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Key Takeaways from LFJ’s  Virtual Town Hall: PACCAR Revisited

By John Freund |

Key Takeaways from LFJ’s  Virtual Town Hall: PACCAR Revisited

On Thursday August 15th, LFJ hosted a Virtual Town Hall titled ‘PACCAR Revisited.’ The live event revisited the PACCAR decision one year later and explored what the future holds for legal funding in the UK and beyond.

Panelists included Ben Knowles (BK), Chair International Arbitration at Clyde & Co LLP, Robert Marven (RM), Barrister at 4 New Square, Nicholas Marler (NM), Head of Technical Underwriting at Litica Ltd, and Neil Purslow (NP), Founder and Chief Investment Officer, Therium Capital Management Limited. The panel discussion was moderated by Tets Ishikawa, Managing Director of LionFish Litigation Finance Limited.

Below are some key takeaways from the event:

We don’t hear much from insurers in regard to the PACCAR issue. Nicholas, from an insurer’s perspective, what are your thoughts?

NM: The ATE insurers’ odyssey through the world of PACCAR is in some ways quite different from that of a litigation funder. At first bluff, you might think that PACCAR doesn’t have anything to do with insurers because it has to do with litigation funding agreements, and you’d never catch an insurer signing an LFA, so what’s the problem?

If you scratch a little deeper though, the reality is quite different. If you as an insurer, insure a funder, and the funder gives an adverse costs indemnity to the claimant, then all of a sudden, the insurer’s contractual fortunes are tied to the funders. If the LFA is unenforceable, then not only can the insurer not collect its contingent premium if there’s a success, but the coverage provided to the funder has vanished–this is because the LFA is unenforceable.

We actually had this exact experience play out. An opportunistic claimant sought to cut the funder out, because it felt emboldened to do so as a result of the PACCAR decision. When they were informed that doing so would void their insurance, which was to their benefit, they magically found the goodwill necessary to resolve things with their funder and an amicable solution was quickly found.

You’ve touched on enforceability. Given how central that is to the heart of the PACCAR issue, Robert, can you share some insights and perspectives on this corse issue?

RM: There are essentially two views on the concept of enforceability. One is that it essentially says there isn’t anything wrong with the contract, just that it can’t be enforced. There is another view which says that the contract is unenforceable, that it is an illegal contract. I don’t agree with that. It seems this is one of the paradoxes of PACCAR, it seems to have rendered unenforceable funding agreements that were perfectly legal under common law.

A lack of enforceability is important to understand as a two-way street. It means the funder cannot enforce, and it also means the claimant cannot enforce. And this is the key to understanding why things have been put right in cases that are still ongoing. A claimant who says to a funder ‘I don’t have to pay you anymore,’ well, a funder could say to the same token, ‘I don’t have to fund your case anymore.’ And we have seen cases that have been over or very nearly over, where the claimants think they don’t need the funder anymore and saying ‘thank you very much, I needed the funding but I don’t have to pay you.’ Or ‘I did pay you, but I want the money back.’

This is where it’s important to remember that enforceability is a two-way street. If all sides want to continue to carry on, then everyone has an incentive in fixing the problem. It’s only where those interests converge that seem to have led to a significant litigation dispute.

Ben, from your perspective, how do you think this affects the UKs standing as a legal jurisdiction?

BK: PACCAR created a mess, and it was an expensive mess, irrespective of where we’re going to end up. There’s been a lot of lawyer’s time figuring out what PACCAR means and where we’re going to go. The PACCAR fix, as I call it, would have cleared things up to some extend. But the absence of that means some of this uncertainty will continue. And uncertainty means additional costs.

We have these various appeals on the funding agreements out there at the moment. I would expect that in some of these cases, there will be appeals that go to the Court of Appeals, and potentially, all the way up to the Supreme Court. My feeling is, when there’s a case to be funded, lawyers will find a way to get that case funded. Although I’d imagine there will be a risk premium attached to that funding, not least because everybody will be getting their funding agreements checked, double-checked and triple-checked. And you may have lawyers who disagree on what’s permissible, and that leads to additional costs at the start of the case.

This session is about PACCAR, but we’d be remiss not to talk about the CJC, given how the two issues merge. Neil, you’re on the consultation group for the CJC review. Are there any insights you’re able to share?

NP: There’s now a working party reporting up to the CJC. We’re expecting an interim report from that working party to come out in late summer or early autumn, and there will be a consultation, and then the final report in the middle of next year. So we’ve put on quite a tight timeline.

From an industry perspective, this review is welcome, unless you’re opposed to the idea of talking about regulation, which I don’t think the industry is. This is a sensible organizational group that is considering these points in a proper and thoughtful way. I would encourage people to get behind the work that ILFA and ALFA are doing here, and I’d also encourage funders to get involved in the consultation phase as well. It’s very important that the CJC are thinking about these points with a full and proper understanding of how funding actually works, so they can understand the impact.

I think it’s also important that the industry makes sure that the review takes place in a proper context, and by ‘proper context’ I mean that there is an understanding that funding does have benefits. So the review should look at how good responsible funding can be encouraged and those benefits can be maximized, rather than looking at funding as a suspicious thing that needs to be controlled and is just a risk. I think there is a very positive message for funding that needs to be emphasized, and I think the CJC needs to look at it through this positive lens, and I’m confident that they will.

To view the entire digital event, click here.

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John Freund

John Freund

Commercial

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Archetype Capital Partners Secures Injunction in Trade Secret Battle with Co‑Founder

By John Freund |

A significant legal win for litigation funder Archetype Capital Partners emerged this month in the firm’s ongoing dispute with one of its co‑founders. A Nevada federal judge granted Archetype a preliminary injunction that prevents the ex‑partner from using the company’s proprietary systems for underwriting and managing mass tort litigation while the underlying trade secret lawsuit continues.

According to an article in Bloomberg, Archetype filed suit in September against its former co‑founder, Andrew Schneider, and Bullock Legal Group LLC, alleging misappropriation of confidential methodologies and business systems developed to assess and fund mass tort claims. The complaint asserted that Schneider supplied Bullock Legal with sensitive documents and leveraged Archetype’s systems to rapidly grow the firm’s case inventory from a few thousand matters to well over 148,000, a jump that Archetype says directly undercut its competitive position.

In issuing the injunction, Judge Gloria M. Navarro of the U.S. District Court for the District of Nevada found that Archetype was likely to succeed on its trade secret and breach of contract claims. While the court determined it lacked personal jurisdiction over Bullock Legal and dismissed the company from the suit, it nonetheless barred both Schneider and Bullock from distributing proceeds from a $5.6 billion mass tort settlement tied to video game addiction litigation that had been structured using Archetype’s proprietary systems.

The order further requires the return of all materials containing confidential data and prohibits Schneider from soliciting or interfering with Archetype’s clients.

Law Firms Collect $48M from BHP Class Action

By John Freund |

In a development drawing fresh scrutiny to fee arrangements in class action proceedings, law firms involved in the high-profile shareholder lawsuit against BHP have collected nearly three times the legal fees they initially represented to the court. The firms took in approximately $48 million from a $110 million settlement approved in the Federal Court of Australia, despite earlier representations suggesting significantly lower costs.

An article in the Australian Financial Review details how the legal teams, including Phi Finney McDonald and US-based Robbins Geller Rudman & Dowd, initially indicated their fees would constitute a relatively modest share of the final settlement. However, court filings reveal a different outcome, with the firms ultimately securing a much larger cut after a revised funding structure was approved during the settlement process.

The underlying class action was brought on behalf of shareholders following the catastrophic 2015 collapse of the Fundão dam in Brazil. The case centered on allegations that BHP failed to adequately disclose risks associated with the dam's operations, leading to sharp share price declines after the disaster. While BHP did not admit liability, the $110 million agreement was one of several global legal settlements related to the event.

The revised fee arrangement was approved as part of a “common fund” order, which allows for legal and funding costs to be deducted from the total settlement on behalf of all group members. The final order was issued without a detailed public explanation for the increased fees, prompting concerns from legal observers and stakeholders about transparency and accountability in class action settlements.

King & Spalding Sued Over Litigation Funding Ties and Overbilling Claims

By John Freund |

King and Spalding is facing a malpractice and breach of fiduciary duty lawsuit from former client David Pisor, a Chicago-based entrepreneur, who claims the law firm pushed him into a predatory litigation funding deal and massively overbilled him for legal services. The complaint, filed in Illinois state court, accuses the firm of inflating its rates midstream and steering Pisor toward a funding agreement that primarily served the firm's financial interests.

An article in Law.com reports that the litigation stems from King and Spalding's representation of Pisor and his company, PSIX LLC, in a 2021 dispute. According to the complaint, the firm directed him to enter a funding arrangement with an entity referred to in court as “Defendant SC220163,” which is affiliated with litigation funder Statera Capital Funding. Pisor alleges that after securing the funding, King and Spalding tied its fee structure to it, raised hourly rates, and billed over 3,000 hours across 30 staff and attorneys within 11 months, resulting in more than $3.5 million in fees.

The suit further alleges that many of these hours were duplicative, non-substantive, or billed at inflated rates, with non-lawyer work charged at partner-level fees. Pisor claims he was left with minimal control over his case and business due to the debt incurred through the funding arrangement, despite having a company valued at over $130 million at the time.

King and Spalding, along with the associated litigation funder, declined to comment. The lawsuit brings multiple claims including legal malpractice, breach of fiduciary duty, and violations of Illinois’ Consumer Legal Funding Act.