- Growth in litigation funding is fuelled by economic uncertainty, rising cost of capital and societal shifts
- Growing areas for litigation funding include anti-trust, ESG, commercial litigation and arbitration, and general consumer rights
- Litigation funding is increasingly becoming a preferred solution for corporations who want to minimise legal and financial risk and liberate working capital that would otherwise be tied in lengthy cases
- Deminor predicts the rise in its white paper, Litigation Funding from a European Perspective, released today
Leading international litigation funder, Deminor, projects that the investment potential for litigation funding in Europe will reach nearly $2 billion annually. This is according to , Litigation Funding from a European Perspective, a white paper Deminor released on Tuesday. The investment potential for Europe could be valued at $3.7 billion by 2025, upwards of 100%.
The actual amount invested in litigation annually is still a fraction of the investment potential estimated at 27% (USD 486m in Europe). As a percentage of total litigation spend, actual amounts invested by third party funders in litigation represent less than 1%. Real investments in litigation are likely to move closer to the investment potential over the next years, but fears that third party litigation funding is driving up the cost of doing business in Europe are largely overdone.
The white paper predicts the ESG agenda will be one of the drivers for growth in the UK and Europe, with cases having already been heard claiming damages for environmental harm. Climate and human rights issues are equally set to benefit from litigation funding over the next few years as this market looks to keep up with changing social issues. Other areas for growth include anti-trust damages, commercial litigation, including intellectual property, and data breaches.
Erik Bomans, CEO of Deminor, commented: “The growth of litigation funding in Europe will not only create a shift in perception, but in consumers’ and businesses’ ability to successfully resolve legal disputes that otherwise wouldn’t be accessible to them. Given the economic uncertainty, Deminor anticipates the market will shift towards businesses using the funding to be strategic with capital and release money that would otherwise be tied up in litigation. This is also likely to lead to more successful litigation outcomes where businesses can benefit from the knowledge of experts in the field.”
The report forecasts that while the EU market is still relatively small, the increase in the use of litigation funding is expected to hit annual growth of 8.3% in the next five years. Growing costs and focus on working capital is a key factor, prompting businesses to free-up working cash from long-term litigation projects and use litigation funding as a financial management tool. The United Kingdom is set to be the biggest single market contributor, with annual investment potential reaching USD 1bn.
Countries such as Germany and the Netherlands have been key players facilitating collective actions ahead of the European Representative Action Directive which makes a collective action mechanism available for consumers in all EU countries in the future. Several business lobby groups are calling for regulation of the litigation funding industry but, given the industry’s small scale in comparison to the litigation market as a whole, this looks premature.
Erik Bomans added: “Regulation is not necessarily negative and may create more certainty and transparency in the market, provided it is used to protect fair market competition and access to justice for all market players regardless of their financial means. The goal should be to give consumers and smaller companies litigation options to support justice, to champion social progress and to restore balance.”