Money should never stand in the way of justice. But too often, corporations (or governments, or high-net worth individuals) who find themselves in a dispute will “lawyer up,” hiring heavyweight law firms and burying legitimate claims in an avalanche of filings and other legal maneuvers.
The playing field started to level off with the advent of litigation financing, which was still a nascent industry in 2009 when Neil Purslow (photo, left) co-founded Therium Capital Management with John Byrne, the firm’s global CEO. Purslow, the firm’s Chief Investment Officer, worked as a solicitor in the UK, in-house and in private practice, before taking this chance on a new, but potentially game-changing, field.
Therium’s U.S. CEO, Eric Blinderman, was a litigator at Proskauer Rose in the U.S., and also served in the Department of Defense and Department of Justice, before joining the rapidly growing world of litigation finance.
They haven’t looked back. To date, Therium has raised over $1B in funds for plaintiff entities, supporting $36B worth of claims – claims which otherwise might never have been brought.
Last year, Purslow and Byrne started Therium Access, a charitable branch of the company dedicated to providing grants to individuals and organizations that facilitate access to justice and bridge the justice gap – getting us that much closer to true justice for all.
Lawdragon: Litigation financing is a flourishing industry. But for those still unfamiliar, could you give us a bird's-eye description?
Eric Blinderman: From a 30,000-foot perspective and at its most basic, what Therium does is provide capital to entities, corporations, small, medium, or large, which for a broad array of reasons are unable to, or choose not to, fund their plaintiff's side litigation. They seek capital from Therium to fund such litigation and in exchange, if successful, Therium gets back the capital that it provided to fund the litigation, plus a return that is negotiated with our clients. The funding is non-recourse, so if a matter loses, Therium does not recoup its investment.
That’s the most basic and simple description. Things can get much more complicated, of course. Every transaction is unique and built around each client’s needs and the investment itself. If you look at an interest in a single piece of litigation as a building block for the creation of an infinite variety of investments, it can become much more complex.
For example, Therium can fund anything directly or indirectly related to commercial litigation. That may mean that our clients have an interest in one or more matters. The moment you start bundling together multiple litigations for purposes of creating a financial structure, you can then get much more complicated portfolio funding products, lines of credit, and other financial instruments that unlock illiquid interests in those litigations. We provide our clients with the benefit of off-balance sheet financing and the ability to preserve capital.
LD: Neil, you’re a co-founder at Therium. What made you believe in this industry? Did you know that this would be a successful field to move into?
Neil Purslow: John Byrne and I launched Therium in 2009, which coincided with the growth of litigation finance as an industry. The impetus in the UK was a change in the UK legal position, which actually came through in the early part of the 2000s. That was what led to the growth of the industry on this side of the Atlantic, off the back of the industry’s establishment in Australia where it originated.
LD: Interesting. I think a lot of people think of it as a U.S. industry.
NP: That’s a common misconception. People often think of the U.S. as being more litigious and therefore litigation finance must have originated there but that's not the case! The principal driver of growth in litigation finance is client demand for capital, and the reason why it grew first in Australia and then the UK was because those were jurisdictions where lawyers couldn’t work on a contingency fee basis, unlike in the U.S.
Traditional providers of finance were not equipped to evaluate litigation risk or to make significant investments over a long period of time in legal matters, so you had this unmet client need for capital in those jurisdictions that wasn't being addressed. Of course, the market has evolved to be much broader than this, and there is a very significant litigation finance market in the U.S. as well now, but it largely followed Australia and the UK.
LD: That makes sense. Why did that law get changed in the first place in the UK? Was the purpose to sort of level the playing field for people who couldn't afford lawyers, or companies that were plaintiffs? Or was it sort of a sideways thing?
NP: There were legal restrictions on funding that had existed since Medieval times, until a handful of cases after the turn of the millennium from which it was clear that modern litigation funding was lawful and in fact had public policy benefits – benefiting businesses and consumers and helping to level the playing field.
LD: I noticed that charities are one of the types of clients that you have. Can you talk to me a little bit about that, and about the social justice aspect of what you do? Is that an active part of the process, seeking out people or groups with lower incomes who have a real need for this?
NP: Therium invests in the provision of social justice on a not-for-profit basis through Therium Access. The whole raison d'être of our business is to facilitate access to justice, based on an underlying premise that access to legal advice and access to the courts in order to obtain redress should be universal. Unfortunately, that’s far from reality and the justice gap in the UK for instance has been widening rather than narrowing in recent years. The genesis of the idea came from us seeing a number of cases, particularly in the early years, which were highly meritorious and capable of having tremendous social impact, but which were not viable from a commercial perspective.
On the commercial side, we don’t only fund cases where it's David against Goliath. Most of the cases that we fund are corporate versus corporate where the merits are strong and where we can achieve a return for our investors. Nevertheless, the social purpose that underpins Therium is enabling parties to bring their disputes into a court or into an arbitration. That can be businesses funded on a commercial basis as well as the sorts of cases that might be funded by Therium Access. Either way, our funding permits aggrieved parties to obtain a fair and just resolution of their disputes and this is of tremendous value to claimants themselves of course but also to society and the economy. Legal proceedings are expensive, and they should be financeable like other activities are financed.
LD: That’s so true. Can you tell us more about the mechanisms you use to fund the cases? Is it all funded from the litigation wins you’ve invested in, or do you have different financial products available at this point?
NP: To step back, what our business does differently from most other investment firms is that we focus entirely on analyzing, understanding, and pricing litigation risk – which of course traditional providers of capital, such as banks or private equity firms, are not equipped to do.
When we started, the primary business of Therium was investing in single cases. A lawyer would come to us and say, "I have a client who would like your funding please in order to pay me to litigate their case." We would look at the case and invest in it if the matter had a high likelihood of success, sufficient quantum of damages, and other indicia that gave us comfort that the investment was sound. That was the core model and we still do that, day in, day out. However, now we also regularly fund through other structures such as portfolio arrangements with companies and law firms. There are lots of different avenues that permit Therium to deploy capital creatively so that we meet the needs of our clients and so that the matters our clients are litigating can progress. Our experience and knowledge of the law coupled with our investment process allows us to be flexible, so we can develop structures that meet the unique needs of each individual, corporate or law firm client of the firm.
LD: Interesting. Was access to capital a challenge when you were first getting started?
NP: Yes, it was!When we started in 2009, this was an unknown asset class. The fact that we were raising money during the financial crisis made the process much more challenging. And nobody had a track record because we were all launching for the first time. We built our investor base over the years and now have large-scale institutional investors that are investing across a wide range of asset classes but have an extremely sophisticated understanding of our area. It took time and hard work to build the track record, win by win, to get to the point where we could credibly prove that this was an asset class capable of delivering attractive returns.
LD: Tell me about some of those wins. Are there any that stand out as turning points, where you thought, this is really working?
EB: Every result is important to us, now as much as ever, and every success is hard won, but if they are important to us, they are all the more important to the clients. As a former federal prosecutor, I am conscious of and grateful for the fact that my work is focused on ensuring that individuals or others who have been wronged can prosecute their matters to conclusion. Just recently we had a win in a private commercial arbitration so I can't talk about the details, but the final award granted our client the recovery that it was seeking. Equally as important, however, was a concurring opinion in which the arbitrator observed that the particular matter was the precise reason why funding existed. The arbitrator noted that the harms to the claimant were egregious and that the claimant’s business was ruined as a result. The arbitrator went on to conclude that the claimant would never have been capable of prosecuting the matter to conclusion absent the provision of funding, that the provision of such funding had allowed the claimant to undo the harms that the respondent had visited upon it, and that the cost of such funding should be included in the award.
Separately from the moral imperative of assisting someone who has a wrong that needs righting, others come to Therium because they have a legitimate commercial or economic reason to preserve capital. For example, corporations will often come to us simply because a litigation may take three to five years to resolve and they need to either expand their business lines or preserve capital to expand their core business. That too is a win for Therium.
Other times, people come to us because they simply lack the resources to litigate their claims no matter how strong those claims might be. That means that they are suffering and would continue to suffer but for Therium’s assistance. So from my perspective, a win at its most basic involves Therium assisting those who don't have the ability to prosecute a matter and permitting those individuals or entities to take that matter to conclusion, and ultimately right the wrong which precipitated them to file suit and come to us in the first place. Those also stick with me and mean a lot.
These types of things make you get up in the morning. Litigation at its core is about making sure that we are able to settle our disputes through a court of law. If people don't have the ability to access the law, then you end up with a fundamental breakdown of the most basic elements of what makes society function. From my perspective that's a very important reason and an important definition of how I quantify success. But don’t get me wrong, the IRRs that we generate for our investors are important too.
NP: You’re reminding me of a win that is a good example here and worth talking about. This case was a UK case. It's to do with the Post Office, which is a public organization, with postmasters and postmistresses, and people who run the counter to send your mail or buy your TV license. They are all independent businesses, but they all work within the same system and account back to the central postal organization, almost like a franchise.
What happened in this particular case was that the main postal organization introduced a new computer system. Like so many IT systems, it didn't really work very well. It had an accounting side to it that had a glitch. The glitch caused the system to throw out incorrect numbers, so postmasters would sell stamps and enter the transaction into the system, but the computer system would report that there was money missing.
Although the post office was aware of the glitches, they still took enforcement action against the individual postmasters and postmistresses for the mischarged sums, even going so far in some cases as to prosecute them for theft, using prosecutorial powers that they have in the UK. Thus, postmasters and postmistresses went to prison even though the Post Office knew that the actual cause of the missing sums was its own faulty computer system.
To remedy things, the affected postmasters and postmistresses formed an action group and Therium funded their case. The purpose of the case was for them to get economic redress and, equally important for them, to clear their names.
The Post Office fought the case vociferously, running up costs and arguing every conceivable point. The Post Office even tried to get the judge removed at one stage, saying that he was biased. The Post Office was unsuccessful all the way through and eventually settled on confidential terms but only after causing a huge amount of money to be spent. We had to increase our investment twice as a result of the Post Office’s very aggressive litigation tactics.
Even though the Post Office’s strategy of disruption failed, and the postmasters and postmistresses were vindicated, this case would not have succeeded without litigation funding. The defendant was a government entity with unlimited resources and prosecutorial powers. With Therium standing alongside the plaintiffs, they were able to level the playing field, withstand the worst of the Post Office’s litigation tactics, and ultimately win. Cases like this are, at its core, why funders like Therium exist.
LD: That’s incredible. It’s a great example of what the funding is there for and the sorts of things it can achieve, and also a great example of why it's needed. It's the headwinds these people face. Only by getting together in a group, getting a funder behind them, and then hammering forward, could they get to that endpoint. How long were you working on that for?
NP: Close to four years. It wasn't particularly long, but it was incredibly hard fought. That wasn't the longest. There's an additional one at the other end of the timing spectrum that represents another David and Goliath example.
In this other case, a professor invented the technology for testing blood for diabetes. His test consists of strips in which you can dip your blood to determine glucose levels. He invented these strips at home using his daughter's microscope. But he worked for a large multinational company and under the employment provisions of the company, anything he invented and that the company patented belonged to the company.
Although the company patented the professor’s test strips, it never marketed the invention or spent any money on marketing. Instead, the company licensed the patent to others who marketed it and the company made about £20M by doing absolutely nothing except applying for a patent and without sharing anything with the professor.
There's a particular provision of the patents legislation in the UK that isn't very commonly used but that allows an employee to bring a claim for a share of any "outstanding benefit" that the employee delivers to their employer as a result of the employer patenting his work. This professor brought a claim against this large multinational corporation for a share of the proceeds that the company had made from licensing out his invention and for which they had invested nothing.
He brought the claim, and his lawyers were engaged on a no-win, no-fee basis, which is like a contingency but without the share of damages. We made a very small investment to pay for external costs. His case took about 14 years and we were invested for close to 10 years during which he went to the Court of Appeal twice and ultimately all the way to the UK Supreme Court where he was ultimately vindicated completely. It was almost the first case that we ever funded and was a tiny investment, but we really wanted it to succeed, so when he won, we were delighted for him.
So yes, there are some very gratifying cases where you're really pleased to see the right outcome. It goes back to the underlying reason of why we do this in the first place. Beyond a narrow investment methodology which is how you make it work, you do it to support those who were wronged and who have strong claims.
LD: That must have been so satisfying. Now, is this year throwing a wrench in things? Can you talk about how Therium, or the larger industry, has been impacted by the economic fallout from the current pandemic? Have things sped up, slowed down…?
EB: Covid-19 has definitely changed things. It’s changed the nature of how business is transacted across all sectors of the economy and it has also changed how every business, including Therium, must operate. At its most basic, the primary issue is to make sure that everyone who works with us is protected, safe, and that we're minimizing the physical risk of exposure. That's dramatically changed how we operate at its most simple level, from remote meetings, at-home working environments, and the constant debate about whether and how we're going to revert back to a more standard communal office environment. As part of that process, we are constantly rethinking our infrastructure needs in the short, medium, and long term and with a fundamental goal of ensuring that people don't get sick during a global pandemic.
The pandemic has also changed how we underwrite and work with our clients. Health and safety really for them too is a core concern and the rest are details. But those details matter too.
From an academic perspective, I would often assert that litigation funding is a non-correlated asset class, which means that it's not tied to the broader markets. Litigation continues in good economies and bad economies. In some ways it's counter-correlated, meaning that certain kinds and types of litigation will increase in down economies. In theory then, litigation funding should either be flat or increase during the course of an economic downturn. From a practical perspective, this academic perspective has proven correct and Therium is more busy than ever.
It makes a lot of sense because we provide capital to entities that otherwise are seeking to de-risk or are not otherwise capable of bearing the cost of litigation. If your cashflows have gone to zero in the span of a single government shutdown order and you are handling claims that have value, but you are no longer capable of paying to prosecute those claims, then you're going to look for alternative providers of capital like litigation finance companies to help you bridge that gap.
NP: I think on this side of the Atlantic, we certainly have been more busy over this period, but I couldn't say that the cases we're seeing are directly Covid-19-related, although there are some clear examples, for instance in insurance.
I think there's an interesting comparison here with the way the industry operated after the financial crisis. Therium was active during that period, but the industry was much less mature. The 2008 financial crisis spawned lots of litigation that took time to progress through the system and many years later, we were still seeing financial crisis-related litigation funding cases coming to us because of the time it took to get the claims off the ground. I expect this time there will be another wave of cases that emerge, particularly in the insolvency world and general commercial disputes as the economic realities of Covid-19 come through. The major difference between the 2008 financial crisis and now, is that cases should not languish in the same way because our industry is much more mature, lawyers are so much more aware of how litigation funding operates and litigation funding is much more readily accessible for those who will need or want it.
LD: Before Covid, did your firm have strategic plans for growth? If so, are those still in place?
NP: We’re absolutely still pursuing our pre-Covid growth plans. We are where we wanted to be, which is in all of the major markets for funding. Our view has always been that there will be a small number of very large leading global players in this industry, and Therium is one of them.
Geographically speaking, there are some regions which have potential but are not yet developed. We are watching and waiting to see how the legal and economic situation in those regions evolve and to determine whether we should place boots on the ground there.
We're also gradually and deliberately building our headcount, but it’s more about quality of people and financial scale rather than total numbers of employees.
LD: So everyone's really busy.
NP: You don't apply the same metrics as you do for a law firm. You don't count the number of partners or the number of lawyers and think, more is better. Here, the fact that we have a much tighter headcount than other funders is a positive, but it means there is never a dull moment.
LD: Without giving away your secret sauce, can you maybe give me some top-level factors that you look at when you decide to invest in a case?
NP: One of our investors very early on said to me, "I don't know why you don't just focus on short-tail cases that will win." That was perhaps a statement of the obvious, but it is certainly our primary goal to invest in cases that will resolve successfully and, ideally, quickly.
The touchstone of what we're doing is assessing whether any particular investment will succeed, and will it work economically for all stakeholders? Obviously, many questions flow from that, like, what is the case worth if it resolves successfully? Will we be able to enforce any judgment or award? Then there are budgetary questions. How much is it going to cost us to get us to the end of this and how long might it take? As I say, there are cases that can be very hard fought and that can cost a lot more than what you initially budgeted. If we commit to funding a case, will our clients and investors benefit? That's really the lodestar of what we're trying to do.
LD: In that decision-making process, do you have a rubric or a point system where you try to figure out the likelihood that this is going to succeed? How do you decide? Is it a group effort?
NP: Each underwriting opportunity is led by the investment team member working on that particular case. We have a standardized approach to answering the various questions needed to fund a matter, however it isn't a tick-the-box exercise where you say, "I ticked these various boxes, and the case got this score” such that funding is warranted. There's a lot of analysis that is required to understand the information needed to make an investment decision and this is where having extensive experience comes in. After that comes the application of judgment to that analysis so that we can form a view about whether an opportunity is good or bad. It's a really interesting confluence of core legal skills, financial skills, and then decision-making skills. Then, each investment team member needs to make a balanced risk-weighted decision about whether an opportunity stands up. The whole team has to be good at that process and it requires a lot of analysis and good judgment. Obviously, we've got a host of Investment Committee structures and checks and balances but that's the core of the exercise that every investment team member has to carry out constantly. When new investment team members join, it takes them time to learn how to do the analysis, and how to calibrate their internal barometer, if you like, to make those investment decisions. It’s a real craft.
LD: It's pretty fascinating. It's got to be a challenge, and an interesting one. You said before you take about three to five percent of the cases that come to you?
NP: Yes. As well as the pure legal and financial considerations, we also need to examine the human element: the client, the legal team, their track record, their billing practices and a host of other details. It's like private equity investing except the business plan is the litigation strategy and the management team is a combination of the lawyers and the client. As you are going to have to work with the client and the legal team, you also need to be comfortable with them, their business practices, and then try and work out in the context of the case whether it will be successful a number of years out. It's a very interesting exercise in trying to navigate some of the softer dynamics along with the narrow legal analysis and investment analysis on the page.