Leaders League: Therium is part of the recently launched International Legal Finance Association (ILFA). How is it different to the UK-based Association of Litigation Funders (ALF), which also purported to be international?

Eric Blinderman: The ALF is a regulatory body, albeit self-regulating. ILFA is a trade association and therefore has no regulatory role at all. The UK Ministry of Justice instigated the ALF to act primarily as a self-regulator – the voice of standards in the UK. Different jurisdictions have different regulatory environments, but as a global trade association, ILFA looks after the interests of the litigation finance industry and the industry’s goal of facilitating access to justice.

ILFA has a well-informed view of what the industry is and is not. It has no particular view with respect to regulation, except to ensure that any such regulation is informed and does not impact negatively access to justice.

In terms of the interaction between the ALF and ILFA going forward, ILFA is global, but will have local chapters. The ALF could become a local chapter of ILFA. But they play a subtly different role, because of the UK’s focus on self-regulation.

ILFA is a critical milestone in the maturation of the litigation finance industry. The US has had a group of four industry leaders, Therium, Burford Capital, Parabellum Capital and Omni Bridgeway, who have met and informally taken on the role of a trade association, but ILFA’s creation will allow other industry participants to have a seat at the table which will in turn allow the industry to address regulatory challenges on a comprehensive basis. Expanding and formalizing an industry association in this way has been talked about for years.

What were Covid-19’s impacts on the litigation funding landscape, and do you think it will affect litigation or litigation funding in the long term in any way?

There have been two main impacts of Covid-19 on the litigation finance industry and even more broadly on the legal industry. The first impact was on demand. As Covid-19 impacted cashflow at every level of the economy, Therium was inundated with funding requests from a broad of array of law firms and entities, many of which might not have traditionally sought third-party funding. Indeed, Therium has often spoken about the manifold benefits that litigation finance can provide to large blue-chip corporations, but those observations have not necessarily resulted in robust deal flow from such entities at the levels one might expect given the benefits. Also, certain larger and more traditional firms had in part generally refrained from accessing litigation funding. Although this reticence to access litigation funding has been waning for some time, fallout from the pandemic has further eroded these prejudices. In short, the pandemic disrupted cash flow expectations for corporate entities and law firms regardless of size, meaning Therium is seeing litigation finance industry opportunities at a much higher level than before the pandemic and from a much more comprehensive distribution of potential clients.

Secondly, COVID-19 has impacted tremendously the very nature of how law is practiced and business is conducted for the obvious reason that it is dangerous for people to assemble in close proximity. Courts are coping with this by permitting depositions, mediations, and trials to occur virtually while businesses are coping by permitting employees to work from home and by resorting to virtual teleconferences which take the place of face-to-face meetings.

There are pluses and minuses to these changes. On the plus side, cost efficiencies are created when people can conduct their work via video conference. On the negative side, videoconferences do not permit participants to read the nuances and body inflection that are discernible at in-person meeting. This raises challenges for lawyers who depend upon such nuance to probe a witness’s credibility or to read a fact finder’s response to a line of questioning.

Notwithstanding, disputes are still getting resolved although I suspect that lawyers will revert back more quickly to the traditional norms of in-person legal proceedings while businesses may never fully revert back to in-person business as usual once the pandemic subsides.

In the UK, Therium recently partnered with Liverpool-based law firm Provenio Litigation to launch a £50m fund to finance high-value business litigation and arbitration claims. Are similar developments in store for Therium in the US?

This form of transaction would face significant regulatory challenges in the United States since most jurisdictions do not permit non-lawyers to own equity in a law firm or to share in the fees that a lawyer generates. Importantly, however, Arizona recently rescinded such prohibitions and is the first state to do so. Given the regional significance of Arizona, these changes could portend a significant shift in the entire legal industry. Furthermore, the recent regulatory changes in Arizona could make that state a bellwether for other states.

It is also important to observe that these changes in Arizona ultimately should serve to make lawyering more accessible to litigants regardless of means as law firms are able to easier access capital. This (in turn) should promote the ability of legal service providers to operate more efficiently and would allow them to better serve under-represented communities, while reducing the costs that attach when any individual or entity accesses the legal system. These are important policy goal for any regulator to promote.

Therium Access, which regularly commits large sums of money to access to justice, is a lauded aspect of Therium’s strategy in the UK. Is the US planning a not-for-profit arm for access to justice?

Therium has always planned to expand the program to maximize its impact. That’s now in the works for the United States and Australia. As envisioned by Therium’s Global CEO and Founder, John Byrne, Therium Access was never meant to be limited to the UK. Rather, Therium Access just happened to launch there and we will see the program role out in the US and other jurisdictions soon. Access to justice isn’t just a phrase, it’s a core part of Therium’s ethos, and Therium Access demonstrates that.

Enforcement and its perils are increasingly spoken about in the industry, with the rise of “rogue players” in geopolitics accompanying a growing propensity on the part of respondents to decline to pay out awards. What’s your take on this trend?

Speaking as a practitioner, this is not a new issue. When you practice law, cases often begin in earnest only after you have prosecuted a claim to judgment. This is why Therium incorporates robust enforcement criteria into any underwriting analysis for cases that it funds. There are certain cases we see that would definitely lead to colossal awards, but that we will not fund because of enforcement risk. To avoid making a poor investment decision, any litigation finance entity must understand these risks at the outset of its underwriting process.

As an example, Therium has obtained very significant arbitral awards and/or court judgments against companies that are more than capable of satisfying them and which have assets that are readily subject to attachment and seizure. Despite this, defendants still routinely appeal those judgments or seek to set aside those awards, even if the likelihood of success is low. This is so because the exercise of such rights creates delay and delay provides defendants with leverage in any negotiated settlement. This means that any enforcement analysis must consider the procedural avenues available to defendants and respondents after the rendering of a judgment or award and the timing issues associated therewith. And these issues are on top of the up or down question of whether a defendant or respondent is capable of satisfying a judgment or award and has assets that are subject to seizure.

In sum, enforcement and collection risk raise important questions. But those questions are not new. They are fundamental to the dispute resolution process and intrinsic to litigation finance as an asset class. To manage these risks, disciplined funders will seek to understand and mitigate them at the outset of any investment. Otherwise, the funder will remain in a loss position on an investment years after winning an award, as defendants and respondents do not often simply roll over and pay out after losing a case.

Many litigation funder predictions have already come to pass – big corporates using litigation funder capital, more hedge funds entering the game, and certain early funders getting burnt by bad investments and crashing out of the market. What predictions would you make for the litigation or arbitration funding market for 2021?

We’ve seen a large uptick in requests for intellectual property funding, likely due in part to the coronavirus. This is so because entities are trying to correct for their liquidity problems by looking at their other assets, and monetizing IP assets is one way of doing that.

There will also likely be more market entrants in the space. But Burford’s numbers in the first half of 2020 reflected a precipitous drop in deployment and new commitments which could be an important data point reflecting decreased industry growth. On the other hand, these figures could be anomalous, an outlier spurred by pandemic-induced market dislocation, although they do cause me to contemplate whether my usual bullish predictions regarding industry growth will continue.

Interview by Arjun Sajip