2018 was an exciting year for legal finance—and for Burford. Among other achievements, we launched The Equity Project, a new initiative to help close the gender pay gap in law; opened a new office in Sydney; were recognized by FT for our innovative financing of a start-up’s defense litigation; launched a new insurance offering; and announced continued growth.
As we anticipate where the legal finance industry is headed in 2019, we draw on our most recent Litigation Finance Survey, a global study that encompasses the views of 495 in-house and law firm lawyers who participated in an online survey, as well as 38 lawyers from 10 countries who participated in extensive one-on-one interviews. Below, we share key insights to help our readers anticipate how legal finance will change in the coming year.
Litigation finance will continue to spur law firm growth and innovation
An overwhelming majority (76% of online respondents) see legal finance as a new business tool for law firms—and we anticipate law firms further embracing outside financing as a way to gain a competitive edge in 2019.
Legal finance enables law firms to take more cases on risk and to offer creative fee-structure arrangements to clients, something clients find extremely attractive. By providing lawyers with new ways to attract and maintain clients, legal finance can help a firm expand its portfolio.
Law firm lawyers are also increasingly motivated to help their clients learn about legal finance and to engage with providers directly when appropriate. A clear majority of all respondents (59%) said that decisions to use financing should be a collaboration between client and counsel. One lawyer commented: “If a large corporation learned more about litigation finance and accepted funding, it would make it easier for us to bring cases.” By introducing new financing solutions to their clients, lawyers can further their client relationships and prove themselves to be forward-thinking and creative.
Although reported use and understanding of litigation finance has steadily increased since we released the results of our first survey of the legal finance industry in 2012, there is still considerable room for growth, especially at historically conservative law firms. Although partners surveyed cautioned that it may take longer for the use of litigation finance to become routine at their firms, they agreed that with an internal dialogue fueled by firms like Burford, even these global behemoths will eventually catch up.
Corporate legal teams will increasingly use litigation finance as a risk management tool
Compared to their law firm counterparts, in-house legal teams are somewhat behind the curve when it comes to litigation finance: Just five percent of in-house interviewees reported that their companies had previously used litigation finance. This poor rate of adoption among corporates largely can be attributed to a lack of understanding about how litigation finance works.
The research suggests that, as understanding of legal finance increases, so will use—especially given the role it can play as a risk management tool. “Its potential as a cost and risk management tool [is appealing] because it is a way of hedging risk,” said one in-house lawyer. Another added: “It is a way of shifting costs, bringing expertise, and increasing the probability of a return.” In-house lawyers we interviewed expressed particular interest in using legal finance to pursue potential claims without using balance sheet dollars and without risking earnings. Indeed, 75% of in-house respondents perceive litigation finance as a cost and risk management tool for the legal department.
Ultimately, there is a general agreement among in-house lawyers that legal finance is virtually the same as any other financing tool, insofar as it serves as a risk management tool and as one that enables legal departments to bring more cases and create economic value for the business.
Increased use of litigation finance will drive innovation in the legal market
Another key finding from the survey was that respondents are generally optimistic that the presence of litigation finance can help drive lawyers towards innovation.
One general counsel predicted that the growth of litigation finance will lead to more effective fee arrangements: “Anything that makes the legal fee structure more creative and further away from the billable hour is good in my judgment.” An AmLaw 100 law firm partner concurred: “[Legal finance] is probably going to change the way in which litigators will charge for their services; they will provide more options and so we all need to be more innovative.”
Further adoption of litigation finance will require law firms and their clients to overcome barriers to change. It appears, however that a rising number of legal professionals are recognizing that the legal world must adapt in order to stay in line with modern business expectations. One general counsel went as far as to characterize it as a key responsibility to consider legal finance’s application. “If I had a need, I would have an obligation to my shareholders and my board to explore any opportunity to pursue a meritorious recovery for the company.”
If the Litigation Finance Survey is any indication, the legal landscape will continue to shift. In 2019, we anticipate use of litigation finance to become even more commonplace as awareness grows, particularly among in-house legal teams. We also expect litigation finance to drive law firm modernization and innovation as lawyers increasingly use it as a tool to compete for new business.