Jörn Eschment is a Vice President of Burford Capital and a key member of Burford’s underwriting and investing team focused on Europe, the UK and Asia-Pacific.
In May you moderated a panel at the 6th Annual GAR Live Frankfurt focused on dispelling myths surrounding legal finance, and in September you will be speaking about the “unusual suspects” of legal finance at this year’s German Arbitration Institute’s (DIS) Autumn Conference. In your experience, what is the most persistent misconception about legal finance among German lawyers—and how do you address it?
GAR and DIS conference participants—and arbitration lawyers more widely—tend to be relatively well-informed about legal finance and some of the products on offer, but still aren’t aware of the full potential of what legal finance can do for law firms and their clients.
Most lawyers in Germany, Switzerland and Austria still perceive legal finance as something to be considered only in individual cases involving cash-constrained claimants. That is hardly surprising in a market where, for the last 20 or so years, funders predominantly focused on precisely such matters. I think it is fair to say that Burford’s 2015 decision to commit €30 million to fund claims pursued by global claimants’ law firm Hausfeld out of its newly opened Berlin office had a truly disruptive effect on the traditional funding market in Germany. It was also a terrific example of how Burford works with firms and businesses to help them innovate and grow.
Burford, of course, is not the only provider of commercial legal finance, and we weren’t the first. But we are, without question, the largest. And as the leading global finance and professional services firm focused on law, Burford can do much more than simple litigation funding: We can finance entire portfolios of claims, purchase claims, monetize the value of unpaid awards and judgments, help corporates (blue chip or Mittelstand) take litigation costs off the balance sheet and support law firms in using legal finance as a marketing and new business tool. We also have an entire team committed to tracing and recovering assets to help clients unlock the often great, albeit contingent, value of unsatisfied awards and judgments. More recently, Burford launched its own ATE insurance company to address adverse costs risk in high-value commercial litigation and arbitration globally.
Having practiced arbitration in Hong Kong and Switzerland, what is the most discernible difference between European and Asian arbitrations?
Europe may lay claim to the first formal international arbitration (heard in Geneva in 1872), but over the past two decades, Asia has given rise to a number of high-profile institutions, including ones in Hong Kong, Singapore, China and Mumbai. While the institutions bear many similarities (for instance, Singapore and Hong Kong joined many Western arbitral centers in having endorsed legal finance for arbitration in 2017 and 2019, respectively), nevertheless, some distinctive features of arbitration in Asia remain.
One of the most intriguing differences is that the two central, most developed arbitration hubs of the region, Hong Kong and Singapore, are both common law jurisdictions, while the surrounding economic powerhouses, like mainland China, South Korea or Japan, have a civil law tradition. This has, somewhat unusually, resulted in many common law practitioners working out of Hong Kong or Singapore in arbitration matters involving parties from civil law countries. While this amalgam has created interesting career opportunities for arbitration lawyers with a civil law background (including myself), the jury is still out on whether (international) parties to an arbitration will always get what they expect.
Legal finance has been widely accepted in Germany, Switzerland and Austria since the 1990s. How does legal finance differ in the DACH region compared to other jurisdictions?
Legal finance in the DACH region was initially created to bridge the gap between credit facilities provided by banks (usually not without securities) on the one hand, and (leaving aside some limited exceptions) the general inadmissibility of conditional fee arrangements in the DACH region on the other. Because commercial litigation financiers do not—and are not allowed to—provide legal services, statutory limitations on funding a claim on a non-recourse basis in return for a share of the proceeds do not apply to them. Since the industry’s inception in the region, the DACH legal community has generally welcomed litigation finance, and today it is widely accepted and firmly established. In fact, following a Supreme Court ruling in 2014, Swiss lawyers are obliged to inform their clients about the availability of legal finance, if circumstances require it.
Legal finance in the DACH region has come a long way in the last 20 years, but the classic assumption of a legal finance scenario continues to be as follows: Client X is in extreme financial difficulty but has a meritorious case that it would bring if only it had the means. In practice, while Burford does provide financing in situations where there is some economic asymmetry between parties or distress on the part of a party, that is increasingly the exception, not the norm. Indeed, we more often provide legal finance facilities to Global 100 law firms and blue-chip companies that—far from being in distress—recognize that shifting risk and cost to a third party can make a positive difference to their cash flow and profitability.
How do you expect the German market for legal finance to develop in coming years?
While law firms will continue to be our best ambassadors in identifying new candidates for investment, we expect to see increased demand from corporates directly, in the DACH region and globally. Legal departments today clearly face multiple daunting challenges—including rising volumes and complexity of legal work and pressure to reduce costs. To manage these challenges and become (even) more commercially-minded, companies increasingly will utilize legal finance to create certainty around litigation costs and pursue affirmative recoveries without adding expense or risk to corporate balance sheets.
Unsurprisingly, we see an increasing number of law firms reaching out to us on behalf of their top-tier clients, or even potential clients, who are pushing back on hourly rates, looking to find a solution and develop a portfolio or some other arrangement around that relationship. In addition, DACH law firms are increasingly deploying legal finance solutions proactively as a business development tool with existing and potential clients.
More generally, I see enormous potential in the DACH market. In the arbitration space, for instance, we see increasing interest in ATE insurance and award monetizations where we can advance a significant portion of a client’s ultimate award, making funds immediately available for business needs. Of course, there is also significant potential for legal finance in state courts, particularly in antitrust and securities litigation, claw-back claims in major insolvencies, or indeed mass actions. Germany’s thriving legal tech scene has a number of remarkable ideas, some of which, from a financier’s perspective, could make a real difference in scaling and handling future mass litigation and perhaps, in the not too distant future, even a European class action.
What distinguishes Burford from other legal finance providers operating in continental Europe?
Besides having greater capital availability than all of our global competitors, Burford has a true depth of multijurisdictional experience and a track record of offering novel legal finance products in contexts that extend well beyond what other legal finance providers have traditionally offered. This institutional knowledge and track record—in addition to the experience our team has working on disputes in continental Europe (in the roles of funder, solicitor, barrister, Rechtsanwalt)—means Burford is well-positioned to develop innovative financing solutions to address the individual challenges of continental law firms and companies with which we work. We bring our global experience to bear in both our financial and legal analysis. This makes a real difference when we work with global corporate clients and firms who need creative legal financing solutions that reflect the multijurisdictional scope of their business operations.
On a more practical note, unlike most of our competitors, we tend not to ask for exclusivity when we are conducting due diligence. Other funders might normally impose such requirement because of their capital structure. For instance, many funders are structured as limited partnership investment funds, and they might ask for exclusivity in order to ensure that they are protected when raising capital from their limited partners (which can take a number of months). Because Burford is a publicly listed company with its own balance sheet, we are able to conduct our due diligence on a non-exclusive basis without the need to raise funds from others. Our approach offers advantages to the funded party, who might otherwise find themselves facing very different terms at the conclusion of the exclusivity period (once due diligence is completed) to those offered at the very beginning of the process.
Top 5… misconceptions about Germans
- The Autobahn is some sort of mythical strip of highway with no speed limits at all. Alas, total freedom only exists on certain Autobahn strips, and the limits can change abruptly—so keep an eye out for speed signs or you’ll get blitzed (only by a camera of course).
- Germans eat nothing but Wurst and Sauerkraut. Yes, but only after breakfast, and we also eat a lot of bread and potatoes. Traditional recipes are so laced with lard and pork that vegetarians shouldn’t even bother trying to find something to eat, but modern German cuisine has lightened up significantly—and thankfully there is always la cucina Italiana.
- Germans are straight-laced and orderly. Anyone who’s ever been in line at a ski lift knows that’s not true—and has the elbow marks to prove it.
- Germans wear Dirndl and Lederhosen. All. The. Time. Sure, Bavarians wear those things occasionally, but that’s Bavaria… but even my Bavarian friends don’t frolic across fields with flowers in their hair and a beer in each hand.
- Arnold Schwarzenegger is German. NEIN—he’s Austrian, and so is his accent. Fun fact: The Governator’s cousin is a law professor at Zurich University and one of the examiners for the Swiss Bar.