Three-quarters of lawyers at big law firms and major corporations say their businesses have used litigation funding, more than twice the number from three years ago, a report by Burford Capital has found.
It also revealed that UK lawyers are much less pessimistic that their counterparts in the USA about reduced headcounts as a result of Covid-19.
Researchers GLG surveyed 499 private practice and in-house lawyers and related professionals in the UK, USA and Australia (split 30:40:30); just under half the law firms had from 10 to 500 lawyers, while the rest had more. The annual revenue of the companies where the in-house lawyers were based ranged from $100m to over $5bn.
The proportion of lawyers saying their firm or organisation had used funding has more than doubled from 37% in 2017 to 76%. For law firms the proportion is even higher at 89%.
Almost half of private practice lawyers (48%) said they believed their firm’s revenue would shrink as a result of the downturn. A similar proportion of in-house lawyers expected their budgets to be cut (46%).
When asked if the recession would lead to headcount reductions, UK lawyers emerged as more positive than their colleagues in the US or Australia.
In the USA, 44% of lawyers said this was likely and 43% in Australia, compared to only 24% in the UK.
UK lawyers were also more eager when asked whether it was likely that their firm would use legal finance to “mitigate the impact of the current downturn”.
More than half of US lawyers thought this was likely (53%), compared to 83% of UK lawyers.
The survey found that a large majority (77%) of in-house lawyers expected their companies to set strict pricing controls, while 59% expected to push for “further pricing discounts or alternative fees”.
Most in-house lawyers (52%) complained that their companies had been forced to “abandon meritorious claims due to costs”.
On the more positive side of the coronavirus crisis, 75% of lawyers said it would allow them to rethink and improve past approaches to doing business, while two-thirds cited “significant benefits” from remote working.
A large majority of private practice lawyers (78%) said legal finance made them more competitive in the market, while 68% said their firms were likely “to build or augment” contingency fee practices.
Burford commented: “Although this may overstate the rate at which law firms will adopt contingency and risk-based models, it recognises their importance—and the urgency of firms’ growing understanding that they will need to make structural changes to the traditional law firm business model to stay competitive in the long term.”
Lawyers said the main factor in recruiting a legal finance partner was reputation, followed by quality of available capital. Cost featured at the bottom of the list.
Chris Bogart, chief executive of Burford, said: “What is very clear from this independent research is that the legal sector is on the cusp of significant change, particularly in how it thinks about financing and managing risk.
“There is an increasing sophistication in understanding that legal departments and law firms have assets that can be financed—and with that an increase in expectations about what a legal finance provider should offer.”
The report was released to mark Burford’s dual listing on the New York Stock Exchange, to complement its AIM listing in London. It is the first funder to list in the US.
The growth of litigation funding has been opposed around the world by the US Chamber of Commerce, but speaking on a press call earlier this week, Burford co-chief operating officer David Perla said he did not think the listing would act as a lightening rod for renewed lobbying.
He suggested instead that “the trend is going in the other direction”, with the chamber moving on to focus on other issues as its members were “not interested in finance for law”.
Legislators and judges were also “much more receptive to what we do”, he added.