Parties will continue seeking out accommodating arbitration venues—like the DACH region and Sweden—and increasingly expect innovative cost structures, paving the way for the growth of legal finance in these regions.
Given their history of efficiency, neutrality and flexibility, the DACH region (Germany, Austria, Switzerland) and Sweden are firmly established and preferred arbitration venues for both domestic and international matters. The volume and value of arbitrations reinforce this preference. In 2018, the German Arbitration Institute (DIS) reported 162 proceedings involving parties from 24 countries with the total value of disputes over $1 billion.1 In Sweden, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) reported that 152 cases were registered in 2018, involving parties from 43 countries with a total value of disputes over $14 billion.2
While arbitration remains desirable for its confidentiality, efficiency and finality, parties continue to face heavy burdens of risk and cost. As a result, parties will continue seeking out accommodating jurisdictions—like the DACH region and Sweden—and increasingly expect innovative cost structures, paving the way for the growth of legal finance in these regions.
Since the inception of legal finance in the DACH region 20 years ago, it generally has been welcomed, while in Sweden it remains a relatively new concept. Still, both markets have unrealized potential for increased use of legal finance, indicating that further education is needed.
Traditional DACH region shows signs of legal finance evolution
Germany, Austria and Switzerland were introduced to legal finance in the 1990s 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. Arbitration lawyers are thus relatively aware of the industry and some of the products offered, but most lawyers in the DACH region still have a limited understanding of legal finance. They often perceive legal finance as an option limited to cash-constrained claimants—meaning they have yet to unlock the full potential of what legal finance can do for law firms and their clients.
Legal finance in the DACH region has come a long way in the last 20 years. It continues to be used most frequently in situations where there is some economic asymmetry between parties, but there is reason to believe that this will increasingly become the exception, not the norm. That is because of the increased use of legal finance by Global 100 law firms and blue-chip companies that are far from being in distress; they recognize that shifting risk and cost to a third party can make a positive difference to their cash flow and profitability.
Sweden: An innovative arbitration seat with an untapped legal finance market
Thanks to its historical neutrality and modern arbitration practices, Sweden continues to be a preferred seat for arbitration. Sweden may be quicker than neighboring countries to realize the full power of legal finance given the innovative nature of the SCC and the country’s continuing efforts to be a preferred arbitration venue.
The revised Swedish Arbitration Act of March 2019 aimed to make Swedish arbitration more accessible to foreign parties. As SCC Secretary General Annette Magnusson stated, the new Act “ensures that Sweden maintains its role as a jurisdiction with a strong, modern legal framework for dispute resolution.”3 The added provisions emphasize efficiency and speed to facilitate attractive and effective arbitrations for both domestic and international arbitrations. As an innovative leader in arbitration, Sweden is well positioned to be an equally innovative user of legal finance.
Swedish law firms conducting commercial arbitrations can benefit from legal finance. Although the typical post-M&A value of claims and expenses of arbitrations seated in Sweden tends to be lower than in other European jurisdictions, Burford approaches pricing and deal structures to reflect clients’ individual needs and can tailor-make financing solutions for Swedish clients and firms, as we do everywhere we work.
Monetizing arbitration awards eliminates timing risk and secures cash for companies
While legal finance is a longstanding business practice in the DACH region, capital users rarely think of a legal finance provider at the end of an arbitration or post-settlement—a time when it can be most effective.
Burford has reviewed thousands of cases in its ten-year history, and one of the most common questions among in-house lawyers is: “Can you help us expedite our recovery?” This often arises at the end of the fiscal year when corporate clients are sitting on outstanding commercial judgments and awards and wish to accelerate cash flow to the business. By monetizing a judgment or award in part or in full, claimants can immediately secure the financial benefit without delay and without the risk or cost of enforcement. Monetization enables companies to turn “legal paper” into cash—a benefit that will surely be increasingly attractive as the post-COVID-19 downturn puts increased pressures on capital sources.
A positive outlook on legal finance in emerging and established markets
The 2018 Queen Mary/White & Case International Arbitration Survey confirms a steady and significant increase of both awareness and positive perceptions of legal finance: 97 percent of respondents said they were aware of outside funding in international arbitration and had a positive perception of it. Given this positive sentiment, it is safe to predict that the use of legal finance in both DACH and Sweden will only become more prevalent as they continue to be international hubs of arbitration. Its use will grow still more with further education about the full potential of legal finance.
As the leading global finance firm focused on law, Burford can provide law firms and their corporate clients in DACH and Sweden with much more than simple litigation funding: We can finance entire portfolios of claims, monetize claims and monetize the value of unpaid awards and judgments. We can 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 business development tool.
Christiane Deniger is a Vice President with responsibility for assessing and underwriting legal risk. Prior to joining Burford, Christiane was a Senior Case Assessor and Principal at Calunius Capital and a Senior Associate at Fried Frank. She is a contributing author to various publications on international arbitration and arbitration finance.
Jörn Eschment is a Vice President with responsibility for leading Burford’s investment arm in Germany, Austria and Switzerland. Prior to joining Burford, Jörn practiced international commercial arbitration and litigation as a Senior Associate at Schellenberg Wittmer in Zurich and Herbert Smith Freehills in Hong Kong. He currently serves as Switzerland Regional Ambassador for HK45 and is a contributing author to various publications on international arbitration and arbitration finance.
 “DIS Statistics.” German Arbitration Institute (2018). Available at: http://disarb.org/en/39/content/statistics-id79
 “SCC releases statistics for 2018.” Arbitration Institute of the Stockholm Chamber of Commerce (May 2018). Available at: http://sccinstitute.com/about-the-scc/news/2019/scc-releases-statistics-for-2018/
 “Revised Arbitration Act enters into force.” Arbitration Institute of the Stockholm Chamber of Commerce (March 2019) Available at: http://sccinstitute.com/about-the-scc/news/2019/revised-arbitration-act-enters-into-force/