Litigation funds turn spotlight on Britain

Wednesday 27th January 2010

A review of civil litigation in Britain that seeks to overhaul the "no win, no fee" legal culture is attracting a rush of funds that finance lawsuits in return for a cut of payouts.

Industry analysts said the report by senior British judge Rupert Jackson, who wants to slash legal costs to promote access to justice, endorses the use of litigation funds that can offer corporate claimants the cash needed to fight costly law suits.

"You are going to get more and more people coming into the (litigation) market and wanting to exploit it," said Ian Rosenblatt, a London lawyer who founded the UK-focused Alvaro litigation fund late last year.

So-called "ambulance chasers", lawyers who try to persuade people suffering injuries to launch a lawsuit by promising not to charge fees if the suit is lost, are blamed for inflating fees which defendants are left to pay if they lose.

The Jackson report recommends a raft of reforms, including ensuring legal fees are paid out of damages awarded to claimants in the hope this will bring fees down.

While some lawyers have argued this could dissuade some from pursuing claims for fear of the heavy costs, claimants can seek funding help from litigation funds. In return, the funds will be paid part of any damages awarded.

Alvaro is running roadshows for a £50m ($81m) public listing that will be completed within six weeks and is being marketed exclusively to institutional investors.

Rosenblatt said the Jackson review had increased litigation funds' appeal as an asset class that was previously the preserve of specialists and hedge funds.

Profitable dispute
Funds are scenting greater profits if Jackson's proposals are implemented and legal fees are paid out of awarded damages, because it brings the promise of larger payouts.

Two litigation funds listed in London - Juridica Investments and Burford Capital - both have shareholder registers dominated by large British institutional investors such as Invesco Perpetual, Baillie Gifford and Fidelity International.

Despite their London listings, both funds have focused on the US. But last week, Juridica said it planned to divert up to £50m to British civil cases.

Juridica's Chief Executive Richard Fields said the decision reflected the growing interest of British domestic litigation as an investment strategy if Jackson's proposals are implemented.

Some lawyers say Jackson's proposals also point to a proposed shift away from a funding system that relies partly on "after the event" insurance premiums, which has further inflated the costs defendants have had to meet when losing legal battles.

"This is where the Jackson review is relevant (to litigation funds) because clearly he decided he did not much like after-the-event insurance and proposes to restrict that," said Vincent Smith, a partner at London lawyer Hausfeld.

One chief executive at a litigation fund, which concentrates on the US, welcomed the British reform but warned it could take years to impose the proposals.

"At least in the near-term, the return profile for an investment fund is better in domestic US litigation than it is in UK domestic litigation," he said.

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