Industry in focus: third-party litigation funding meets Lawtech

Elizabeth Huang

Law, like every industry, has its fair share of buzzwords (a situation hardly helped by lawyers’ love-hate relationship with specialist vocabulary and latin maxims).  One current linguistic darling is ‘disruption’, a term which describes innovations or changes that create new market opportunities and upheave existing network structures, displacing established players and shifting industry focus. Disruptive ideas have the potential to transform the legal landscape. Despite this, commentators often focus on disruptive innovations in isolation, and fail to consider how they might engage and integrate with each other – a key consideration if we are to predict how the legal industry might change in future.

Following from my previous discussion of AI and Lawtech, we turn to consider a concrete example of how Lawtech could be applied to an emerging area within the legal industry: third-party, or ‘crowd-funded’, litigation. Strange bedfellows or a marriage made in heaven? We shall find out…

What is third-party funded litigation?

The basic premise of third-party funded litigation is that some, or all, of the costs of bringing a case to court are provided by a party that has no interest in the dispute itself. Typically, those providing funding will, if the case is successful, then receive a share of the financial recovery that results (whether a flat fee or percentage proportion – returns may be as high as 150-300%). LexShares, one of the biggest providers of such services in the US, describes this as ‘unlocking the value of legal claims’ by providing capital to plaintiffs before the cases is resolved.1

Third-party funded litigation is no small venture in the UK either – the Financial Times recently reported that third-party litigation funders operating in the UK have raised more than £10bn and are involved in high-profile cases such as that being brought against Volkswagen over its emissions-testing scandal.2

While third-party litigation funding has traditionally been profit-orientated, in recent years, not-for-profit crowdfunding has emerged as an alternative approach that focuses on collecting donations to support public interest (think human rights, local communities etc.) litigation. The most notable example of this is CrowdJustice, founded in 2015 as a response to rising court fees and cuts to legal aid. It raised over £150,000 in support of the landmark Brexit Article 50 Miller case3 that went all the way to the UK Supreme Court last year.4

Litigation funding has a role to play in both public and private legal spheres, whether by increasing access to justice or mobilising economic incentives as a way to stimulate meritorious litigation. Third-party litigation funding is disruptive because it shifts risk away from plaintiffs and law firms and onto investors (introducing a new stakeholder into the traditional litigation model) and increases access to courts, while also potentially shifting the way in which we conceive of litigation. An example is The Good Law Project, an activist organisation that makes use of crowdfunding to bring strategic legal cases that militate for changes in the law from a grassroots, rather than policy, perspective.5

Where might Lawtech fit in?

In future, we may see Lawtech innovations utilised by, and integrated with, third-party litigation funding. Lawtech can provide efficiency advantages, reduce risks and help to increase the reach and scope of litigation finance. Three potential areas of application can be identified:

Case outcome prediction

It goes without saying that third-party funders are only interested in cases that are likely to deliver a return on their investment. This means that only cases with a reasonably high chance of success will attract funding. Investors are likely to be extremely interested in finding out exactly how good the odds are – and this is where case outcome prediction technologies could really shine. Integrating these kinds of technologies will allow third-party litigation funders to refine their offerings to investors and reduce the need for expensive labour input from expert human litigators, decreasing operational costs.

Platforms for connecting funders to cases

As the industry continues to explore the possibilities of crowdfunding, the need to provide ways of joining investors with cases becomes more acute. Services like CrowdJustice, which mimics existing crowdfunding platforms such as Kickstarter and IndieGoGo, are excellent examples of how third-party litigation finance can also attract individuals, who may not have the same capital reserves of professional investors. If the process of identifying suitable cases can be facilitated by technology, this will accelerate the entry of third-party litigation funding into mainstream investment portfolios.

Service automation

Lawtech can also be employed to streamline the entire litigation funding process. The use of lawbots, for example, could automate the initial process of assessing cases for suitability, answer early-stage client questions and monitor the progress of cases, updating investors at the same time. These client-facing applications would further reduce the need for staff hours and potentially improve the speed and responsiveness of service.

Although questions remain about how we should navigate issues around data protection, legal privilege, and who pays the costs when a case doesn’t succeed, third-party litigation funding is an area of significant interest that is (to make use of the favoured phrase) ‘ripe for disruption’ by, and cross-fertilisation with, Lawtech.

Today, third-party litigation funding has come a long way from its less than savoury origins in the crimes of champerty and maintenance.6 It raises interesting questions about the economic value of litigation within the broader commercial context, and reminds us that interest in contentious legal work is not limited to the answers we may find to intellectual or purely legal questions. Legal innovations do not exist in island-like isolation – new market demand created by innovative approaches can drive development in other areas of the industry. This is in part because legal products and services are all interconnected, both in terms of the processes they are part of, and the needs of the clients they support. This discussion aims to illustrate how two dynamic and disruptive areas of development in the law may interact and strengthen each other. The question we are left to consider is who might facilitate such matchmaking between innovators, and how they might do so…

  1. “Litigation Finance 101” LexShares. 13 Jan 2018.
  2. Thompson, Barney. “Lawsuit funders raise £10bn from yield-hungry investors” Financial Times. 13 Jan 2018.
  3. R (Miller) v Secretary of State for Exiting the EU [2017] UKSC 5
  4. Pigney, Graheme. “People’s Challenge to the Government on Art 50” CrowdJustice. 13 Jan 2018.
  5. “The Good Law Project” The Good Law Project. 13 Jan 2018.
  6. Maintenance is the improper support of litigation in which the supporter has no legitimate concern, without just cause or excuse. [...] Champerty is an aggravated form of maintenance. It occurs when the maintaining party pays some or all of the costs of a party in return for a share of the proceeds of the action or suit.” - ultimately these common law offences were abolished as crimes by the Criminal Law Act 1967. However, contracts which breached the rules could be considered contrary to public policy and therefore unenforceable. From “Champerty, maintenance and funding” Practical Law. 13 Jan 2018.