the funding director of Law Finance Group (LFG), one of America’s oldest and most prestigious litigation financing firms, continued to circle back to questions of ethics and transparency.
“Reputable commercial funders like LFG remain passive in disputes in which they have invested. The claimant retains complete control over all decision-making, as per the terms of the engagement with litigation counsel. As and when requested, a funder can offer its expertise and act as a sounding board, but ultimate strategic decisions rest with the claimant.”
Part of this one-step-removed approach, of course, relies on transparency in funding arrangements, both to the courts and to the client.
Such transparency will be seen as the cornerstone of trust in the litigation funding industry. By providing a clear view of the terms, fees, and repayment structures, clients can make informed decisions about legal financing and assess the terms and conditions with a complete understanding of the potential impact on their finances.
And with such clarity, litigation financing will build respect, foster trust and continue to gain momentum.
Trend 4: UK trends
While the repercussions of the PACCAR ruling will continue to muddy the waters in 2024, the main trend in the UK will not be the potential challenges that litigation financing faces.
Instead, the dominant trend will be the resilience and strength of the UK legal sector – and its ability to overcome such domestic obstacles and compete internationally.
As 2023 drew to a close, the Law Society published its evidence-based International Data Insights report.
It found that the value of the UK’s legal service exports continues to grow and gain market share.
Forecasting strong growth, the report found that the sector created a trade surplus of £5.3 billion, compared to £4.6 billion the year before. The United States accounted for £2 billion of this figure, and the EU collectively represented a further £2.15 billion.
Its institutions, meanwhile, are respected across the globe. The London Commercial Court is the leading centre for commercial litigation, and the London Court of International Arbitration (LCIA) is leading the way for global arbitration.
Less of a surprise, but still welcome news, is that the London Maritime Arbitrators Association handles the vast majority of global maritime disputes. These are, of course, almost always governed by English law.
Concluding its review, the Law Society emphatically stated that:
“English law is a vital asset to the UK’s economy. The UK is currently the second largest market for legal services globally.”
And this is a trend that looks set to continue in the coming years.
Trend 5: European trends
Across Europe, litigation funding is enabling and strengthening the number of class actions that are coming to court.
Global law firm CMS has, in its annual publication of the European Class Action Report 2023, recorded a doubling of class action cases – rising from 55 in 2018 to 121 in 2022.
Greater access to litigation funding is a key factor in this growth – and this was further supported in June this year by the provisions of the Representative Actions Directive (RAD).
The RAD obliges every member state to have in place a viable class action mechanism. While some member states failed to meet the June deadline – and others still have inconsistent provisions in place – it is clear that in future years the directive will encourage more class actions to be brought throughout Europe.
And these will be supported by what CMS refers to as Europe’s claimants and representatives having better opportunities to “harness the power of litigation funding”.
Trend 6: US trends
The Bloomberg Law 2024 series emphatically identified US litigation funding as being “buoyed by consistent demand for financing in key practice areas” and stated that it looks “set to continue its upward trajectory in 2024”.
This growth will be underpinned both by portfolio funding, as investors look to spread their risk, and by carefully targeted single-case funding, as confidence grows in the ability to predict outcomes.
In terms of the types of lawsuits that will attract funding, it pinpoints patent, antitrust, commercial litigation, and bankruptcy lawsuits as enduring areas.
It also forecasts that international litigation and cases related to environmental, social and governance (ESG) issues will see an increase in funding next year. In terms of ESG, litigation funders who responded to Bloomberg Law’s survey selected ESG the most often out of 12 areas of law that they’re interested in financing going forward.
Trend 7: Canadian trends
The emerging field of litigation finance is still fairly new to Canada, but it looks to be on a strong trajectory of growth.
Just as we have seen in the US, many former supreme court clerks are moving into litigation finance – helping to boost its credentials and build trust.
In a recent interview with Law 360, Naomi Loewith, director of strategic partnerships at litigation funding firm Omni Bridgeway, noted how half of her legal team are former supreme court clerks.
She went on to discuss the growing strength and acceptance of such funding in Canada, where a funder’s expertise is highly valued for providing “a sound second opinion of their case”.
“We’ve had really positive feedback from lawyers who say, I love being able to send my draft factum to a team of former supreme court clerks to give their opinions and it helped make the factum better.”
She confidently states that there will be more and more sophisticated companies opting for litigation finance, as risk is always a top concern for them.
In Canada, funders have been careful to get guidance from the courts, and there are now a number of test cases leading up to the supreme court to make sure that the legal community is increasingly comfortable with this practice.
Summing up the future for litigation funding in Canada, Naomi Loewith is far from alone in seeing massive potential for growth.
“The [Canadian legal] environment is comfortable with litigation funding. It’s attractive to companies operating in Canada that they can get this financing; the courts are comfortable with it and sophisticated lawyers know about it. It’s something that can ultimately help them and help their bottom line.”
Trend 8: Asian trends
Asia has, for many years now, been identified as a relatively untapped market for litigation funding, but it will remain a tricky region for international investors with many issues of accessibility persisting.
In a recent article for the China Business Law Journal, Mariana Zhong, partner at Hui Zhong Law Firm, provides an overview of positive signs and remaining barriers to entry in different Asian jurisdictions.
She notes that there is a definite trend among arbitration institutions to introduce clearer guidelines on the provision of third-party funding. These already include institutions in Singapore, China, and Hong Kong.
We forecast that wider acceptance and – most importantly – more consistency of the rules across the territory will be a feature of 2024.
2024 and beyond
In all key markets, we can see that litigation funding is pegged for growth.
Key driving factors include wider acceptance, the use of technology, and the rise of investors pursuing ESG goals.
Alongside this, the need for transparency and ethics can only strengthen its appeal among the courts, public, investors, claimants, and the legal profession.