Lawyer Monthly - February 2022

22 WWW.LAWYER-MONTHLY.COM | FEB 2022 HOW CAN LITIGATION FUNDING LEVEL THE PLAYING FIELD FOR JUSTICE? when it comes to the case selection process itself, potentially funding higher-risk claims or claims that might take longer than usual to resolve, such as cases in international jurisdictions, as long as the transaction pricing is attractive to platform investors. Many lawyers, often considered to be a relatively cautious group, have been slow to embrace litigation funding and in particular a platform funding approach. This is not without justification; litigation often revolves around sensitive and privileged information. Platform funders need to ensure that investors sign NDAs and confirm that they are not conflicted in a way that could prejudice the claimant. Also, while investor demand for litigation assets on platforms is typically very strong, there is a degree of uncertainty regarding whether the funding will be successfully sourced and how long it will take. Some platforms have addressed this by putting backstop underwriting capital in place, much as an investment bank will sometimes underwrite a company IPO. Funding a case via a platform or otherwise has another dimension. While the details of the case are typically kept confidential, for some cases it may be appropriate to use the funding process to apply reputational pressure on the defendant. Clearly the platform model has an advantage in this respect. Funders today can profitably fund smaller cases by taking advantage of the latest digital collaboration tools and the trend towards decentralised working that accelerated during the COVID-19 pandemic. Evidencing this, at one point last year our own small team was collaborating very effectively while distributed in the UK, Spain, and Greece. In addition, traditional litigation funders typically restrict their activities to funding legal costs only. New funders are often able to provide funding for a more flexible use – for example, preliminary or seed funding to claimants (e.g. to obtain a legal opinion), providing working capital and/or to reimburse previously incurred costs. In the longer run, it seems inevitable that the blockchain and NFTs (Non-Fungible Tokens) will grow rapidly, with litigation funding a clear use case. Law coin and Liti Capital are examples of two companies focused on this. We also expect litigation funding to evolve into more of a stock market model, whereby law firms with meritorious cases can structure them with external assistance, into an investable security – in effect IPOing the litigation funding opportunity. This can be done on a single-case basis or in a portfolio format. The result will be a larger pool of available capital. Summary Despite the benefits, we are in the early innings for the sector and litigation funders are still not perceived positively in many countries. In France, for example, litigation funders are seen as greedy capitalists. In Ireland and many US states, litigation funding is perceived as a perversion of the legal system. This stems from behaviour in medieval times where feudal lords would fund many frivolous cases to upset a rival. Nevertheless, litigation funding is likely to become more conventional as the market continues to grow and develop. In countries where the litigation funding market is more developed, an increasing number of market players and competition between them results in more competitive pricing for claimants. In the very long run, just as a police force can boost law and order, the presence of funding capital will make deeppocketed defendants think twice before acting in a way that leads to litigation, which is clearly a positive outcome for society in general. Cormac Leech has focused on the alternative finance space for the past seven years. He was closely involved in raising over $2 billion for direct lending funds as a founder and director of the Liberum Alternative Finance, and also incubating several fintech startups. He has also been a senior consultant to private equity groups including VPC after spending a number of years in strategy consulting at McKinsey. Diana Pupkevic has previously completed internships at ING and British Business Bank supporting the organisation’s strategy in reducing regional imbalances in SME access to finance. Diana holds an MA in Comparative Business Economics from University College London and a First-Class Honours degree (BA) in Business Economics from University of Greenwich. She is also fluent in both Russian and Lithuanian, and has volunteered for a year at XLP, a mentoring project working with young people in disadvantaged communities in London. AxiaFunder is a UK-based litigation funding platform which offers investors direct access to pre-vetted commercial litigation investment opportunities that it expects to offer attractive risk-adjusted returns. Similarly, claimants with meritorious claims can access capital through the AxiaFunder platform, enabling their cases to progress.

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