How to invest in litigation finance – and get returns from bankrolling legal disputes

Lawsuits are a trillion-dollar business and litigation-finance firms play a key role in funding claims. The accounting can be complex, but there are opportunities for investors to profit, says Bruce Packard.

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“The first thing we do, let’s kill all the lawyers,” says wise-cracking rebel Dick the Butcher in Shakespeare’s Henry VI. The line always gets a laugh – it’s easy to make jokes at lawyers’ expense – but Shakespeare is not endorsing the thuggish Dick’s view. On the contrary, it shows why legal suits are important as a non-violent mechanism for resolving disputes. Yes, when there are large sums of money at stake, disputes obviously take time, are unpleasant and stressful for both sides, and create large gains for lawyers. But the alternative would be a patronage system with violence as the ultimate dispute resolution mechanism. You don’t want to live in a country where the lawyers are killed.

Similarly, making money from legal claims may seem at first glance morally questionable. Champerty – which sounds like a picturesque Alpine village in the shadow of Mont Blanc, but is actually the practice of funding legal disputes – was banned in England from the 13th century until the 1960s. Champerty arose in the days when the country lacked an independent judiciary, so a nobleman might buy a weak claim and then through power, bribery or threat of violence convert it into an advantageous decision. Now that the rule of law is much stronger in England, allowing champerty favours a claimant who lacks the financial fire power to pursue a claim that they otherwise would not have been able to pursue on their own.

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Bruce Packard
Contributor

Bruce is a self-invested, low-frequency, buy-and-hold investor focused on quality. A former equity analyst, specialising in UK banks, Bruce now writes for MoneyWeek and Sharepad. He also does his own investing, and enjoy beach volleyball in my spare time. Bruce co-hosts the Investors' Roundtable Podcast with Roland Head, Mark Simpson and Maynard Paton.