Burford unveils sharp increase in profits but warns over lack of ATE for big cases

Bogart: lobbying in Asia

Litigation funder Burford Capital has announced a 75% increase in net profits for 2016, taking the figure to $115m (£95m), while warning the government that the Jackson reforms had made it impossible to provide after-the-event (ATE) insurance for “large and complex” commercial cases.

Burford said the strength of demand for its capital led to an 83% increase in new litigation finance investment in 2016, with commitments totalling $378m.

Its annual report, published today, said only 12% of these investments were in single cases – the figure in 2009 was 100%.

Burford’s shift to portfolio financing for law firms was reflected in two of its “largest-ever transactions” – a $100m “portfolio investment across a large pool of cases for a major global law firm” and a $50m portfolio “to be deployed over time” for another international firm.

Burford said the acquisition in December last year of its main competitor, US-based Gerchen Keller Capital, for $160m had added $1.3bn of new assets.

The company said its lobbying efforts in Singapore and Hong Kong paid off last year, with both jurisdictions relaxing the rules on litigation finance in the areas of arbitration and insolvency.

While it was “optimistic and enthusiastic” about the future of these markets, there remained “unanswered questions” about the regulatory regime that would be adopted by these jurisdictions.

“We view Asia as a long-term play and we are not rushing into these markets and incurring significant costs until the regulatory and demand environment is clear.

“However, it is difficult to resist the appeal of the markets given the substantial amount of litigation and arbitration that occurs in Asia, and the pent-up demand for financial alternatives to lawyers’ hourly billing.”

On Brexit, the annual report said the decline in the value of sterling had decreased the potential repayment cost of debt and cut annual bond interest costs by $3m.

Burford revealed its decision to pull out of the ATE insurance market last summer. It stopped writing new business on 31 December 2016 and terminated its agreement with MunichRe.

The report said: “The dilemma that now exists in the market for adverse costs insurance is that the government reforms that sounded the death knell for this business had some unintended consequences, in that there is now insufficient insurance capacity in the market on any economic basis to take large and complex litigation matters forward.

“This is problematic for both Burford and the litigation market generally. The issue is not with the kind of claims in the single-digit millions that the MunichRe/Burford product addressed, but rather the larger claims that are our particular focus as a litigation finance provider.

“Today, it is difficult for us to find a path forward to serve clients with English litigation claims when their adverse cost exposure exceeds £10-20m as there is no capacity in the insurance market for such claims – and while those numbers seem large, as one example for context, Herbert Smith Freehills has now exceeded £100m in costs defending RBS from actions relating to its financial crisis conduct.

“We are working to find solutions to this problem which threatens to complicate some amount of large dollar UK litigation finance activity, possibly including creating a Burford captive with reinsurance coverage.”

Christopher Bogart, CEO of Burford, told Litigation Futures that the “vast majority” of its ATE insurance book consisted of pre-Jackson cases which had been profitable.

“We’re still working our way through this backlog,” he said. “We’ve not been writing very much business at all in the post-Jackson era.”

Mr Bogart said he had been personally involved in lobbying governments in Asia to relax the rules on litigation finance.

“It has always seemed peculiar to me that systems that have completely adopted English common law, and seen that England has been inclined towards litigation finance and not seen ill effects, have not followed suit.”

He went on: “Brexit does not concern me at all. Lawyers generally benefit in times of uncertainty – there’s more demand for their advice and for litigation.

“The devaluation of sterling makes London considerably more attractive for arbitration.”

He added: “Our growth reflects the strong interest from clients in the alternatives available to them. That is more than anything else what powers this business.”

In other litigation funding news, the US House of Representatives last week approved a bill that would require class action lawyers to notify federal courts when a third-party litigation funder is bankrolling their case.

In Germany, Therium Group Holdings has launched what it described as the country’s first “full-service” third-party funder.

In a statement, the company – well established in the UK – said it saw “a particular demand in Germany for funding litigation across financial services, securities disputes, cartel damages situations, insolvencies, post M&A matters and shareholder disagreements, in particular arising out of joint ventures”.

It continued: “The firm is already engaged in Germany and has financed various significant cases, including sophisticated legal proceedings for the remuneration of infrastructure construction work against a foreign sovereign state pleading state immunity and a securities litigation against a major German bank.

“In addition, Therium in London is funding the first UK claim against Volkswagen for the emissions scandal.”

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