Funding Mr Bates

Litigation Finance: The Rise of an Asset Class

Earlier this year, a TV mini-series galvanized public attention in the UK like nothing before. Mr Bates vs The Post Office told the story of a long-running scandal that saw post office managers prosecuted for cash shortfalls conjured up by a faulty IT system. As a piece of drama its impact was immense. It lent voice to the victims, many of whom lost their liberty as well as their livelihoods as a result of wrongful convictions. It made a national hero of their spokesman, Mr Alan Bates, who fronted a two-decade campaign for justice. And it revealed the lengths the Post Office and its IT supplier Fujitsu went to thwart the subpostmasters’ search for answers and, ultimately, recompense.

It also shone a light on an obscure area of financing. 

When Alan Bates lost his post office in Llandudno, North Wales, in 2003, he knew it would be hard to fight back. He’d refused to sign weekly accounts which he believed were riddled with computer errors because doing so would have made him personally liable for losses. The Post Office responded by taking away his contract and with it, the £60,000 that he and his partner had invested in their post office shop. “I never tried to take it to court,” he told a journalist later. “I was told that it could keep me in court and keep appealing any findings until I ran out of money.” 

Within a few years, Bates realized he was not alone and, in 2009, formed the Justice for Subpostmasters Alliance (JFSA). Meeting in a village hall in Fenny Compton, Warwickshire, their numbers grew but still, money was an issue. An investigation commissioned by the Post Office itself didn’t lead to a satisfactory outcome and the group were keen to escalate the matter through the courts.

In the last episode of the series, Bates addresses the hall: “Finally, 555 of us now, ready to tell our stories to a court.” 

“That’s all fine and dandy, Alan, but how are we going to pay for it?” asks an Alliance member. 

The group’s solicitor, James Hartley, comes to the front of the stage. “There are a few specialist funders who are prepared to take on this kind of risk. If we win, we pay them back out of your compensation.” 

“If we lose, please?” asks another member. 

“Well, then they lose too. Their entire investment.”

The group did win. After a hard-fought battle across two trials, two failed attempts to appeal and one failed application to have the judge recuse himself by the Post Office, a settlement was reached for £58 million in compensation. 

The specialist funder that helped them was Therium. Founded the same year Bates set up his Justice for Subpostmasters Alliance, it is one of a number of firms that finance litigation in return for a share of any award. Since launch, Therium has raised $1.1 billion of funds from third-party investors and has funded claims valued at over $40 billion. As well as the Post Office case, it funded the UK “dieselgate” action against Volkswagen, an antitrust case against European truck manufacturers, merchant interchange litigation against Visa and Mastercard, and more. Its largest peer, Burford Capital, also founded in 2009, currently manages a portfolio of $7.1 billion of cases, including a big recent win against the Argentine Republic over its nationalization of oil company YPF.

It has never been made public how much Therium made on the Post Office case, but we can speculate. Spoiler: the postmasters weren’t happy. To understand more about this still-young asset class, the kinds of returns it generates and how sustainable they are, read on…