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Hunting elephants: Can big data transform litigation funding?

A new form of legal intelligence is emerging that could shake up the funding industry
Hunting elephants: Can big data transform litigation funding?

The legal sector is not known for being high tech. The court system is still hopelessly analogue and – while some City firms have embraced digitisation – the emphasis is still on human judgement and billable hours. 

Big data has the power to change this, however – at least in the litigation funding sector. Litigation analytics tools scour large quantities of data to predict case outcomes, and the likely cost and length of a claim. They can also build profiles of the parties involved, including judges. What sort of decisions have they made in the past? Have they displayed any behavioural patterns? 

In answering these questions, data tools promise to bolster funders’ profits – and raise the risk of a reaction from the courts, as has already happened in France. 

 

New type of legal intelligence 

Litigation funders finance legal claims and take a share of the winnings if the case succeeds. The most common pricing structure is the greater of a share of the award (typically 30 per cent), or a multiple of the capital (typically three). The ability to predict case outcomes, therefore, is crucial to funders’ success. 

In its infancy, the industry was populated by experienced litigators, who reviewed cases themselves. However, the landscape is changing and several of the biggest funders are now using analytics to guide their decision-making. Burford Capital (BUR), for example, said it devoted “very substantial resources and effort” to new data tools. This trend is likely to continue as more financiers – used to spreadsheets and number-crunching – move into the sector. 

According to Solomonic, a litigation analytics company, we are still “in the foothills of what data and analytics can do”. However, funders are already keen to showcase their progress. In a presentation last year, Burford said its predictive models are becoming more reliable, with concluded matters producing 96 per cent of the average estimated recoveries predicted. 

Analytics could also alter the type of disputes investors consider. At the moment, listed funders seek big cases, because they are the only ones that make financial sense. There’s no point investing in a risky, lengthy court case for a piddling damages award. However, Tets Ishikawa, managing director of LionFish – the litigation funding subsidiary of RBG Holdings (RBG) – believes big data could make smaller claims more viable.

 “If you’ve got this great tool, it means you don’t need as many lawyers looking at a case,” he said. “If you’ve got a system that does a lot of the heavy lifting, it could really cut costs." 

In a growing industry where competition for cases is already fierce, this could improve supply and demand dynamics. Edward Bird, managing director of Solomonic, predicted that ‘portfolio funding’ will also become more widespread as data tools take off.

“There will be increasing confidence and certainty when we see a move from investing in one or two ‘stocks’ to investing in a portfolio,” he said, suggesting that the sector will start to behave more like a stock exchange where law suits can be grouped together into investment products. At the moment, however, he said big funders are still on “elephant hunting expeditions”.

There are potential obstacles. The French government has intervened in litigation analytics, banning the publication of statistical information about individual judges’ decisions. Bird said this was unlikely to be copied in England and Wales. "In France, they were picking very contentious areas of law such as immigration, to suggest that some judges are biased," he said. "We don’t go anywhere near that – our analysis shows just how consistent the judges are. There are just slightly different mindsets."

 

Dearth of data 

The challenge funders now face is accessing the necessary legal intelligence. HM Courts & Tribunals Service is notoriously bad at collecting data, and public documents are not guaranteed to actually be available. There are some signs of progress, however. In April, the government plans to launch a free repository of legal information, hosted by the National Archives, in computer-friendly form. For now, however, resources are patchy.

Funders are dealing with this in a variety of ways. Some are working with third parties that use computers and lawyers to sift through documents. Others are going it alone. Burford, for example, has its own quantitative analytics function, run by a team of in-house scientists. 

Data generated by funders themselves is also important. Maurice MacSweeney, director of litigation funding at Harbour – a privately owned company – estimates that the company has analysed around 5,000 cases, creating a valuable archive. This is far more than the number of cases Harbour has actually funded.

Things become really interesting when law firms enter the fray, however. City solicitors are increasingly striking deals with funders. Most recently, Mishcon de Reya – which is due to list imminently – set up a £150mn litigation funding arm with Harbour. But Mishcon believes it has a secret weapon that sets it aside from traditional players. 

“We have better data sets than funders,” said Mishcon partner Nick West, referring to decades of case histories ripe for data-fication.

Mishcon is keen to downplay the quality of other law firms’ data sets, and it is true that many practices have not gathered information methodically or consistently over the years. However, the City is starting to cotton on. 

Alex Oddy, a commercial disputes partner at Herbert Smith Freehills, said there had been a “significant acceleration” in the use of litigation analytics over the past year or two. “Client expectations are changing,” Oddy said. “People are starting to wonder whether they can afford not to have these kinds of insight.”