How much is the UK litigation finance industry worth?
The litigation finance industry has seen huge growth in the last few years. Third party litigation funding has become a far more common way of funding financial claims. It’s difficult to say for certain what the litigation finance industry is worth in the UK as attempts to quantify the size, presence and behaviour of the industry are impeded by the lack of transparency requirements. However, what is clear, is that the industry is growing and growing fast.
The litigation finance industry saw growth of companies in the UK, from global AUM of £180 m in 2009 to £1.5 bn in 2015, reflecting an incredible growth of 743%. Such substantial growth makes it clear that the litigation funding market in the UK has expanded substantially in recent years. Again, attempts to quantify the size of the industry accurately are somewhat hindered by the lack of transparency requirements.
Although the industry has seen huge growth in the UK in past years, with well over £1.5bn of capital estimated as currently available to litigation finance, this still only represents a very small proportion of the UK market for legal services. The total UK market for legal services is worth around £30bn, compared to the relatively small £1.5bn litigation funding industry.
Why the rapid growth?
There are many reasons for the recent growth in the litigation funding industry. Firstly, the shift in the legal and regulatory position, which commenced in the UK in the late 1960s. The Criminal Law Act abolished criminal and civil liability for champerty. This meant that third party funding of a claim became legal, and cases that would otherwise have been dropped due to lack of funding were able to be taken to trail.
Litigation funding can also be seen as a response to a growing need for finance by claimants. As the UK has seen a growth both in the numbers of cases and the cost of litigation, litigation finance seems a natural response.
For many, litigation funding is simply viewed as an expansion of the traditional contingency model. Long before litigation funding, lawyers have taken cases on a contingency basis, cases which have merit but would not otherwise get to trial. However, law firms increasingly don’t have the capital to provide the necessary funding or aren’t willing to take the risk.
For someone making a claim, litigation funding can be a way of reducing the financial risk associated with the claim. In the UK, the loser in a litigation case is liable for the costs of the other party. Insurance is often purchased to mitigate this risk – After the Event (ATE) Insurance. This insurance often comes with considerable premiums and can significantly increase the total cost of litigation. Litigation Funding is often used to pay for this insurance.
The growth of the litigation funding industry in the UK market has helped many claims reach court that otherwise couldn’t be funded. For investors, potential returns seem likely to remain high until the market becomes more mature.