Litigation finance is a relatively young sector in the United States, only becoming more widespread during the mid-2000s. To better understand the role litigation finance plays today, it is imperative to examine its origin and eventual growth.
Most notably, Australia solidified itself as the global innovator in litigation finance during the 1990s. In the 1990s, Australia enacted a couple pieces of legislation that would be pivotal in the development of modern litigation finance: the legalization of class-action lawsuits and finance litigation for insolvency practitioners. This lead to a rise in litigation financing companies. However, litigation funding companies remained worried, since some funding arrangements did not fall within the specific provisions of the insolvency statute. However, in 2006, those fears were abated as a result of a 2006 holding, regarding third-party litigation funding arrangements. Litigation finance was now legitimized in Australia.
Shift to the United Kingdom
In the United Kingdom, litigation financing became more widespread in 1999, after the passage of the Access to Justice Act. Following the passage of the 1999 Act, the courts confirmed litigation financing in a 2002 decision. After the 2002 decision, litigation finance companies began to grow in the United Kingdom.
Move to the United States
Prior to the mid-2000s, the litigation financing industry in the United States was predominantly confined to personal injury cases. In 2006, there was a shift; the first specialized commercial litigation funding group emerged. Although the 2008 financial crisis took a large toll a couple of years after, the “seed” of commercial litigation finance had been planted in the United States. In the past few years, the litigation finance market has grown significantly and continues to expand. While litigation finance is a relatively new industry in the United States, it has taken root and grown significantly.
Topics: litigation finance, third-party funding, litigation funding, litigation costs, United Kingdom, Australia
A Brief History of Litigation Finance, 5 The Practice (2019), https://thepractice.law.harvard.edu/article/a-brief-history-of-litigation-finance/.