Legal finance policy update

Commercial legal finance is an accepted norm of the business of law, crucial to the delivery of legal services by leading firms and to clients of every size and industry. Although media coverage can at times mistakenly convey the idea that there is a rush to increase regulation of the legal finance industry, a review of recent trends around the world suggests instead that policymakers not only understand these market trends, but also recognize that commercial legal finance is simply another form of corporate finance and that more regulation is not the answer.

2019 key developments

US

In the US, little regulatory activity took place at the federal level. Federal legislation that would mandate disclosure in class actions and MDLs (the Litigation Funding Transparency Act of 2019)—identical to versions of the bill introduced but not acted upon in prior years—was again introduced in the US Senate but to date has not received consideration. Similarly, the U.S. Chamber of Commerce’s Institute for Legal Reform continued to fail in its bid to convince the U.S. Judicial Conference to make sweeping amendments to federal discovery rules to force disclosure of litigants’ private financial arrangements.

While there was activity in some states, those legislative proposals either failed or did not impact the commercial legal finance industry. For instance, US-Chamber-backed bills with far-reaching forced disclosure provisions introduced in Texas and Florida did not pass. And some legislatures considered proposals to regulate consumer funders with varying outcomes.

Europe

In 2019, the European Commission’s proposal for a collective redress system was adopted by the EU Parliament. The proposal has since been taken up by the Council of Europe, where it will likely remain for some time as the Council examines next steps. The impacts of collective redress on legal finance will depend on its final provisions and implementation. Though resolution is not expected in 2020, the new system will have a significant impact on the way collective actions are funded in Europe.

Asia

In Asia, legal finance continues to be well received, and various jurisdictions are now looking at expanding its permissibility.

For instance, in 2019, the Law Ministry of Singapore began examining its viability in the context of court cases in the Singapore International Commercial Court. This is a broadening of the current framework, which only permits funding for international arbitration (implemented through legislation) and insolvency matters (implemented via case law carving out specific areas from the prohibition against champerty and maintenance). As noted in Matt Lee and Quentin Pak’s article in this issue, the Law Ministry is also studying the introduction of conditional fees (i.e., fee uplifts) for certain proceedings.

Meanwhile, the Department of Justice in Hong Kong announced that it will study the introduction of “outcome based” fee arrangements for international arbitration. This may be even more significant than the developments in Singapore, as Hong Kong has traditionally taken a very strict approach with respect to lawyers’ fees.

Even with these noteworthy developments, the level of commentary and market interest surrounding legal finance in India far outstripped that of both Singapore and Hong Kong. The interest in India stems from the changes afoot in Singapore, as many disputes involving parties in India are resolved by way of Singaporean arbitration, as well as from changes to India’s insolvency laws. Though there are still jurisprudential issues to be resolved, the growing interest will make India’s legal market a key one to watch in 2020.

Australia

2019 also was a busy year in Australia. As elaborated elsewhere in this issue, the Australian Law Reform Commission released its much-anticipated final report that addressed, in part, legal finance. The state of Victoria also announced plans to introduce damages-based arrangements for law firms. And, finally, in late 2019 the High Court held that federal and state courts do not have power under section 33ZF of the Federal Court of Australia Act 1976 (Cth) and section 183 of the Civil Procedure Act 2005 (NSW) to issue interlocutory common fund orders (“CFOs”) prior to settlement.[1] This decision reversed a prior Federal Court decision from 2016, which had been applied by both federal and state courts to issue CFOs on the basis that it was appropriate and necessary to ensure that justice is done for courts to be able to make orders binding all members of an open class action, regardless of whether they had previously entered into a funding agreement, to one set of funding terms. It remains unclear how federal and state courts will respond to this recent development, but it seems clear that legal finance companies operating in Australia will move to a different approach in such cases.

Regardless, these developments will make Australia a promising and busy market for legal finance in the year ahead.

What to expect in 2020: A global association for commercial legal finance

While whether and how various policies and regulations are implemented affects any industry’s growth, prevailing trends suggest that commercial legal finance will continue to see greater use across the world as it enters its second decade.

In a marked change, a global association for commercial legal finance comprised of the top companies around the world will soon play a pivotal role as the voice and thought leader in that regard. This ground-breaking initiative, which has been in the works for over a year, is expected to be finalized in the first half of 2020. While Burford is proud to have developed and championed industry-leading standards over the course of our 10-year history, we are extremely gratified to be working with our peers to lead the establishment of this much-needed global association.

Conclusion

In recent years, the use of legal finance has become increasingly common—and in 2019, there were decisions by policymakers around the world that reflect that new business reality. As we look ahead to 2020 and Burford’s second decade, we expect to see a continued positive response to the legal finance industry.

[1] Brewster v BMW Australia Ltd and Lenthall v Westpac Life Insurance Services Limited.