Burford Capital & Litigation Case Origination

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Can we talk about the origination process from the funder side; how do you first approach a law firm if you're at Augusta or another big funder?

The process depends on the origination manager. People who work within funding have a network of litigators they already know quite well. As you go about your funding career, you add to your network with networking events and being close to barrister's chambers. Being part of the funding world often builds your profile such that lawyers talk to you freely. As part of the origination process, the origination team or asset managers in that facility of the fund regularly speak with lawyers on a casual basis to see which clients are coming in and if there are there any cases worth considering. They would meet with any prospective clients to explain the funding process, then they will sit down with the lawyers to talk about client files. Barristers often work with listers who refer case files to referees connected to the funds. They may be agents or brokers who bring cases they think would be sufficient for a particular fund. The origination process is, essentially, fielding inquiries from the wider market and network of lawyers you know, who can say which cases should go forward.

Is there any difference in the process for a portfolio and a simple case?

A portfolio suit generally comes from a law firm and is based on the relationship with the law firm and funder. If the funder is well-connected with the head of litigation or CEO of the firm, that will facilitate conversations with portfolio funding. It is not based on a client relationship where a law firm enters into a portfolio agreement with a funder, based on them bringing in a certain number of cases with a certain damages value to be considered by the funder going forward. Portfolio arrangements are often vague in terms of the cases that will be assessed, but they will have certain criteria to decide if cases will be considered, and what benefit the law firm defers from the funder. They could get a discount on pricing for those clients who bring portfolios forward, which they pass onto clients for working with them.

How does a law firm choose a funder for big portfolios?

It's based on the experience and size of the funder. A funder may have shown them their balance sheet and has a good track record in the market, but it is also based on the law firm's previous use of that funder. If they had a good experience and the funding appeared on time and they assessed and worked with the law firm clients well, they may expand that relationship and consider a portfolio. It is based on a very personal experience of each fund and knowing which funds have sizable amounts of investments behind them. Burford are very well-established and have a huge pod of investable funds at any time, and a law firm will also receive gravitas by aligning themselves with large funders, which encourages clients to choose them. A regional law firm may look at a smaller funder with medium-sized rather than multi-billion-pound claims, so it also depends on the type of funding required.

Portfolio deals are jointly originated with both the law firm and the funder. Maybe Burford or Harbour knows the head of litigation who will structure the deal. Single cases are different as the law firm effectively brings the case to the funder?

Yes, which makes it easier on the funder side once the portfolio is set up, however funders still have first right of rejection. Even though a corporate buyer of a sound portfolio will have that set up and have access to the funder, if the funder believes the case is risky, even under that portfolio arrangement they still have the ability to reject. A portfolio is a good marketing tool to law firms but doesn't mean the funder is embedded with those law firm's clients.

Did you ever originate cases directly with corporates while at Augusta?

We did, and that will increase going forward with the current global economy. More corporates will consider setting up funding arrangements directly with funders. The difference between a portfolio with a corporate and with a law firm is that you are leaning on the corporate understanding of their cases and believing their case is strong. Most clients believe their cases are strong, so the funders pick holes which makes for a difficult relationship if you don't have an objective lawyer involved. Dealing with a corporate is different because you focus more on the pricing and advantage of funding for the corporate client in terms of taking the risk off their books, rather than a case being strong for the funder working with a lawyer who thinks they can assess it quickly and get a successful outcome. The metrics change when dealing directly with a corporate because the relationship is based on them having several cases going forward, so they are more interested in the product than the case merits. That could result in contentious issues when valuations get redacted on their claims because the case wasn't as good as they had hoped.

If they are sizable claims, a corporate can vouch they will have multiple claims of a certain size and duration. If the funder thinks the defendants will pay, they build in a discount. Obviously, you would hedge those cases against the cases they do bring forward. If one is likely to succeed, you may consider lesser claims within that agreement, that could be hedged by that originally highly successful high damages claim. The funder has an advantage in those cases where they can choose a lawyer they know or had a previous good track record with. They trust the lawyers, put in a decent amount of funding and are almost on a level playing field with the corporate in terms of vested interest, so the discount will reflect that.

What is the challenge of funders unlocking legal assets off balance sheets?

That is a big challenge and is considered from the outset. Not all corporates are taken on as a funded client. Where a funder can take a charge for that or have themselves registered on property the corporate holds, or if a shell company can have rights to it, that will be favorable to the funder. That is a failsafe in the event the funders investors require more of a guarantee that the corporate will turn in the right way and have access to the funds in terms of damages payouts coming out in a staggered way or over time or in a way which is not as liquid as the funder would normally deal with. In situations of a straightforward assignment of assets or where a margin can be applied, funders will happily do so, but they have to get their investors to sign off on those funding deals.

How do case sizes compare between corporate balance sheet and law firm?

They no longer differ much because law firms and corporates have large claims. When considering corporate claims directly with a client, you want them more than 20 million. You also need numerous claims of that size going forward, compared to the budget funders provide financing for. They need to be high damage claims with a lucrative defendant on the other end; claims we know will be recovered.

How competitive is that space given how expensive it is to originate?

All the large funders compete because single case funding is becoming riskier. With a portfolio of single claims, you constantly manage the risk of each claim against another, and you also have different stages of claims occurring at any given time. You can have a lot of money going out at the start of claims, and if another claim falls down at the same time, that could cause the funder's balance sheet to go off whack. You have to be careful with single case funding, especially now that the claims are more expensive. Portfolios stagger your risk slightly because you know how much you're going in, at any given time, and another claim may offset your risk from the same client. You know these clients and build a relationship with them over time, rather than having several single claim clients acting differently with several law firms. Portfolios make that easier so that is becoming the more preferred route for funders.

Do the big funders still compete to get direct access to corporate balance sheets?

Corporate relationships stem from law firms because lawyers have access to those types of clients. Many funders employ senior partners as consultants or representatives who will connect them with corporates. Going directly to corporates is difficult for funders because corporates are not accustomed to funding on a regular basis. Having a line of credit is always considered good as it is difficult to get sign off internally for a huge corporate. The litigation in these major companies comes from different jurisdictions and different parts of the business, so how you manage a portfolio of cases for a funder can take a while. Funders would like CFOs to approach them directly for a line of credit and sign off a huge budget for all their litigation. That may be the way things go in light of the current global economy, but that will take time to build as it is not normal practice for major corporates.

How are the legal merits of the portfolio discussed with the law firm?

Most funders prefer a look at the file for the client and provide an opinion that essentially sets out that the claim has a 70% or higher likelihood of success. This is before the claim is even started or the defendant is involved. Funders trust a barrister who thinks there is some chance of success, based on the facts of the argument. If that is not true the funder has no recourse, but that is the first step required for the claimant. The funder will then read that argument and assess it internally. In complex cases, they often get their own barristers to reassess those opinions, and they will ask for the evidence which supports a claimant's claim.

They will also ask for an assessment in damages and, in high value claims, they will also want an expert opinion on the damages that a firm are accrued, because many times it is objective in terms of what we think the actual damages will amount to. A claimant always thinks on the higher end but the funder generally goes conservative on that figure. Against the budget from the law firm to run the case, that should be at a ratio of 1:10 in terms of funding required and legal spend against damages, so that there is enough fodder for the client to go home with a substantial amount of damages once the insurers, funding and success fees have been paid. Those are the original requirements to assess a claim from the outset.

How long does it take, on average, to come back with a price to a law firm?

Funders are having to be more factual with this as more competition arrives. Providing a quotation to a client and going back to a law firm if a case is fundable, should be quick and efficient and be turned around within two weeks of the receipt of the information.

Why does speed matter?

It matters because there are so many well-known funders out there. If you are sitting on a claim without a quotation that a client can assess, you may lose the right to assess the claim. What many funders do when they think the claims are good, is they will get the client to sign a confidentiality agreement saying they won't talk to any other funders during the assessment process. During that lengthy process, a funder is extending their own funds and team's resource on assessing those cases, and if multiple funders do that at the same time and are all fighting for the same case, you lose control of who ends up with the case, and it becomes a pricing battle. Most funders tend to deal with that up front by setting the price and getting the client to confirm who they're going with, then go ahead and do the due diligence.

Will law firms always send a case to multiple funders simultaneously?

They are obliged to deal with multiple funders in their client's interest.

Funders give a price quote as quick as possible, then the law firm goes back to the clients to get approval, or can the law firm approve the quote?

The client has to approve the quote because they are the one who will incur the costs in terms of signing off on what the funder takes out of the damages.

What does the client care about?

The client cares about the best pricing. They want the lowest funder success fees and a quick turnaround. They care about which funders come back to them quickly, but also who will be best at creating income they take home at the end of the day. Those are the early stages but as the process goes on, the funder meets with the client to check that the client will go along with reasonable settlement offers if they arise. They check the client doesn't have a personal vendetta against the defendant which might draw out the litigation process. When a client comes to a funder without a law firm, the funder will take the claim to market to get several quotes on legal spend from law firms who they value and respect, then take that to the client, and I have been part of those processes before. The client will consider which law firms to use in a sense of cost but also expertise, in the sense of which law firm will represent them in the best way.

Can the funders reduce the legal spend if the law firms are bidding for it?

Yes, they definitely can and conversations are had, but it should be impartial to an extent, because the funder should focus on getting the best legal representation for the client. The client chooses the law firm after the funder has put forward suggestions and introduced lawyers to that client, unless the funder specifies they need to go with a firm. That happens but the funder should be careful of the scrutiny of any judges if they request to see the funding agreement and the court decides the funder has been over controlling the case. That can work out badly for funding in general, so the funder has to be impartial in these situations where they're introducing law firms and guiding the client as to how to direct the case.

What is the biggest challenge in being quick to provide a quote?

Once you provide a quote, you are committing to an assessment of a case which is relatively unknown at that stage. Perhaps a few client and solicitor calls have been had, but you have to provide a quote based on your current file without doing a deeper dive. It is therefore essential that you believe in and have a good understanding of the case. You need to judge, at an early stage, how likely it will succeed, whether the client's evidence is attainable and how the other side will respond. Best practice where you are unsure is to not quote and decline the case, but some funders don't want to offend the involved law firms. Because of the vast amount of cases out there, it's better to sift through and narrow down the good claims, rather than keeping all options open and rejecting claims further down the line.

What was the biggest challenge at Augusta in providing those quotes?

Getting all the information from the law firms early on, in addition to the budget. It is not traditional for a law firm to set out a budget from start to finish at such an early stage. Most law firms bill as they go, but because of funding, clients are more aware of the potential cost of litigation and have started thinking about whether they are getting a good deal or not. That wasn't the case 10 years ago before funders were around; you simply paid them fees to do the work. Now people are more savvy because funders demand a budget from the outset. Law firms have to use examples of what they've previously done by using their cost lawyers to outline a realistic budget. You cannot have three million extra spend without the funder's sign-off. Law firms are acutely aware of that and have to methodically outline a realistic budget. That takes time and if the funder rejects the claim, that's legal hours spent.

Burford report commitments and deployments out of that commitment, so when the law firm provides the case, they would say it will cost X in expenses if it goes all the way, then you effectively draw down on that commitment as the case evolves?

Yes, and budget increases do occur when unexpected applications arise.

Who would you say is the most effective at being quickest to market and providing a quote, out of the funders?

It depends on the case but you can provide a quote quickly in less complex cases. Many times, the damages are highly questionable. I did many African mining claims where the damages would be dependent on the potential value of an underground coal mine in a rural jurisdiction, which would be a very hard calculation to provide a quote through. You could do an estimate and say, we think it's going to be worth 52 million once it's all excavated in four years, but as you go down the line and get experts involved, highly conservative figures are carved into that which then alters the pricing. That is one of the biggest challenges of having to hang yourself through a quotation put out at the start of the deal before you know all the facts. When there is a hesitation to provide a quote, it's generally on that basis, and then the funder takes a very conservative view on the damages and a high-end view on the budget, and only if the ratio of damages to funding works on that scale, will they go ahead and provide a quote.

Who is winning the attractive cases with a lot of competition?

Burford and Harbour. Omni are also doing well as asset recovery specialists in strange jurisdictions, because they're aligned to the World Bank, so they have an acute ability to assess how to go after bankrupt defendants, which makes a huge difference. The funder's expertise determine which cases will be quick to market.

Such as state arbitrations cases or bigger class actions deals?

Yes, and in that instance, the investor behind the fund is very important. If Fortress is behind you, which several funders have, they may be less likely to take on risk. An example which used to be around but has probably stopped, was the Russian play over Soviet countries high value arbitration for rights of individuals and companies. Essentially, the state had become heavy-handed on individuals and companies and simply taken away huge assets, and there were several claims over the past few years where some funders would take the risk by taking on one or two cases against the Stan countries. At some point, your investors will draw a line as to how much work they will put into these cases, so although you may have a good case on paper, it may also be dependent on the wider portfolio and the risk the investors want to put into somewhat murky jurisdictions.

As well as conflicts of interests.

Conflicts of interest will be decided on very early. A funder wouldn't go after the same defendant twice, for instance, if they have a huge multi-billion-pound claim.

Where was Augusta strong?

Augusta was strong for investment treaty and construction claims, which few funders were doing.

Like Carillion?

Carillion is something LTN are currently looking into their funding, but the big construction arbitration disputes which happen globally on major projects, was something Augusta was building their expertise on and doing quite well in. Early-stage settlements within a big construction dispute where you're bringing in project management companies to mediate early on, is quite a unique scenario for funding because it isn't the traditional long haul arbitration route. It could be quite lucrative because delayed claims that would occur on a construction project would amount to tens of millions of damages that you could get in a short process with less legal fees, so you would get quite a good reward.

How specialized can each sector be in this space? Could Augusta specialize in construction and Harbour in another sector and their be enough space for everyone?

There are specialist funders who go for large insolvency cases, but the bigger funders like Harbour, Burford and Augusta will always be diverse in a changing market. There will be litigation peaks and troughs in different areas, so to ensure you cover the advantage of those opportunities, you need to have the ability to dip into different markets. US litigation has grown over the past few years, and they are generally harder cases to assess, but can have high damages and can be determined quickly if the cases seem particularly strong. I don't think there will be many specialized funders. There are some but they are special situations in terms of class actions which are the current big thing in the litigation market. ESG litigation has been talked about a lot going forward, but I don't think you'll ever see big funders only doing those types of cases because of diversification.

How does the price discussion go once a quote is sent?

The funder will be on hand to explain the pricing. The law firm cannot do that because the pricing arrangement can be quite complex. There will be multiple tiers in terms of the duration of the case. There may be multiples and percentages and whichever figure is dependent on the damages at whatever point in the case.

Have those structures changed much?

They have become more complex over the past five years due to larger cases. It is done on a case-by-case basis dependent on how much risk the funder is willing to determine, or a certain client or considering that a certain law firm is involved. A complex case has a huge amount of damages on the end, a potential to be resolved within two to four years. A US law firm who has expertise in a particular area may have a better pricing structure than a single claim that still has a 70% chance of success but the defendant could go either way. The pricing in terms of context, nature of cases, amount of money being put forward and the length of time the case will go on, has become more structured as more tiers have been put in place. You are getting Xs and percentages and guarantees, so that structure has not changed in terms of the overall concept of recovery of a success fee, but it has become more complex.

Is the potential return lower for the funder?

The return has gone up as litigation has gone up.

Why does the cost of litigation improve the return?

The amount of funding is going up because the cases are more expensive.

Do they target a similar IRR rather than a high dollar amount?

It's a higher dollar amount due to increased competition and it is more lucrative. Also the size of the cases have gone up. Medium-sized claims with damages of $2 million to $5 million were done quite easily by funders, but because investors are going after more sizable cases, the IRR has also gone up as a result, and they want a higher return quicker.

Why would the IRR go up if the cost and size of the case goes up?

Investors are putting more money in so want a higher return on their investment. Funding is non-recourse, so it's a very risky market.

That is the inverse of finance where, as markets grow and more competition comes in, returns decline.

Funding is a new asset class that goes against the market. People who are making losses in other areas see funding as a lucrative way to make higher profits over a shorter time in a very structured manner, because you have all these legal teams and arguments.

Burford reported their median commitment was £2 million to £4 million 10 years ago and now it's £20 million, and they've also said returns are increasing. Are you suggesting that is simply a function of a higher dollar amount at risk, and due to the non-recourse and binary nature of the assets, investors are demanding higher returns?

The higher return is also due to the value of cases. A £20 million case no longer involves straightforward contractual litigation. An investment duty claim or construction case has a higher risk towards the end and you could lose £20 million and not reap any rewards. Previously, you were only losing £2 million to £4 million but you had another 10 cases in the pipe which could be lucrative if they win. With £20 million cases, you invest in less claims and diversify your investments in a smaller pod of more expensive cases, but they are high-risk high-reward. You could potentially win £80 million at the end of it. As a result, the market prices in a higher return on investment, and your pricing gets higher as you put more money into these cases.

It almost defies the laws of finance in every other asset class. Do you think that will impact Burford's returns on their portfolio due to their higher commitments?

It would only affect their portfolio positively. This asset class is experience-based. Burford have got a breadth of experience in complex cases, and they are very close to the lawyers who are working on it, so they know exactly who to go to for particular styles of cases, and who has the best track record. As the market is unregulated, once you have a winning formula, you control the outcome of your cases. They are also very choosy about which cases they buy because of the mistakes they have made. Today, they put in many stringent clauses to protect them, where they can pull out of a case if it's going the wrong way.

Do Burford do that?

Burford and many of the larger funders put in clauses to protect them in the event that a client is not acting in the way that they hope or that contrary evidence appears.

Will they still lose their money?

They will still lose their money but they would get out of the case and can make those calls pretty quickly, in a way they wouldn't have done before.

Because it's unregulated they can control the outcome, so they can insist on clauses which allow them to get out of cases if they no longer make economic sense?

A few years down the line, I think there will be regulation in this market because funders currently have more control than potentially is right. Most of the time, it is self-regulated which leads to other funds and stories coming out where you do the right thing, but there are times when the pricing can be overly onerous on the clients, and further down the line the client can reassess if something was the right way to go, if at some point the damages are less and the funder is still taking the lion's share, which is not the outcome funding should create, but it does happen.

What needs to be regulated specifically?

The pricing and control of funders and how they interfere with settlement offers. When an assessment offer comes in, a funder can engage the client in a way that says they should take an assessment offer or not, which sometimes puts the client in illegal situations.

They're not allowed to be involved in that but do control the purse strings.

There is a legal principle that funders should remain at arm's length, but it comes down to how much budget they have to spend and where they are in the time line of the case, that they can persuade a client to take an amount at a certain time and can also say they will pull out of the case if the settlement offer isn't accepted, which can force a client's hand.

That is tricky because the funder has to have the required information to also put additional capital in, as the case develops.

That is the funder's argument, but that doesn't mean when a client goes into a case, they don't know what the other side will bring, and it's their money at risk. The idea of funding is that they are providing access and taking on risk, which you price into your success fee, so you should also act in the same way as a client. There is a fine line in those situations.

If you know a case requires 10 million commitment on day one, and they use that all up in a year, then more capital is required and the client has to go back to the funder and the law firm and there has to be a new calculation?

Yes, in those situations a negotiation with the law firm will generally occur. The responsibility is on the law firm to put out the correct budget from the start, so it can't be on the funder as they haven't signed a blank check to fund each case. It has to be reasonable and within the limits of the economics of the case itself.

What needs to be regulated specifically in terms of pricing and control?

Budgets need to be regulated because some law firm budgets are staggering, but if the funder is behind them, they may sign off on that because the funder knows it will allow them to realize a higher success fee going forward, so they can get a bigger chunk of the pie because they put more money in. Success fees also need to be regulated in complex cases as funding becomes more commonplace. A funder shouldn't be able to charge huge amounts more on one case than another, if they are quite similar in nature, which does happen. It is often dependent on what they think the client will accept. That could definitely be regulated going forward, because it's not common for a marketplace to have such huge variables.

But it’s still a binary risk. I'm thinking of two times your capital plus a percentage fee; are you saying they should regulate and limit that to a certain number?

Yes, because there are now cases which have very heavy success fees put in place, that aren't necessarily justified, which is only due to higher damages in those cases. There is a potential on the back end for a funder to make a huge windfall. In a £250 million case, often there is tier pricing above £100 million where they can get 5X on top of what was recovered. That can be unfair to the client but often they will sign off because they have nothing else to put behind these cases. It also indicates that the funder believes they will win the case.

I'm thinking of the Argentinian case with Burford where the damages are in the billions, and they've put in 50 million over seven years. How could you regulate the pricing of such a complex arbitration case because all these cases are so different? Surely a flat fee in such a complex case will end up with them not funding it?

It would change the parameters of the funding in terms of the types of people who wanted to invest. If the investors are getting involved in funding because they see endless profit margins, that's one thing, but if you put in some parameters on the back end of the high value cases, you will have more reasonable investors in a more regulated standardized market, where the client also has some rights as to what they are charged at the end of the day. That way, a funder cannot run wild with a huge windfall and cannot keep changing the game, which does happen in some unfortunate cases. There are situations where it is unfair for the client as to how these cases play out, as the funder becomes more greedy.

How do the law firms align with claimants and funders?

The law firms also have to be regulated because, in a high value funded claim, you may realize a law firm's budget is higher than it would have been had it not been funded. That is because they now know there is a backer who potentially has endless amounts of cash. The law firm is obviously aligned with the funder, but also has to work on a day-to-day basis with a client, who is key to winning the case, so they have to keep everyone on board and happy. The backer is between the law firm and the funder and there will be negotiations on pricing where funders think the law firm is acting in a way that is not economical or charging unnecessarily. Funders generally monitor fees throughout all their cases for their investments which go live. They keep a very close eye on the costs and will step in if they think something is overly costly.

Can they receive a contingency fee?

They can do, and many law firms will do a CFA, where they will discount their fees and also get a success fee at the end for that discount.

How common is that?

In these larger cases it's quite common, and the law firms who are used to funding do it more often, as do funders who back the case and charge a success fee based on risk. As soon as the law firm knows a funder believes in a case, they too have some skin in the game and realize they have the ability to make more through a success fee.

Does that contingency reduce the cost to the client?

Yes, because the funding will be less, but the success fee at the end will eat into the client's damages, so you are removing the funder's and law firm's success fee as well as the insurance premiums from the damages. So if the damages increase, the law firm will put more of a discount in, because there's more likelihood of a success fee for them at the end.

What does the client care about?

They care about the percentage that comes back to them and that they have a good law firm on board that will win the case.

Are clients pissed off when they win and don't get much of the damages?

Yes, definitely; it all comes down to economics of the funder. A client often feels they have brought their good asset to the funder and given them an opportunity to make X million dollars, so the client can often feel hard done by if they don't also get a sizable amount, or if the funder or law firm is taking more than they think is reasonable. That is the irony of winning funded cases; people don't feel as good as if they won the case with their own money.

But they couldn't get it funded anyway?

That's true but the rational brain doesn't kick in, which is often the challenge with funding when you're doing the pricing. I had a case that was a billion dollar claim which we didn't end up funding. We spent far too long on it and it was a really good claim but, at the end, the pricing would not suffice for the client; he wanted a lot more than the funder was willing to give up. That was based on the fact that he thought he had the best claim out there, and so was allowing us to be part of something that was going to cost in the 20 to 30 million range, and was going up against a very difficult country so had a lot of risk involved and potentially even danger to the client's own life. He could only see the end goal of winning which made him hard to work with. He said if he did not get 750 million when we won, he would be unhappy. It becomes very difficult to argue these things because there's a likelihood that could happen, but there's a huge likelihood it couldn't, and from the funder's perspective you're controlling your risk, but from the client's perspective you believe there is no risk.

Where is there misalignment between the law firm, claimant and funder?

Settlement is difficult because often the funder works on the basis that settlement will occur early. When you're doing the pricing, the lawyers often tell you that settlement will occur early, and they give you all the potential settlement scenarios, but at that stage the funder acts as if it will go all the way to judgment in that trial. They determine the likelihood of what will be the variant, rather than settlement. The client also wants to sell the case and will believe their case is highly likely to succeed and will settle early. However, when a settlement offer comes in, they may reject it on the basis that they can get more, which keeps the funders invested for a longer time, and also diminishes the chances of success of the funder.

If the regulator stipulates a contingency success-based payment, how would that change the demand for funding?

A contingency payment with a law firm?

Yes, the law firm will have to cut their expenses and take a success fee?

There was a model in the earlier years where there was always a need for a CFA so that the law firm had skin in the game, which was the model Augusta ran. That was at a time when the cases were smaller, so the law firms weren't willing to take on that amount of risk for small claims, but as cases have become bigger and funders have become more reputable, larger law firms who have the money on their books to risk are willing to take on CFAs. The only thing that slows it down is that you then have to go through a committee in your own law firm, and the partners have to stand up for the cases themselves. They have to write off that risk which slows down the process due to all the red tape around it.

You are also asking these partners to be very confident in their clients and their claims. They may think that if a funder already backs the funding from their assessment, we should also assess these claims are good, but it often comes down to internal politics which can be hard to navigate and sell. If there is a reason not to back a claimant within a contingency fee, it may be that the lawyers don't want to outwardly put pay into their own firms that they believe these cases will succeed. That isn't a good enough reason, so maybe we simply need more bullish lawyers. Law firms are currently making huge amounts of money, but they are very aware that clients are declining in how much they want to pay for things, so there is that continual fear for a law firm that putting anything on risk is potentially suicide and could ruin the whole firm. Law firms like Hausfeld for instance, do everything on contingency because they know they will win. Unless you have a key team set up around that model, there is a lot of hesitancy to put risk into cases.

What role does the law firm have in choosing the funder with the client?

The law firm puts forward recommendations but the client chooses the funder.

What does the law firm care about?

The law firm cares about being paid. They will check that the funder has no financing issues in terms of their balance sheet. There are situations where an investor cuts off the funder or delays payment, which makes law firms wary of those funders so they may not want to put those funders in front of their clients. The law firm is okay as long as they think the funder will approve their case, because they don't want to look bad in front of their client. The law firm recommends to their client that they think this case is good for funding. A funder then gives a quotation and does their due diligence. They might say no, you've wasted the client's time and as their experienced professional advisor have given them the wrong advice. Law firms often go with funders they have a track record with and who always fund their case.

What makes a case fundable?

The economics, the client and the law firm.

The size of the damages and the economics behind it makes it possible to receive funding, otherwise the client has to finance it if they're smaller?

Yes, and that can be done from very early on, so that's how the discussions go. They will ask what the likely damages are and how much it will cost to run.

Burford is moving into $20 million cases; how many of them are there?

Enough for all the funders who are increasing the jurisdictions where they work. The problems that have occurred during the pandemic will stem to huge value litigation in the future, and funders will simply follow the money in that sense.

What is the biggest risk of the market not growing?

The biggest risk is that there are too many funders entering the market, and not all of them will succeed as they don't all have the expertise to know which claimant to back. If even a handful of funders go under during cases, that will tarnish the reputation of the market and potentially open it up to more scrutiny and regulation, which will change the current free and independent market. That could be the downfall.

What could make the returns decline for Burford?

It's also about reputation, so when Burford had Muddy Waters come after it, that significantly impacted them for six months and no one would take Burford to their client. They had to look at other funders for their good cases because you cannot go to your trusted legal advisor and have them recommend a firm who when you look up on Google, has bad press, and reasonably not question why you're being taken to a potentially dodgy funder, even though they are the biggest investor and are successful. Things like that do affect the market.

What did you think of that short report?

It wasn't unheard of; it was simply looking underneath the bonnet. The people in the funding world wouldn't have been surprised by what was going on at Burford. They are very big but they also partake in questionable agreements and their arrangements can be heavy-handed, due to the fact that they invest huge sums of money into large complex claims. In those situations, the funders do sometimes find it hard to see the wood from the trees and take over control. That could be the downfall, if they do that too often in very big cases and if they piss off the wrong client. That could lead to regulation and a change in the confidence in the market.

Who is the best funder?

One cannot tell. Today people flag winning cases but they never did that because they didn't want to flag the cases that lose. Not every case wins and no one talks about the losses, but the losses can be quite impactful, so the investors can dig their heels in, in terms of blocking investments and how they want cases to go, which can strain client relationships. Burford is definitely the most established funder and has probably made the most money.

How would you compare Fortress to Burford?

Fortress have their finger in many pies and back both Harbour and Therium. They are also starting their own fund, but their problem is they cannot remove themselves. I don't understand their model of backing that amount of funds; I think they're trying to corner the market as much as they can. Fortress are known to be difficult to work with for law firms, and quite scary in terms of how they deal with their clients. That is often a success maker in terms of being very particular in how the cases play out, but it can also breed fear in a market and cause clients to potentially go elsewhere as they don't want to be involved with Fortress.

Augusta and other smaller funders have an advantage in not having huge funding commitments and being able to be more versatile in the deals they get involved in. They have areas of expertise, such as construction, that allows them to get into new markets. Burford do major construction cases but haven't aligned their team or made that known in a big way. I think the funding cycle got tougher and they have got the ability to actually move into markets quicker than some of the larger, old funds.