Commercial litigants traditionally bear their own legal expenses to prosecute their claims. The costs have become in many cases so catastrophic as to make prosecution impossible and the claim virtually worthless, however meritbased it may be. Indeed, many claimants have, because of the wrongs inflicted, faced loss of their entire business because they have exhausted their cash.
Countries like the United States and the United Kingdom have witnessed this phenomenon most intensely. They are global centers for commerce, and that dictates so much of where the center is for disputes. New York and London have recently announced, almost simultaneously, their goal to make their jurisdiction the single international dispute center of the world.
In recent years, institutional Funds have been established by investors to provide financing for such legal costs. They evaluate the claims, just as one would another asset, and advance cash in return for a share of the recovery on “sale” of the asset through settlement or trial of the claim. The claim is the asset, and represents a new asset class. If there is no recovery there is no return. The market is learning about this opportunity for Dispute Finance, and starting to take advantage of it.
Dispute Finance itself is, actually, not new. Individual investors, like hedge funds, private equity capital, and substantial individuals, have invested in individual claims, directly and indirectly, for a long time. They still do, actively, as a party of the Dispute Finance industry.
The industry itself is an uncorrelated one. Its opportunities do not decline because of a troubled and economy.To the contrary, economic difficulties increase the need for funding.
The industry is often referred to as “Third Party Litigation Funding”. In fact, Fulbrook’s service goes beyond that, as it includes the whole process of providing financing for legal disputes, be it in litigation, arbitration or at the actual enforcement stage. The term “Dispute Finance” covers all of that and is, therefore, more descriptive.
The market demand is huge. While accurate figures are still unavailable, the global demand is easily in the hundreds of billions. The industry supply of available capital is minute by comparison, perhaps $5 to $10 billion.
This gaping demand/supply gap is not shrinking. It is growing. It will continue to do so for years to come.