Litigation funding, over the years, has been established as an integral part of mainstream civil justice systems with a view to facilitating access to justice. Not only do litigation funders finance the cost of proceedings in exchange for a portion of the recovery, but they frequently function as coordinators amongst investor-claimants, provide access to legal resources, and (in some cases) underwrite the potentially significant risk of paying “adverse costs” (i.e., paying for the respondent’s legal bills in the event the claim is unsuccessful).

1. Influence | Connect | Inform
ICGN
Yearbook
2018

2. 24
“Litigation funding has the
potential to equalize the
bargaining power of litigants”
Oliver Gayner and Noah Wortman review the
origins and growth of modern litigation finance
LITIGATIONFUNDING:
EXTENDINGACCESS
TOJUSTICE
abuse of process or contrary to public
policy. With litigation funding now
legitimized and the use of class action
lawsuits on the rise, litigation finance
became a widely used service, akin
to a form of legal aid, albeit for profit
and provided by the private sector.
In 2017, more than 50% of the major
class actions filed in Australia were
funded by private litigation finance
companies; IMF Bentham alone has
funded over 130,000 claimants since
listing on the ASX in 2001.
Litigation finance spreads
across the globe
Litigation funding, over the years, has
been established as an integral part of
mainstream civil justice systems with
a view to facilitating access to justice.
Not only do litigation funders finance
the cost of proceedings in exchange
for a portion of the recovery, but they
frequently function as coordinators
amongst investor-claimants, provide
access to legal resources, and (in
some cases) underwrite the potentially
significant risk of paying “adverse
costs” (i.e., paying for the respondent’s
legal bills in the event the claim is
unsuccessful).
Litigation finance, in its modern
form, originated in Australia in the
mid-1990s following the enactment
of legislation permitting insolvency
practitioners to enter into contracts
to finance litigation characterized as
company property. In response to this
legislation, which recognized legal
claims as a corporate asset, litigation
funding companies began to spring up
to service this new niche market.
The rise of litigation funding in Australia
was also spurred on by the legalization
of class action lawsuits, which
were introduced into the Australian
legal landscape in 1992 as courts
recognized the need for an efficient
way to deal with group claims. Some
litigation funders began to enter the
class action arena, though many were
initially hesitant for fear that funding
arrangements that did not fall under the
specific permissions of the insolvency
statute would be struck down.
Those concerns were allayed in 2006
when the Australian High Court held
that third-party litigation funding
arrangements served a legitimate
purpose in lawsuits and were not an
While the approval of litigation
funding is now a truly international
phenomenon, the majority of financing
activity has been concentrated
in common law countries which
contend with high costs of litigation
that impede access to justice.
Litigation funding has the potential
to equalize the bargaining power of
litigants in the civil justice system
and provide new risk reallocation
products to corporations and
institutional investors.
In essence, third-party litigation
funding is a novel method of litigation
risk allocation and a way to bring
market forces to bear on the supply
of money used to finance legal claims.
This allows for an increase of access
to justice and lowers the direct, or
transactional, costs of litigation.
To give one example: according to
data compiled by Professor Vince
Morabito of Monash University, a
funded class action is 21% more likely
to settle than an unfunded class action

3. Oliver Gayner is an Investment Manager with the
international litigation funder IMF Bentham based in
Sydney. He is also the head of the company’s EMEA
office which covers the UK, Europe, Middle East and
Africa and provides capital and strategic services for
disputes including commercial, multiparty, insolvency,
international arbitration and enforcement.
the
25
ICGN | Yearbook 2018
“Institutional investors have
realized that third-party
funding of litigation and
arbitration can be a sensible
way of managing risk”
Noah Wortman is a Business Development Manager (Global
Investor Recoveries) with IMF Bentham who splits his time between
Philadelphia and London with a global remit assisting institutional
investors to recover their investment losses, for example through
shareholder or bondholder class actions. He has extensive experience
advocating for investors, promoting corporate governance, and
implementing strategies to achieve collective redress.
(69% versus 48%, based on data up
to July 2017). This suggests that the
intervention of the market is helping to
drive better and more just outcomes,
since disputes are being resolved
according to merit and not according
to which party has deeper pockets.
Non-U.S. securities class
action litigation
Non-US securities class actions
have been on the rise since the
U.S. Supreme Court’s seminal 2010
decision in Morrison v. National
Australia Bank Ltd. The Court held
that the U.S. federal securities laws
apply only to securities purchased
on domestic stock exchanges. Since
then, investors have increasingly
turned to forums across the globe
to recoup losses and assert their
rights as shareholders associated
with securities purchased or sold
outside the U.S. Indeed, shareholder
securities litigations filed against
Royal Bank of Scotland and Tesco
in the UK, Volkswagen in Germany,
and Olympus and Toshiba in Japan
have either settled or are working
their way through their respective
court systems.
In addition to differences in
substantive and procedural law,
certain jurisdictions have laws on how
litigation is funded, which make for
significant practical distinctions as
compared with participation in U.S.
class actions. For example, in contrast
to a typical U.S. securities class action
where the lawyers leading the action
pursue the litigation on a contingency
fee arrangement, many countries
(including, but not limited to, Australia,
Hong Kong, Singapore, France
and Germany) prohibit or severely
restrict the use of contingency fee
agreements by lawyers.
Another crucial difference is that
the U.S. system generally does not
require the losing party to pay costs
or legal fees, whereas many non-
U.S. jurisdictions obligate the loser
to pay the prevailing party’s costs
and expenses (so called “adverse
costs” risk, which in some cases can
more than double the financial risk of
embarking on litigation).
These factors in combination have
caused an increase in demand for
third-party funding for securities
litigations. This has allowed groups
of like-situated investors to come
together to litigate common claims
against defendants with deep pockets
on a “no-win, no-fee” basis, with the
financial risks outsourced to the third-
party funder.
Third-party funding extends
access to justice beyond
litigation to international
arbitration
Although parties to arbitration are
often sophisticated commercial
entities, the costs associated with
pursuing arbitration can be high. As
a result, just as in securities litigation,
claimants can often find themselves
disadvantaged when seeking redress
against highly resourced respondents.
The financial David vs. Goliath
situation is particularly common in
investment treaty arbitration.
In fact, many jurisdictions are now
embracing funding in the arbitration
arena. For example, after a two-year
study, in 2015, the Hong Kong Law
Reform Commission recommended
permitting third-party funding of
international arbitration matters in
Hong Kong provided certain “ethical
and financial safeguards” were met.
By 2017, these recommendations
were codified into amendments to
the Arbitration Ordinance and a draft
Code of Practice was published for
consultation.
That same year, Singapore introduced
legislation providing a “safe harbor”
regime for the funding of international
arbitrations in Singapore (and
related court proceedings) by
professional funders who meet a
basic capital adequacy requirement.
The resulting surge in demand by
arbitral parties seeking funding has
helped to promote Singapore as one
of the leading centers globally for
dispute resolution.
Litigation finance is here
to stay
Historically, well-heeled parties had
certain and inevitable advantages in
litigation and arbitration. They could
hire the best lawyers and experts, and
then grind the less well-off party into
submission both because of a lack
of resources and cash flow issues.
There may have been a time when
funding may have been perceived
as primarily for the impoverished
claimant. However, the market has
now developed much more widely.
Institutional investors have realized
that third-party funding of litigation and
arbitration can be a sensible way of
managing risk, as giving some equity
in the success of a particular litigation
or arbitration provides certainty
instead of exposure; and, as the
legal industry continues to innovate,
there is growing realization of the
value of partnering with specialists
whose involvement can save internal
budgets and management time,
whilst increasing the prospects of a
favorable outcome.
As the English Court of Appeal
recently held in its 2016 decision
in Excalibur Ventures LLC v Texas
Keystone Inc & Ors, “litigation
funding is an accepted and judicially
sanctioned activity perceived to be in
the public interest.”