The Rise of Global Litigation Funding
We are living in uncertain economic times and getting a meaningful return on investment is more difficult today than it was in the past. Therefore, out of necessity investors are exploring new avenues to get a return on their capital, and there is one particular asset class that is consistently drawing their attention – litigation. As per Reynolds Porter Chamberlain’s evaluation, £723 million was committed by funders to UK litigation in 2016, which is a staggering 25% increase from the preceding year.
Meanwhile, third-party funders are finding it simpler than ever to attract investors. In February 2017, Australian IMF Bentham launched a new $200-million vehicle to fund U.S. lawsuits, while the UK funder Calunius inaugurated a new £100-million fund in November 2016.
The History of Litigation Funding
After the dawn of the twentieth century, third-party litigation funding was prohibited by law as it was rooted in the primitive concepts of champerty and maintenance. Maintenance is the third-party backing of another parties litigation, whilst champerty is a form of maintenance whereby the third party supports the prosecution against a third party in exchange for a share of the proceeds. However, the law on the funding of civil litigation changed dramatically after the Second World War. The first appearance of legal aid in 1950 conceived a state-funded exception to the prohibition on litigation funding.
More exceptions came with the rise of trade union-funded litigation and eventually the Criminal Law Act 1967 repealed the crimes of maintenance and champerty. Although those principles still exist in the public policy concerning litigation funding, their range has much diminished, and they are applied only to admonish funders from exerting unnecessary control over the litigation that they fund.
Global Advancements in Litigation Funding
Today, the litigation funding industry is not only blooming in the traditional strongholds of the UK, U.S., and Australia but is also spreading its roots into new parts of the globe. Recently, in the context of global arbitration disputes, two financial juggernauts namely Singapore and Hong Kong have made bold moves to embrace the funding industry.
However, when it comes to the incredibly lucrative field of international arbitration, the battle to be the industry leader is shrewdly competitive with London, Geneva, Paris, Singapore, and Hong Kong all in the fray. Nonetheless, elbow to elbow, the Asian competitors are jockeying to make the legal reforms required to let parties in arbitration use third-party litigation funders.
Although Hong Kong was the first to initiate the process, Singapore eclipsed it to the post earlier this year. The relevant law came into force in Singapore on March 1, 2017, rich with regulations and a change to the lawyer’s’ professional rules. It means that parties to a global arbitration being heard in Singapore can now acquire funds from third-party litigation funders, in line with other major arbitration seats.
Furthermore, moves are already underway in Dubai, where the courts are consulting the public on the issue. Therefore, it is only a question of “when”, and not “if” the use of litigation funding is extended to other countries such as China, Korea, and Japan.