Burford CEO and co-founder Christopher P. Bogart assesses the post-Covid legal finance landscape and finds indicators of continued growth and transformation in litigation and the business of law.
While the pandemic remains a more than two-year-old reality of life and business, we in the commercial legal finance industry are now in a “post-Covid” phase. Given that, it feels appropriate to take stock and assess the state of the industry. As I explore below, three salient trends in legal finance are incremental increases in cases moving forward, continued growth in demand and increased use by corporates and law firms.
First, what do I mean by “post-Covid”? Certainly not that it’s over or behind us. But I’m reminded of Winston Churchill’s comments in the aftermath of a decisive 1942 battle that he called the “end of the beginning” of World War II—a way of acknowledging that while real challenges still lay ahead, the conditions for meaningful progress were in place. The prevalence of vaccines to prevent death or serious illness from Covid (with a total of 11.9 billion vaccine doses administered globally as I write1) has certainly been an important part of this progress, fueling an imperfect but generally happy trend toward the removal of the restrictions that in the first phases of Covid impacted legal finance—although in our case certainly not in the same way as in other industries.
Legal finance differs from other industries in a few important ways. Because commercial disputes are litigated regardless of market ups and downs or other economic conditions, legal finance is uncorrelated to the larger economy. While, for example, an economic downturn would be expected to impact the automotive sector by limiting consumers’ ability and urgency to buy new cars, commercial litigation and arbitration occur and need financing regardless of any downturn. Indeed, negative economic conditions may actually fuel commercial litigation and arbitration by contributing to the pressures and behaviors that lead inexorably to conflict between businesses and make those businesses even more eager to find ways of managing costs.
“Negative economic conditions may actually fuel commercial litigation and arbitration by contributing to the pressures and behaviors that lead inexorably to conflict between businesses and make those businesses even more eager to find ways of managing costs.”
Conversely, legal finance has been correlated to Covid: The wave of early Covid restrictions on in-person court proceedings noticeably impacted an already slow court system, delaying the progress of many commercial claims, funded and not. Thankfully for the legal finance sector and its clients, the impact was a matter of timing, not loss: Unlike restaurant meals or airplane tickets that weren’t bought during Covid and never will be, commercial claims delayed by Covid will be litigated in due course. Certainly, the delay can be frustrating for clients and funders alike: Given the non-recourse nature of legal finance capital, legal finance providers do not get paid until their clients are paid at the conclusion of a successful trial or settlement, and delays in payment relating to delays in adjudication have created pressures for smaller and less well capitalized funders. As the world’s largest provider of commercial legal finance, Burford Capital is amply capitalized and equipped to weather these timing challenges, and as frustrating as past delays have been, our experience shows us that the pandemic has not impacted the substance of any of the cases we have funded. In 2021, for example, we saw almost no losses, and no client gave up its claims or stopped prosecuting a matter.
This in turn reinforces another reason why the business of commercial legal finance has been correlated to the Covid economy, but more positively from our perspective: The conditions that slow court and settlement processes exacerbate many of the conditions that make our capital so useful to our clients. For corporate legal departments as well as law firms that are willing to work on a contingent basis, the duration risk of commercial disputes—that is, the time-is-money calculation that clients make when they spend tens of millions to pursue matters that may take years to get to trial or settlement—has significantly increased as a result of Covid, and that makes our legal finance, where we are partly able to mitigate delay, all the more attractive to them.
Given all these factors, three salient trends in legal finance are incremental increases in cases moving through settlement and trial, continued growth in demand and increased use by corporates.
#1: Cases are moving forward again, slowly
A nascent but obviously welcome trend is the fact that commercial cases are moving forward again, albeit slowly and with a lot of catching up to do following the significant interruptions posed by Covid and, more recently, the Omicron variant.
With the advent of Covid in early 2020, courts shut down in-person proceedings (and especially jury trials) for long periods, creating an enormous backlog of matters that was especially acute in already clogged courts, especially in the US. As courts returned to in-person proceedings, criminal trials took precedence over civil matters. Even after progress began to be made, the Omicron variant resulted in still more delays.
Nonetheless, commercial cases are moving forward again—not full steam ahead as before Covid, but more so than at any time since the pandemic, and with the benefit of lessons learned from virtual proceedings that could prove a long-term benefit.
A statement by the chief judge of New York state, Janet DiFiore, is exemplary: “Encouraging news as we resume full-scale operations in all of our courts and get back to scheduling a full and normal complement of jury trials and other in-person hearings and proceedings…. Experience has shown that as we schedule more trials… our dockets begin to flow and the backlogs that have built up over the course of the pandemic begin to clear away.”2
Anecdotally, there is reason to believe that commercial disputes are moving forward, slowly. Lawyers I speak to who last year complained of trials that were scheduled, delayed and rescheduled multiple times are now reporting that their scheduled court dates and hearings are sticking. An executive at a leading expert witness firm whose business went largely silent during Covid because trials weren’t happening recently reported that business is booming. Law firm leaders have been quoted expressing similar confidence. “We’ve already had a number of trials this year, and we believe that the catch-up is going to occur this year and next year for sure in litigation. And that’s assuming we don’t have anything that gets in the way from the virus,” said Tom Fitzgerald, chair of Winston & Strawn.3 “We have pent-up demand, but also lots of new filings and trials on the calendar, in addition to the pent-up demand from COVID,” said Madeleine McDonough, chair of Shook, Hardy & Bacon. “I would say by the fourth quarter of 2021, we were back on track. And it’s only been going more and more since then.”4
Some aspects of remote work may prove permanent and create welcome efficiencies in the future. As John Quinn, founder and chairman of global litigation firm Quinn Emanuel, told me recently, “We’ve learned some things in the judicial system and in the practice of litigation that we can’t unlearn. A deposition can be done remotely and very efficiently. You can share an exhibit up on screen and call the witness’s attention to the very page you want the witness to read…. Once you’ve learned that you don’t have to get on airplanes and travel across the country—not even for a daylong deposition—it’s hard to unlearn that. This is bringing about permanent changes.”5
#2: Continued growth
As noted above, Covid has augmented the pressures that make using legal finance capital such an efficient alternative both to using working capital to pursue claims and to waiting to access cash tied up in judgments and awards. In the post-Covid phase that we are in now, companies and the firms that represent them face a confluence of near-term inflation, potential recession and the need to preserve and enhance working capital, both to invest in growth and compete for talent. Shifting cost and risk to an outside legal finance provider instead of using working capital to pay for lawyers out of pocket is a very sensible alternative.
These factors translate to the continued growth of legal finance, a trend that has been in place for some time but that is especially evident in the post-Covid phase that we are in now. As one indicator, analysis of the annual Global Arbitration Review report on the “GAR 30” leading arbitration law firms reveals continued year-on-year increases in 2021 in the number of these firms reporting use of legal finance to fund significant client matters, a trend that has been evident since GAR began asking these firms about funding four years ago.6 Growth is also reflected in a recent survey by Bloomberg in which nearly one third (32%) of lawyers report that they are more likely to seek litigation financing now; nearly one quarter (23%) are more likely to do so than one year ago, and nearly seven in ten (69%) are more likely to do so than five years ago.7
And as yet another example, demand for Burford’s capital continues to grow. In 2021, Burford committed $1.1 billion to new matters for companies and law firms, increasing our portfolio to over $5 billion.
#3: Increased use of legal finance by corporate legal departments
Building on this trend, it’s notable that corporate legal teams are increasingly using commercial legal finance, as this reflects its continued normalization as a routine business tool and points to still more potential growth in the future.
Research and data bear this out. According to the GC of a multinational logistics company, “Fifteen years ago, if someone asked about funding litigation it sounded radical, but now it is mainstream.”8 At Burford, as recently as 2018, corporates accounted for only 20% of commitments, but as of December 31, 2021, corporates account for more than half (56%) of commitments.
“Commercial cases are moving forward again—not full steam ahead as before Covid, but more so than at any time since the pandemic, and with the benefit of lessons learned from virtual proceedings that could prove a long-term benefit.”
It’s worth calling out why legal finance is so attractive to GCs, CFOs and other corporate leaders of often very large companies. The two most obvious reasons are that legal finance considerably reduces costs while simultaneously considerably increasing certainty around commercial litigation and arbitration. Cost management and certainty are always important—and elusive—in corporate legal departments, but especially now given the combination of short-term inflation and potential recession that businesses are facing. Because legal finance capital is nearly always non-recourse, companies can use it to shift the cost of winning a significant recovery—or an expensive loss—to a third party. As the litigation counsel of a multinational investment bank put it, legal finance “make[s] economic sense because you can remove negative downside and make the upside more predictable.”9
A significant legal finance growth area for corporates is the acceleration of expected damages tied up in a pending litigation or arbitration, or in an unenforced judgment or award, often called “monetization”. The concept is simple: Rather than waiting for a matter to resolve to be paid their expected damages, companies can work with a legal finance partner to obtain an advance of a portion of the expected value of a claim or an unenforced judgment. Companies can use that capital for any corporate purpose, including investment in the business or even paying for other meritorious litigation that otherwise might not be pursued. They also gain certainty around cash flows and outcomes: If the matter wins, they can expect a substantial share of the remaining damages, and if it loses, they keep any monies advanced, locking in a minimum outcome. In both scenarios, the company maintains control of its litigation—and considerably more control over its finances.
Summarizing how legal finance permits a more efficient use of company capital and resources, the assistant GC of litigation for a health insurance company argues that monetization “is appealing for accountants and the finance team, who can book it immediately rather than when a judge or arbitrator issues a decision. The certainty is appealing, but so is the risk-sharing. The time value of money is inherent in any litigation matter.”10
What’s ahead for legal finance
The legal finance industry—and every industry—will be grappling with the impact of Covid for years to come. Some of the effects have been tragic, some potentially transformative in ways that are still unfolding. But arguably, this post-Covid era is reinforcing the real value of what we do. Any business thrives insofar as it benefits clients where they are now, and at a time when certainty and cost management are valued more than ever, the growth of legal finance in the post-Covid era makes sense. Law firms and clients have become more sophisticated and more commercially minded since the last recession, and they will likely be all the more so as clients grasp for predictability in the current climate.11
Christopher P. Bogart is Chief Executive Officer, a director and a co-founder of Burford, which under his leadership has become the largest provider of legal finance in the world. Top ranked by Chambers, he was formerly Executive Vice President and General Counsel of Time Warner Inc. and a senior litigator at Cravath, Swaine & Moore.
[1] World Health Organization Coronavirus (COVID-19) Dashboard data as of June 6, 2022, available at https://covid19.who.int/.
[2] NY State Unified Court System, “Message from Chief Judge Janet DiFiore,” February 28, 2022, https://nycourts.gov/whatsnew/pdf/Feb28-CJ-Message2022.pdf.
[3] Andrew Maloney, “Big Law Betting on a Litigation Resurgence in 2022 and into 2023,” The American Lawyer, March 25, 2022, https://www.law.com/americanlawyer/2022/03/25/big-law-betting-on-a-litigation-resurgence-in-2022-and-into-2023/.
[4] Ibid.
[5] “Innovation in the business of law: John B. Quinn speaks with Christopher P. Bogart,” Burford Quarterly 2: 2022, https://www.burfordcapital.com/burford-quarterly/2022-issue-2/john-quinn-christopher-bogart-discuss-innovation-in-law/.
[6] “The GAR 30,” Global Arbitration Review, April 30, 2022, https://globalarbitrationreview.com/survey/gar-100/2022/article/the-gar-30-2022.
[7] Bloomberg Law, “2021 Litigation Finance Survey,” https://aboutblaw.com/0hh.
[8] Burford Capital, 2022 Affirmative Recovery Programs Report, https://www.burfordcapital.com/insights/insights-container/2022-affirmative-recovery-programs-report/.
[9] Ibid.
[10] Ibid.
[11] Andrew Maloney, “Is Big Law Ready for a Recession?”, The American Lawyer, May 31, 2022, https://www.law.com/americanlawyer/2022/05/31/is-big-law-ready-for-a-recession/#:~:text=After%20two%20years%20of%20stunning,rates%2C%20inflation%20and%20geopolitical%20tensions.