Founders' message
Christopher Bogart & Jonathan Molot
While already pervasive, with Burford doing more than a billion dollars of new business in each of 2021 and 2022, legal finance had two breakout moments recently.
First, a segment of the top-rated non-sports primetime television program in the US, CBS’s 60 Minutes, introduced legal finance—and Burford—to almost 10 million live viewers in December and highlighted the benefits of what we do for businesses and the legal system generally.
Second, while legal finance transactions are often confidential, it was revealed that Sysco, the Fortune 100 food distributor, had taken more than $140 million in capital from us to monetize a series of its antitrust claims—a prototypical Burford transaction but rarely publicly visible. This shows the keen interest among businesses of all sizes in external capital solutions for arbitration and litigation assets.
“Burford’s integrity, professionalism and legal skill are second to none.
Barrister in a leading chamber, 2019
This feels like a tipping point: No matter their size, companies expect law firms and in-house legal teams to be ready with innovative legal financing solutions and ideas. Indeed, in 2022 interviews, nearly six in ten in-house lawyers said that their outside counsel had either talked to them about legal finance or that had they done so it would have aided their company’s success.2
This mainstreaming has been accelerating and will accelerate still more in 2023. Given that, as the industry leader with a global perspective based on the hundreds of billions of dollars’ worth of commercial disputes we review every year, we’d like to share our take on the trends that will matter most this year.
The courts will reach their fastest pace since before Covid
While it may take some time for courts to work through a sizable Covid backlog, in 2023 we’ll see the courts operating at their fastest pace since before the pandemic. To cite an example close to home, in Burford’s portfolio, in 2022 we had 11 matters go to trial or a merits hearing. By contrast, we entered 2023 with over 30 matters scheduled for trial or merits hearing this year, and many others in which some substantive litigation progress is expected to occur. We are already seeing positive outcomes in 2023, with a settlement in February, a trial win in February, an arbitration award in March and a successful appellate resolution in March. Beyond Burford, Lex Machina recorded 329 US federal civil cases that had ended in a trial in 2023 as of March 31. By contrast, for the same period of time in 2022, 180 cases ended at trial, and in all of 2019, 361 cases. Clearly, the system is not only back to normal but whittling down its Covid backlog.
Rising commercial disputes will create demand for risk-sharing
As the pace of adjudication picks up, we’re also seeing an increase in disputes driven by precarious economic conditions, inflation and higher interest rates.3 Bankruptcies long predicted following the pandemic are on the rise, and according to Bloomberg data as of January 30, 2023, large Chapter 11 filings are at their highest level since 2010. In 2023, we will likely see an increase in breach of contract disputes stemming from Covid, just as disputes stemming from the 2008 financial crisis surged in the 2010s. And financial stress very often uncovers and exacerbates fraudulent activity—as Warren Buffet famously said, “You only find out who is swimming naked when the tide goes out.”
As commercial disputes increase against a backdrop of economic uncertainty, companies and law firms will increasingly look for risk-sharing solutions to offset the impact of pursuing meritorious claims. And with the recent run on a handful of regional banks still in the headlines, companies will be on heightened alert to offload risk wherever and whenever they can.
Short-term pressures needn’t mean short-term thinking
Clearly, economic conditions are top of mind: 70% of CFOs are very concerned about the impact of macroeconomic conditions on their businesses,4 and inflation and anticipation of an economic downturn put pressure on companies and their legal teams to manage expenses and cashflows. Simultaneously, law firms face declining client demand for legal services and for lucrative dealwork.5 According to the 2023 Citi Hildebrandt Client Advisory, “firms are carrying high levels of unbilled time in their inventory, up 5.8%” in 2022.
But while there are urgent pressures to cut costs, companies and law firms can avoid making decisions that may reduce expenses in the short-term but negatively impact future earning potential and growth—for example, as some firms are already doing in cutting talent.
The positive trend we see is that companies and law firms are using legal finance as a hedge against short-term pressures. For corporate clients, an increasingly popular form of legal finance is monetization, in which a portion of the expected damages of an ongoing litigation or arbitration claim is accelerated on a non-recourse basis, as in the Sysco example discussed above. We also frequently fund the fees and expenses of companies’ affirmative recovery programs or individual high value claims to equip them with the means to be made whole without blowing legal budgets in the short term.
Law firms also increasingly consider legal finance as a hedge against short-term pressures, by providing the funding and flexibility to invest in practices that traditionally perform well in a down cycle rather than reactively cost-cutting, redeploying underutilized lawyers towards affirmative litigation (demand for which is likely to increase amidst economic instability). A portfolio-based capital facility allows law firms to represent clients with strong claims on a contingent or other alternative fee basis regardless of clients’ ability or willingness to pay hourly fees.
Entrepreneurialism from the plaintiffs’ bar will inspire innovation in Big Law
Another noteworthy trend is Big Law drawing inspiration from the entrepreneurialism of smaller firms, particularly litigation boutiques—and given the economic pressures in the business of law, this trend is likely to become more pronounced in 2023.
Large law firm profits took a hit in 2022—there were fewer mega deals, stronger demand for middle-market M&A, and more litigation work went to the AmLaw “second hundred”6 as clients sought lower rates for similar quality,7 creating economic incentives for shifts at the biggest firms.
Among the entrepreneurial examples borrowed from smaller firms, Big Law increasingly uses legal finance not just to bridge the gap with fee-fatigued clients but to initiate or expand practice areas where there is growth opportunity. Burford, for example, has received funding inquiries from 93 of the 100 largest US law firms by revenue and 89 of the 100 largest global law firms by revenue according to the 2022 rankings by The American Lawyer, as well as large regional firms and litigation boutiques.
Institutions affiliated with Big Law reflect this trend. Legal finance is being taught in law schools—normalizing the industry and along with it plaintiffs’ lawyers’ commercial best practices. Law schools in the US offering courses in legal finance include Harvard, the University of Pennsylvania, New York University, Vanderbilt University, Georgetown University, Boston University and UC San Francisco (Hastings). Students at Harvard Law formed the Harvard Plaintiffs’ Law Association in 2019—upending previously assumed default options for the most elite young lawyers.
As AI makes headlines, data-driven decision-making is needed in litigation and arbitration
ChatGPT gets the headlines, but the real story for lawyers is that there’s not enough data-driven corporate decision-making in litigation and arbitration.
Other areas of the business already routinely use data to model decisions about how to use the company’s resources and available capital: 53% of CFOs say they plan to accelerate digital transformation using data analytics, AI, automation and cloud solutions.8 While companies and law firms increasingly recognize the important role of data in modeling disputes,9 commercial disputes are often a data-based decision-making blind spot, largely because companies lack sufficient data and breadth of experience in-house to evaluate their litigation portfolios. As an assistant GC and director of litigation at a health insurance company put it, “We don’t have a portfolio of cases from which we can create metrics for application to future matters. Many of these cases tend to be their own little unicorns.”10 Even large litigation boutiques may lack robust data.
Burford continues to close this data gap for our funded clients. We have built a significant proprietary data set since our inception in 2009, and we use this data alongside third-party data to undertake quantitative modeling using our own proprietary analytical tools. Clients receive the benefit of our robust data sets on high stakes commercial disputes as well as our acumen and precision in modeling to help their companies better identify, prioritize and extract value from litigation and arbitration assets.
As companies become much more selective about spending, advanced scenario planning and modeling can inform strategic capital decisions—and the legal department should be no exception.11
The legal finance landscape will bifurcate
In recent years, it has become increasingly evident that very large companies are using legal finance at scale. In 2023, that trend will continue—and will in turn accelerate a tendency toward bifurcation in the marketplace, in which very large companies and law firms increasingly turn to large and established legal finance partners that have the scale and stature to provide service at the same level as those large companies’ other institutional-quality partners. Already, in-house lawyers are most likely to cite reputation and experience as the most important factors in choosing a legal finance partner.12
Burford has shown year after year that we are operating at an institutional-quality level, and that we have professionalized the business of legal finance. Since inception, we have generated more than $2 billion in cumulative realizations to Burford,13 and multiples more in recoveries to our clients. More than 90% of the concluded matters in which we have invested since inception have resulted in wins for our clients. We have the best-known brand in the space,14 and “professionalism” is the most frequent noun clients use to describe what it's like to work with us.15
It makes us proud to see Burford’s capital and expertise benefit our clients—and we look forward to the opportunity to work with you in 2023.
