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Reya City Law Firm Mishcon has opened a litigation finance unit with one of the world’s largest third-party funders with the aim of profiting from the lawsuits by taking some of the risk.
Mishcon on Wednesday launched the new venture, MDR Solutions I, with Harbor Litigation Funding. Harbor is investing £ 150million to fund cases, including class actions against large companies and claims filed by companies who want to reduce the financial risk of litigation.
Under the new model, Mishcon – which has announced plans to list on the London Stock Exchange this year – will sacrifice some of its fees in exchange for a potential share of a client’s earnings.
Litigation funders typically cover the cost of a lawsuit and receive a multiple of their costs or a share of the payment if cases are successful. The industry has grown rapidly in recent years as investors seek higher yields in an era of ultra-low interest rates. It has also been beneficial, as companies have struggled to afford costly litigation.
According to data from law firm PRPC, UK lenders had a portfolio of legal cases and cash worth £ 2 billion in April, double the amount three years earlier.
Mishcon is one of a growing number of law firms partnering with third party funders. Others include DLA Piper, who last year announced a non-exclusive £ 150million deal with two backers, and American Willkie Farr, who recently signed a $ 50million deal with Longford Capital Management.
Mishcon Executive Chairman Kevin Gold said it was “essential that we have the right structures and the right support in place to meet the growing needs of our growing customer base.”
Much of the litigation handled by Mishcon is likely to be in UK courts. But its funded cases will include complex cross-border disputes and international arbitrations.
Harbor has invested around $ 200 million in Mishcon cases in the past, including a successful lawsuit on behalf of UK companies claiming insurance compensation for losses from the pandemic.
It will partially fund Mishcon’s legal fees. Cases will be carefully considered and both parties will lose if a case is not successful. Richard Leedham, Mishcon’s litigation partner, said gains on future cases would be used to pay off losses.
Mishcon has invested a small amount of partner capital in the business and has not specified how the unit would be affected by its planned IPO.
Potential cases for MDR Solutions I include collective complaints in which individuals might not be able to afford legal action without support, and disputes between institutional shareholders. The firm will also seek to deal with issues such as complex fraud and asset recovery, prosecuting delinquent debtors and the assets of people who have failed to comply with court orders or obligations.
Such cases can be long, expensive and unpredictable.
Litigation funding has proven to be a lifeline for claimants who would otherwise have been unable to press charges, such as the 39 deputy postmasters whose criminal convictions were overturned this year after a lengthy case backed by Therium. However, the practice of profiting from litigation has also sparked controversy, exemplified by short seller Muddy Waters’ attack on Burford Capital over its accounting policies in 2019.
Leedham said Mishcon has a history of complex cross-border litigation, which would help him select cases. “We know how to litigate in different parts of the world and we believe we can open claims that would not have traditionally been funded,” Leedham said. “We are doing it because we believe it will be a commercial success. “