A little bit o’ history…

“A people without the knowledge of their past history, origin and culture are like a tree without roots.” Marcus Garvey

It’s common in the investment sector for managers to perform due diligence. This process generally allows the wealth manager to dig deeper into the quality and legacy of an investment opportunity and see if it has a proven track record or shows signs of unexpected future growth.

The past can never determine the future with 100% certainty, but it can help us understand what we’re dealing with. The same is true for Litigation Finance. Whilst it often appears to be the new kid on the block, its rise to prominence dates back to the 1990s and has simply snowballed ever since.

Before the 1990s, Maintenance and Champerty were illegal in the UK and Australia. Maintenance is ​​where individuals or groups, who are not connected in any way to a legal case, provide funding to enable the case to be tried, and Champerty is maintenance for profit.

Due to this early legislation, lawmakers prevented outside involvement in legal proceedings. Changes to the laws and regulations in these two jurisdictions have paved the way for litigation finance to become the asset class of choice for many High-Net-Worth Individuals (HNWI) and other interested parties searching for investments which are uncorrelated to volatile markets.

The rise of litigation financing in the United Kingdom and Australia was almost simultaneous, but followed different directions. The Criminal Law Act of 1967 in the UK decriminalised Maintenance and Champerty, which resulted in tort liability being renounced. Then in 1990, the Courts and Legal Services Act was passed, which meant that lawyers could enter into conditional fee agreements (CFAs).

Not only did the 1990 Act unlock the door to the litigation financing of today, but more importantly, it allowed potential litigants, who had previously been unable to afford to sue for any wrongdoing, or did not qualify for access to legal aid, the possibility of justice.

In a 2002 decision, courts implicitly endorsed litigation finance; only funding arrangements intended to undermine justice would be considered unlawful. And so, with the door to litigation finance now firmly open, a vibrant market for claim funding galvanised.

Australian courts legalised class-action lawsuits in 1992, which afforded courts a more efficient way of dealing with group claims. A further decision was passed in 2006 when the Australian High Court held that litigation funding was not an abuse of process nor contrary to public policy.

Personal Injury Cases were the cornerstone of litigation finance in the United States (US) before the mid-2000s. Since then, even though the litigation finance market is still relatively new, the market continues to expand; nowadays it is not unusual for law firms and companies to use litigation funding to raise capital, finance lawsuits and mitigate risk from their bottom line.

Litigation finance isn’t new. It is, however, an asset class that is outperforming all other traditional assets and is proving to be unaffected and uncorrelated to volatile markets. Our GreenPark Platinum team can help you learn more about this lucrative alternative investment opportunity.