One of the most noteworthy recent developments in the litigation arena has been the rise of litigation funding. Litigation funding is well-established in Australia and Canada, and it is becoming increasingly important elsewhere. Among the largest litigation funding firms is Burford Capital, which is a publicly traded company with offices in London and New York and whose securities trade on the London Stock Exchange. The company’s most recent interim financial results can be found here. Christopher Bogart, who previously was EVP and General Counsel of Time Warner and whose background includes a stint at the Cravath law firm, is the company’s CEO. In the following post, Chris answers my questions about litigation funding and about his firm. My questions appear in italics, followed by Chris’s answers in plain text. I would like to thank Chris for his willingness to participate in this Q&A.
Third-party litigation is relatively recent phenomenon in the United States but it has quickly become a very important part of the litigation environment. Why has litigation funding recently taken off so significantly and why has it so quickly become to important?
The simple answer is that clients have been seeking alternatives to the tyranny of the billable hour for a long time, but they have been slow to arrive. It has been 15 years since I was the general counsel of Time Warner, and even then we were looking for solutions to manage legal cost. Since then, we have seen both continued increases in the cost of litigating, and in the amount of litigation companies both face and need to bring. If you’re running a company, you need to spend your capital on things that are relevant to your business mission, not diverting that capital to lawyers. Litigation finance is nothing more than the natural evolution of businesses seeking alternatives to paying legal fees by the hour – just as they have financial alternatives for photocopiers and truck fleets.
There is an inherent suspicion among corporate counsel that litigation finance will result in more litigation being brought against them, and that this is some sort of extension of the plaintiffs’ bar. That view is misplaced. The bulk of our business is for corporate counsel who are facing internal challenges around legal fee spending, and in any event the worst choice when running a litigation finance firm is to invest in litigation that doesn’t have clear merit.
There has been a lot of publicity recently about changing approaches to litigation funding, with some firms focusing on portfolio-wide rather than individual case investing, while others have focused on financing law firm expansion or diversification financing. What do you see as the best opportunity ahead for your firm and why?
Burford is the world leader in litigation finance, publicly traded on the London Stock Exchange and well past the billion dollar mark. So, we do it all – single case finance, portfolio finance and law firm finance.
The reason there is an explosion in portfolio finance is simple: cost. Every litigator knows that each individual case carries a material risk of loss; that is just the nature of litigation. So, single case finance is inherently expensive because the capital provided need to be priced to overcome that risk of single case loss. Portfolio finance, on the other hand, spreads that risk across multiple cases and drives down the cost of capital.
However, there will always be a market for all kinds of litigation finance. While corporate clients and law firms may elect to drive down the cost of capital by using portfolio financing, there is also a robust need for single case finance – whether for insolvencies or other structural imperatives.
As I am sure you are well aware, there are critics who decry the rise of litigation funding, who contend that the litigation financing is fomenting litigation or creating undesirable litigation dynamics. What do you say to those who have criticized the rise of litigation financing?
Critics of litigation funding tend to be critics of litigation proliferation generally, and their criticism tends to be emotional rather than rational. Burford is composed largely of defense lawyers from large firms; we are meeting corporate demand, not creating it. Many of us are frustrated that no meaningful tort reform has occurred – and the US Chamber of Commerce has spent many millions of dollars failing to achieve tort reform. Faced with that failure, the Chamber is striking out against anything that seems to justify its continued (but failed) existence. As a former supporter of the Chamber, I am disappointed in its intellectual dishonesty, but I guess that is what American special interest politics has become. The simple reality is that if we “foment” weak litigation, we will lose money and go out of business.
Beyond the litigation funding critics, there are those who say that litigation funding should be regulated in some way. For example, some have called for requirements for the involvement of litigation funding to be disclosed and judicially approved. What do you think about the calls for this type of litigation funding regulation?
Well, why? Our clients are generally large corporates and their law firms. Our role is no different than any other capital provider. We don’t become the clients nor take over their cases, and thus we are no different than any other capital provider to corporates – banks, insurers, private equity or hedge funds …
The reason we have disclosure rules is to allow judges to test for conflicts. That is a deliberately limited testing exercise. If we want to expand the testing judges do, that’s fine, but it needs to happen across the board, not on some artificially limited basis. For example, if we want courts to test for conflicts based on economic interests in litigation outcomes as opposed to the current test of equity ownership, fine, but that expansion needs to be egalitarian, sweeping in not only litigation finance providers but also other interested parties.
Many of the high profile collective investor actions that recently have been filed outside the Unites States have been guided by litigation funding firms. Why do you think this is happening and what do you see as the opportunity for these kinds of collective investor actions outside the United States?
This is a trend that began in Australia – which permits litigation funding but not contingency fees – and spread to the UK. This is nothing but economics – if there is not a robust contingency fee bar as there is in the US, there needs to be a substitute. At the end of the day, there are both efficient and abusive class actions, and the goal is to effectuate the former while avoiding the latter. No one wants meritless actions, but there are also actions where appropriate redress is most efficient when provided in a collective manner.
What types of cases (as in, securities cases, competition or antitrust cases, product liability cases, and so) is your firm most interested in and why?
We have no preference as to the kind of matters we finance. We work with corporate clients and their lawyers to support the matters they wish to pursue, which span the gamut from contract to antitrust to fraud matters. Our only criteria are that matters be meritorious and of sufficient size to support our financing.
The litigation funding industry in the U.S. has grown very quickly. Where do you see the industry heading in the future and what do you see as the best opportunities?
Capital providers can’t create growth on their own. Instead, client demand fuels growth. And there is enormous demand for solutions to the dilemma of paying law firms on a current cash basis. Virtually every company, large or small, wants different options, and we provide them – having now provided more than a billion dollars of capital to companies from the top of the Fortune 500 and down from there. So, Burford flourishes by meeting its clients’ demands. We started life more than a decade ago by financing Latham & Watkins’ arbitration matters when clients wanted solutions that the firm was not willing to provide, and we have built on that foundation ever since.