Legal finance in Australia is neither new nor novel, but it has evolved beyond its historical use in class actions and insolvency proceedings. Now, as the industry’s offerings diversify, large corporations, both domestic and foreign-based, increasingly inquire about legal finance for their high value commercial disputes.
Burford works closely with these companies and their preferred law firms to assist with Australian litigation in state and federal courts as well as international arbitration cases throughout Asia Pacific. Below, we take five minutes to discuss how legal finance is used in Australia and its growth among corporate clients.
Australian companies are increasingly interested in legal finance for litigation and arbitration
Given the disruption of the last 18+ months, it’s no surprise that Australian companies are hesitant to deploy capital for litigation and arbitration, especially for large and complex legal disputes. The feeling is widespread. Globally, companies are more risk averse and capital-conscious especially when it comes to legal disputes. In turn, corporations are keen to leverage legal finance and to better understand the available options.
- Fees and expenses financing: Capital is used to pay case-related fees and expenses
- Portfolio finance: Gathers multiple matters across a single funding vehicle either to fund legal costs associated with the underlying matters or for operating capital
- Monetisation: Advances a portion of the potential award, removing downside risk and accelerating cash flow
- Asset recovery: Provides top-level global judgment enforcement—particularly useful to Australian clients with large arbitral awards or judgments requiring overseas enforcement
By leveraging the appropriate financing solution, Australian companies can avoid leaving value on the table and join a growing number of companies across the globe seeking out legal finance to reduce the risks and costs associated with complex litigation, international commercial arbitration and investment treaty arbitration.
Australian companies have an opportunity to add more value by recognising claims as assets
According to the 2021 Legal Asset Report, Australian financial officers report having extensive recovery and cost management programs, and yet they also report the highest dollar amount of unpursued judgments due to the impact of associated legal expenses on the bottom line compared to their peers in the US and UK—indicating an opportunity for Australian companies to generate more value through their legal departments.
The value of these unpursued judgments, claims and awards is significant—75% of financial officers at companies with more than $1 billion in revenue had unenforced judgments worth $20-$100 million in 2020. Neglecting enforcement due to concern about budget impact deprives corporate legal departments of generating capital that can offset defence litigation.
For companies engaged in arbitration, duration risk should be top-of mind. Arbitration cases can take years to resolve. The average time between registration filing and award issuance was 4.47 years according to 2019-2020 ICSID & UNCITRAL data and does not include the time required to enforce the awards issued. In some cases, claimants wait up to a decade to reap the rewards that they were issued in an arbitration proceeding—that’s years of income that a business could have used to invest and expand.
By partnering with an outside legal finance provider, companies with commercial litigation and arbitration claims can utilise cost- and risk-shifting tools to pursue and enforce claims without impacting their bottom line.
Australia’s recent regulatory changes have no impact on corporate claims pursued by a company in Australia
Burford’s business in APAC focuses on large commercial disputes for corporate clients. While not affected by the recent regulatory efforts, which concern the funding of class actions in Australia, we recently made a submission on whether the proposed caps on funders and law firm fees will benefit group members in Australian class actions.
The carve out for corporate claims reflects a policy decision which has been made in other jurisdictions, like Singapore and Hong Kong, to allow corporates to have access to certain forms of legal finance. Unlike, Singapore and Hong Kong, Australia does not limit funding to insolvency and/or international arbitration matters.
Legal finance adds value beyond capital
Large companies increasingly recognise legal finance partners as a source of expertise to supplement existing internal and external legal teams. As a partner, Burford brings a commercial and forensic view to issues most likely to move the needle in any given complex commercial dispute.
Expertise that is exceptionally useful for companies considering or engaged in complex international commercial arbitration and investment treaty arbitration cases. These cases in particular touch multiple jurisdictions and require thorough assessment of underlying merits, damages theory, counsel capacity and expertise, counterparty and enforceability.
Having received and reviewed over 10,000 requests for funding, Burford has the distinct advantage of learning from thousands of matters each year, resulting in unmatched expertise for assessing and quantifying commercial disputes.