Litigation Finance Giants Form Trade Group to Counter Regulation

Six of the largest litigation finance firms are banding together to launch an international trade association aimed at unifying the growing industry’s voice to counter regulation efforts.

The International Legal Finance Association will launch on Tuesday with founding members including Burford Capital, Harbour Litigation Funding, Longford Capital Management, Omni Bridgeway, Therium Capital Management, and Woodsford Litigation Funding.

Those firms have in total deployed more than $5 billion in current litigation finance activity, the association said in a statement.

The industry, where third parties invest in cases and are only paid if they generate a return, has grown dramatically in the past five years and has attracted more than $10 billion in capital, according to a survey from last year. A recent string of capital raises suggests that momentum for funders is continuing to build despite the coronavirus pandemic.

Litigation funding has faced persistent criticisms from the U.S. Chamber of Commerce, which has advanced bills in Congress that would force plaintiffs who receive funding to disclose that fact. The Chamber argues funding will lead to meritless litigation and make settling lawsuits more difficult.

Its legislative attempts have been largely unsuccessful in the U.S., and judges have taken varying approaches to requests to overturn funding agreements. A Universal Commercial Code preliminary group studying potential regulations for funding recently disbanded without offering a proposal.

A Global Issue

The industry’s opponents, though, recently scored a victory in Australia. The country recently launched a new regulatory scheme for litigation funders requiring them to obtain financial services licenses and to register their cases under the country’s securities and investing rules.

“Imitation is the sincerest form of flattery, and you can expect to see those same tactics, if they’re successful in Australia or not, run out to other parts of the world,” said Leslie Perrin, the chairman of ILFA, in an interview. “And that’s another reason why ILFA exists. Because if you don’t defend everywhere, then you defend nowhere.”

Perrin is chairman of UK-based funding firm Calunius Capital and served for eight years as chairman of the Association of Litigation Funders of England and Wales, a self-governing regulatory body.

Most of the founding members of ILFA operate globally, and they face varying regulatory requirements and rules in each country. The association will be divided into groups that will focus on lobbying and influence in individual countries, Perrin said.

Members of ILFA will pledge to uphold “best practices” in the space. Perrin said these include clarity in contracting, respect for duties to the courts, avoiding conflicts of interest, preserving confidentiality and legal privilege, and maintaining adequate capital.

Six other funding firms have joined: Law Finance Group, Nivalion AG, Parabellum Capital, D.E. Shaw & Co., Fortress Investment Group, and Validity Finance.

Perrin said cooperation among competitors in the U.S. will be key to using single voice to defend and educate outsiders about the growing industry.

“The question of how they come together to influence what their regulatory issues are going to be is one of the key issues for ILFA,” Perrin said. “Can the U.S. national chapter be a force for positive change in attitudes?”