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Commercial Regulatory Issues

Opportunities for Intra-EU Treaty Award Enforcement in the UK

Whilst it does not receive as much coverage as patent litigation or class action funding, the opportunities for litigation funders around investment treaty disputes are becoming increasingly tangible. As we have seen in the last year, whether it is disputes around bilateral investment treaties or the Energy Charter Treaty, one of the most important considerations for claimants is the selection of jurisdiction for enforcement. In a recent insights piece, Timothy Mayer, senior investment manager at LCM, provides an analysis of the recent developments around international treaty awards and how the UK’s departure from the European Union may make it a more appealing venue for enforcing arbitral awards in this area. Mayer looks at some of the significant judgements over the past five years, which illustrate how the EU has steadily become a less hospitable environment for those companies looking to enforce investment treaty awards. He highlights the path from decisions by the Court of Justice of the European Union (CJEU), such as Achmea vs Slovakia and Republic of Moldova vs Komstroy LLC, which both appeared to reinforce the idea that the court’s view was that ‘ECT based intra-EU arbitrations were contrary to EU law.’ However, Mayer also notes that since these decisions, all but one arbitral tribunal have still found that they have jurisdiction to hear these investment treaty disputes, despite the CJEU’s ‘Intra-EU Objection’. Furthermore, this year’s ruling by the English and Welsh High Court in Infrastructure Services vs Spain provided further reasons for optimism, as the court ruled that there were no reasons to set aside the award and ‘that EU law did not override the UK’s pre-accession treaty obligations to implement the ICSID Convention’. As a result of this pattern of decisions, Mayer suggests that claimants may increasingly look to enforce their investment treaty awards in non-EU jurisdictions, with the US and Australia being examples of creditors looking outside Europe for enforcement. Therefore, Mayer concludes, it is possible that the UK will see a ‘small Brexit-inspired benefit’ when it comes to dispute stakeholders looking to maximize their recovery in intra-EU disputes.
Commercial

The Flaws of Using Plaintiff Bias to Justify Litigation Funding Disclosure

The issue of transparency and disclosure in litigation funding, especially within patent infringement lawsuits, appears to be here to stay, as the last year has displayed increasing efforts from defendants and certain judges to enforce stricter requirements for funding disclosure. Whilst one of the most asserted arguments is that increased disclosure is necessary to uncover a plaintiff’s bias, it is worth considering whether this is a logical reason or even an effective method to uncover plaintiff bias. In an opinion piece for Bloomberg Law, Casey Grabenstein and Andrew Schwerin of Saul Ewing, analyze this very question and suggest that the burden of proof for launching such discovery attempts should rest with the defendant rather than the plaintiff. Grabenstein and Schwerin first compare two cases which involved defendants’ requests for further disclosure of details around the plaintiffs’ litigation funding arrangements, with two very different outcomes.  In the case of Speyside Medical, LLC v. Medtronic Corevalve, LLC, Judge Christoper Burke granted the motion to compel the plaintiffs to testify over their financial stakes in the lawsuit, stating that the size of their stake “is surely instructive as to the heft of any charge that their testimony may be biased by their ability to profit from the case result.” In GoTV Streaming, LLC v. Netflix, Inc., Magistrate Judge Shashi Kewalramani denied Netflix’s request for the disclosure of litigation funding documents, reasoning that the defendant’s argument was “too speculative to warrant the production of litigation funding related documents.” Grabenstein and Schwerin suggest that in the case of Judge Burke, the argument over bias would be far more relevant in the case of third-party witnesses, whereas “it should come as no surprise that plaintiffs and owners of plaintiff companies have a financial interest in the outcome of litigation and want to win the case.” They argue that the plaintiff’s financial stake is not relevant to the material facts of the case and, more importantly, that these kinds of orders “could prejudice plaintiffs who cannot afford to litigate the case on their own and have given up a portion of their recovery in order to secure representation.”
Announcements Commercial Deals

New research shows GCs seek greater value from legal claims and judgments

Burford Capital, the leading global finance and asset management firm focused on law, today releases new independent research that reveals how businesses are finding solutions to extract greater value from legal claims and judgments, based on a survey of 350 GCs, heads of litigation and senior in-house lawyers in the US, Europe, Asia, Australia and the Middle East.

The economic climate has amplified longstanding pressures on businesses, including legal departments. With research released earlier this year by Burford showing that GCs expect commercial disputes to increase in the next two years, how companies pay for and extract value from their meritorious claims is more important than ever. Burford’s new report on the economics of commercial disputes and enforcement demonstrates a desire by senior in-house lawyers to maximize the value of claims, judgments and unenforced awards, without adding to costs. Notably, 61% of those surveyed say that uncertain or challenging conditions would impact their likeliness to consider legal finance solutions.

Christopher Bogart, CEO of Burford Capital, said: “Companies account for well over fifty percent of Burford’s business today, including very large Fortune 500 global companies. As the former GC of such a company, I am awake to the financial pressures legal departments face, especially in uncertain economic times. The new research confirms GCs’ desire to achieve optimal financial outcomes with their claims, judgments and awards. At Burford, we are strategic partners for businesses seeking to reduce risk and maximize value both through our legal finance offerings and our enforcement and recovery services. More in-house counsel are realizing the innovative ways we can help them avoid leaving money on the table, and the research affirms that.”

Consistent with the growth of its business with leading companies, Burford on a group-wide basis recently entered into a $325 million transaction with a Fortune 500 company to finance a portfolio of matters in its affirmative recovery program, allowing the company to recognize immediate value from those claims.

Key findings from the research include:

Economic pressures impact how clients manage their costs and partners, with the majority of those surveyed likely to seek cost-sharing solutions.

  • Over half (52%) say they are likely to seek cost-sharing solutions with counsel or legal finance providers to mitigate the impact of the current economic climate.
  • Although many say they are likely to implement cost-saving measures to mitigate these impacts (44%), in-house lawyers seem to favor cost-shifting over cost-cutting.
  • Aside from relevant legal expertise, the top attributes in-house lawyers seek in outside counsel are efficiency and speed (89%), the ability to provide accurate budgets (87%) and familiarity with legal finance (69%).

Unenforced awards remain a problem for businesses, and even more so in the current climate.

  • Vanishingly few (2%) say they recovered 100% of the value of their judgments and awards over the last five years and a clear majority (61%) state that their opponents voluntarily pay their outstanding judgments and awards less than 50% of the time.
  • The consequence of slow-to-pay or fail-to-pay judgment debtors is many millions of dollars in lost value to businesses at a time when legal teams wish to minimize costs and maximize recoveries.

Enforceability is a key consideration for litigation and arbitration strategy.

  • Top perceived barriers to enforcement are jurisdiction and cost.
  • More than three quarters (77%) view ease and likelihood of recoverability as important factors in whether to pursue claims.
  • Immediate liquidity is a key benefit for funded enforcement and recovery.
  • More than half (57%) say they are likely to use financed enforcement and recovery services for a pending judgment or award.

The 2023 Commercial Dispute & Enforcement Economics Survey can be downloaded on Burford’s website. The independent research was conducted by GLG in June 2023.

About Burford Capital

Burford Capital is the leading global finance and asset management firm focused on law. Its businesses include litigation finance and risk management, asset recovery and a wide range of legal finance and advisory activities. Burford is publicly traded on the New York Stock Exchange (NYSE: BUR) and the London Stock Exchange (LSE: BUR), and it works with companies and law firms around the world from its offices in New York, London, Chicago, Washington, DC, Singapore, Dubai, Sydney and Hong Kong.

For more information, please visit www.burfordcapital.com.

This announcement does not constitute an offer to sell or the solicitation of an offer to buy any ordinary shares or other securities of Burford.

Commercial Legal Innovation

Embracing Sustainability in Litigation Finance

Gian Marco Solas, Ph.D.2, is a qualified lawyer and academic, and currently serves as the Lead Expert at the BRICS Competition Law and Policy Centre and in private practice, where he advises on the application of physics models in (antitrust) litigation and market & investment modeling worldwide. With over a decade’s experience working with law firms and litigation funders, where he has inter alia built and managed the (then) largest European collective redress initiative (the Italian truck cartel initiative), Dr. Solas has published a number of papers on litigation funding and is the author of Third Party Funding: Law, Economics and Policy (Cambridge University Press, 2019) and the forthcoming 'De Lege et Amore - Theory of Interrelation & Sustainability (Escargot, 2023) about the interrelation of the laws of physics and human laws in the economy. In his latest analysis about the litigation funding market, Dr. Solas looks at three previous historical litigation funding cycles that have similarly and quickly appeared and disappeared in specific spatio-temporal dimensions (Ancient Greece, Ancient Rome and Middle-Ages England), to then conclude - on the basis of recent and publicly available evidence - that the same 'destiny' appears to be repeating in the modern global cycle. This analysis on the one hand suggests to reject the non realistic view that litigation funding would be an uncorrelated asset class, which view ultimately is backfiring and making capital raises more difficult. While, on the other, to learn from its cyclicality and correlation to the economy to understand how and where to evolve. That is a fund individual choice that can be summed up, as matter of principle, to either transform into (or merge with) a proper asset manager (managing litigious and not litigious assets and / or classes thereof) or into a law firm (or special type thereof, with funds, technology, etc.) making profit both upfront and on a contingency / conditional or other basis. Such move would also potentially remove the need for discussions and implementation of sector-specific regulation of litigation funding while, from a more economic point of view, potentially allow to mitigate the risks physiologically linked to portfolios of unsecured debt in an economic downturn. In Dr. Solas’ view, it is therefore pivotal for the specialist litigation funding industry to embrace legal science and work on their “legal finance ‘beta’ strategy” to potentially move from the tail of the ending “debt cycle” to the head of the new “codified cycle”. This move should be designed to allow litigation funders to reach a realistic equilibrium between high-risk-high-reward investments with lower but steady and more secure income streams. Thus, freeing them from the evidently too tight and inefficient financial model that – together with regulatory pressure and other challenges – appear to be strangling the industry at this stage. In fact, many litigation funders are already part of larger and / or balanced conglomerates, while many others are not. All or most of them, however, seem to be still attached to the now surpassed view of a commoditized economy, that not only fails to capture the real value of legal claims, but also 'weighs' heavily on all asset managers in terms of compliance and legal costs. Most modern technology and legal science allows not just to analyze and factor the weight of the law in rational decision making, but also to enlarge the scope of viable legal claims and to codify any legal asset, therefore making them more economically valuable. Litigation funders’ higher familiarity and experience with the law compared to other asset managers could prove to be the distinguishing skill and make them not just sustainable - but also thrive - in the “new” codified economic reality. In addition to the books and articles mentioned above, further data for the above analysis can be found in the following forthcoming publications:
  • Physics as model for the law? Sustainability of the litigation finance business model (Journal of Law, Market and Innovation, 2024)
  • Third Party Funding in the EU. Regulatory challenges (Theoretical Inquiries on Law, co-ed. C. Poncibo’, 2024)
  • Third Party Funding in the EU (E. Elgar, co-ed. C. Poncibo’, E. D’Alessandro, 2024)
  • Third Party Funding and Sustainability considerations (E. Elgar, Research Handbook on Investment and Sustainable Development, 2024, co-ed Annie Lesperance and Dana McGrath)
Commercial Regulatory Issues

Kennedy, Manchin introduce bipartisan Protecting Our Courts from Foreign Manipulation Act to end overseas meddling in U.S. litigation

Sen. John Kennedy (R-La.), a member of the Senate Judiciary committee, and Sen. Joe Manchin (D-W.Va.) today introduced the Protecting Our Courts from Foreign Manipulation Act of 2023 to stop foreign entities and governments from funding litigation in America’s courts.  “Leaving our courts unprotected from foreign influence—such as from China—poses a major risk to U.S. national security. The Protecting Our Courts from Foreign Manipulation Act would put necessary safeguards in place to ensure that foreign nations, private equity funds and sovereign wealth funds linked to hostile governments are not tipping the scale in federal courtrooms,” said Kennedy. “Foreign actors such as China and Russia use third-party litigation funding to support targeted lawsuits in the United States, undermining our economic and national security. This legislation would provide a commonsense strategy to protect our legal system by requiring greater transparency and accountability from third-party groups and preventing third-party litigation funding from foreign states and sovereign wealth funds. I urge Senators on both sides of the aisle to support this bipartisan bill to ensure that our federal courts are protected from foreign influence,” said Manchin.  Rep. Mike Johnson (R-La.) introduced companion legislation in the House of Representatives. “Foreign states and sovereign wealth funds should not meddle in our justice system. This bill prevents foreign actors like China from financing malicious lawsuits, protects critical industries and prioritizes the interests of Americans in court,” said Johnson.  Currently, foreign entities flood courts with billions of dollars in litigation financing in order to achieve a particular outcome in a case. Hostile foreign governments or companies that are connected with those governments could fund lawsuits in federal courts in order to achieve their geopolitical objectives and undermine America’s national security, especially by targeting proprietary commercial and military technology and exploiting U.S. disclosure requirements. The Protecting Our Courts from Foreign Manipulation Act would:
  • Require disclosure from any foreign person or entity participating in civil litigation as a third-party litigation funder in U.S. federal courts.
  • Ban sovereign wealth funds and foreign governments from participating in litigation finance as a third-party litigation funder, either directly or indirectly. 
  • Require the Department of Justice’s National Security Division to submit a report on foreign third-party litigation funding throughout the federal judiciary.
In January, Kennedy urged U.S. Supreme Court Chief Justice John Roberts and U.S. Attorney General Merrick Garland to take action in order to mitigate the threat foreign actors like China pose by covertly funding litigation in U.S. courts. “The U.S. Chamber of Commerce applauds Sens. John Kennedy (R-LA) and Joe Manchin (D-WV), and Rep. Mike Johnson (R-LA) for introducing this landmark bill, and we urge Congress to quickly pass it to protect consumers, businesses, and U.S. national and economic security,” said Harold Kim, President of the U.S. Chamber of Commerce Institute for Legal Reform. “The R Street Institute is excited to support and endorse Senator Kennedy’s legislation that will shine a light on the shadowy funders of third-party litigation, and limit the ability of foreign governments to negatively impact various U.S. industries by tying them up in anonymous third-party litigation. The current third-party litigation funding laws lack much needed transparency, and they could open the door to foreign entities detrimentally impacting our national security. We applaud the Senator for his leadership on this issue, and we urge more lawmakers to join him in this effort,” said Anthony Lamorena, Senior Federal Affairs Manager at the R Street Institute. Full text of the legislation is available here.
Commercial Deals

Woodsford Pursuing Sale of US Passive Investments Portfolio

A recurring theme at industry forums and conferences over the last year has been the need for a secondary market for litigation finance, providing investors with alternative exit routes and allowing funders to raise additional liquidity. Whilst most of these secondary transactions go under the radar, a new story reveals that one of the leading global litigation funders is pursuing a significant portfolio sale in the secondary market. In an exclusive story from Bloomberg Law, Emily R. Siegel reveals that Woodsford is moving forward with plans to sell its portfolio of passive investments in the US, allowing the funder to refocus its capital on litigation that targets corporate malpractice. Although the funder has not specified the number of passive investments, nor the total value of the portfolio up for sale, it is reportedly meeting with several unnamed buyers. Steven Friel, CEO at Woodsford, explained the reason for this move by stating that “one of the ways in which we can fuel our growth—get cash for our growth and also re-position ourselves—is by pursuing a secondary market transaction.” Friel went on to emphasize that the funder would be looking to prioritize litigation led by consumers or shareholders who are seeking to hold companies to account. This will include identifying securities litigation which may involve US-based claimants, but which are being tried in other jurisdictions due to the 2010 Supreme Court ruling on securities lawsuits with foreign elements. Commenting on the transaction, Ted Farrell, founder of Litigation Funding Advisers, highlighted that whilst they do not always take place in public view, “secondary transactions are definitely a part of the every day in litigation funding now.”
Commercial Regulatory Issues

Landmark New York Court’s Decision Strengthens the Future of Litigation Funding

The following piece was contributed by Guido Demarco, Director and Head of Legal Assets at Stonward. In a groundbreaking legal battle that pitted Petersen Energía SAU and Petersen Energía Inversora SAU[1] (the Petersen Companies) against the Republic of Argentina, the recent decision by the District Court of Southern District of New York has far-reaching implications for the litigation funding industry. This landmark ruling reaffirms the critical role litigation funders play in providing access to justice, particularly in complex cases involving powerful sovereign entities. The Petersen case was a high-stake dispute that arose when Argentina failed to fulfill its obligations under the bylaws of YPF S.A, the national oil company. When Argentina privatized the company during the 90s, the country promised under the bylaws a compensated exit to shareholders – a mandatory tender offer - if Argentina were to reacquire control of the company by any means. In 2012, Argentina expropriated Repsol's 51% stake in YPF but did not fulfill this promise, eventually plunging the Petersen Companies into insolvency and liquidation. To fight back against this injustice, the resourceful insolvency administrator of the companies, Armando Betancor, devised a liquidation plan in 2015 that included securing litigation funding. Given the immense risks involved, the Petersen Companies had to assign 70% of any recovery obtained in the claims to Burford Capital, the litigation funder. These risks included fighting a fierce sovereign in New York courts, which implied paying high attorney and experts' fees during a lengthy period, as well as enforcement risks. During the trial, Argentina attempted to diminish the awarded damages by arguing that the litigation funder was the primary beneficiary of the compensation, seeking to shift the focus away from the plaintiffs' rightful claims. This tactic sought to undermine the legitimacy of the litigation funding arrangement, implying that the claimants should receive reduced damages due to the involvement of a third-party funder. However, the court's decision firmly rejected this argument, emphasizing that the responsibility for compensation lay with Argentina, regardless of the funding arrangement, ensuring that the claimants were not deprived of the full measure of their entitled damages. In a single paragraph, the Judge unequivocally dismissed Argentina's attempts to derail the case by injecting the role of Burford Capital into the proceedings. The Judge emphasized that the essence of the case remained between the plaintiffs and the defendant who inequitably refused to comply with its promises: “The Court also rejects the Republic’s effort to inject Burford Capital into these proceedings. This remains a case brought by plaintiffs against a defendant for its wrongful conduct towards them, and the relevant question is what the Republic owes Plaintiffs to compensate them for the loss of the use of their money, not what Plaintiffs have done or will do with what they are owed. The Republic owes no more or less because of Burford Capital’s involvement. Furthermore, the Republic pulled the considerable levers available to it as a sovereign to attempt to take what it should have paid for and has since spared no expense in its defense. If Plaintiffs were required to trade a substantial part of their potential recovery to secure the financing necessary to bring their claims, in Petersen’s case because it was driven to bankruptcy, and litigate their claims to conclusion against a powerful sovereign defendant that has behaved in this manner, this is all the more reason to award Plaintiffs the full measure of their damages.” Ironically, the most powerful impact for the litigation funding industry comes not from a lengthy legal argument, but from a single paragraph tucked away in a footnote of the judgment. Within this inconspicuous footnote, the Judge's words resonate loudly, reaffirming the fundamental principles underpinning litigation funding. It reminds us that justice is blind to the funding mechanisms employed to level the playing field and that litigants should not be penalized for seeking financial support, particularly when facing formidable sovereign opponents and obstacles. No doubt, this will be a beacon in times in which the industry is under heavy scrutiny, especially in Europe under the so-called Voss Report. The ruling reaffirms the legitimacy and importance of litigation funders in enabling access to justice in complex cases where financial backing is essential to bring claims to fruition. The Court's decision in the Petersen case is a significant victory not only for the plaintiffs but also for the litigation funding industry. It sets a powerful precedent that reinforces the rights of litigants to secure funding for their cases without sacrificing the full measure of their damages, contributing to a more equitable and accessible legal system. This decision will inspire confidence among potential litigants, funders, and investors alike, encouraging continued growth in the litigation funding industry. We, at Stonward, are proud of having Armando Betancor, the insolvency administrator of the Petersen companies, in our Board of Investment. [1] Petersen Energía SAU and Petersen Energía Inversora SAU v. Republic of Argentina, District Court of Southern District of New York, 15 Civ. 2739 (LAP) - 16 Civ. 8569 (LAP)
Announcements Commercial

Burford Capital Reports First Half and Second Quarter 2023 Financial Results; Strongest Set of Six-Month Financial Results in Burford’s History

Burford Capital Limited ("Burford"), the leading global finance and asset management firm focused on law, today announces its unaudited financial results at and for the three and six months ended June 30, 2023.1 Burford's report on Form 6-K at and for the three and six months ended June 30, 2023, including unaudited condensed consolidated financial statements (the "2Q23 Quarterly Report"), is available on the Burford Capital website at http://investors.burfordcapital.com. Christopher Bogart, Chief Executive Officer of Burford Capital, commented: "We have produced the strongest set of six-month financial results in Burford's history, with net income attributable to shareholders of nearly $240 million and tangible book value per share growth of 12% over the past six months. Our core portfolio generated a lot of cash with realized gains tripling on our core portfolio realizations, and new business was very strong. Our new valuation methodology is sensitive to interest rate changes and thus higher rates during the first six months of 2023 were a headwind for the fair value of our core portfolio, especially during the second quarter, but these valuation movements are non-cash and unrealized and are expected to continue to fluctuate over time. Operating expenses reflect strong portfolio performance and certain idiosyncratic events." Highlights Key activity
  • 2Q23 realized gains tripled to $59 million, up 254% from $17 million in 2Q22
    • 1H23 realized gains of $94 million, up 255% from $27 million in 1H22
  • 2Q23 realizations of $133 million, up 167% from $50 million in 2Q22
    • 1H23 realizations of $195 million, up 178% from $70 million in 1H22, reflecting increased portfolio velocity, as the case backlog in the courts continues to clear
  • 2Q23 cash receipts3 of $150 million, up 266% from $41 million in 2Q22
    • 1H23 cash receipts3 of $247 million, up 148% from $99 million in 1H22, primarily driven by realizations including three matters that generated aggregate proceeds of $147 million
  • 2Q23 deployments of $181 million, up 159% from $70 million in 2Q22
    • 1H23 deployments of $248 million, up 103% from $122 million in 1H22, reflecting in part the balance sheet's greater participation in new capital provision-direct assets
Commercial Regulatory Issues

House Committee Hearing Sees Representatives Spar Over Litigation Funding

As LFJ reported last week, litigation funding has once again found itself in the crosshairs of critics and lawmakers, with the House Committee on Oversight and Accountability holding a hearing on the industry to ‘examine how left-wing activists have hijacked America’s legal system’.  Articles in Bloomberg Law and Reuters provide a recap of yesterday’s hearings which saw members of congress exchange contrasting views on third-party funding, whilst industry professionals offered their perspectives on a variety of issues including mass torts, climate litigation and transparency in funding. Among the committee members there was unsurprisingly a larger partisan split, with each side trying to focus the four-hour session on their own agenda.  Republican representatives who had organized the hearing took a critical eye to litigation finance, with committee chairman Rep. James Comer saying that the hearing was “a first step to identifying how pervasive third party litigation funding is and how deep the abuses go.” Whilst Democrats accused their colleagues across the aisle of trying to shield corporations from litigation, and argued that the real issue was the funneling of ‘dark money’ to the Supreme Court, with Rep. Max Frost going as far as stating: “Shame on Republicans for holding this hearing.” Among the witnesses called, Aviva Wein, assistant general counsel for Johnson & Johnson, was one of the strongest critics of the industry and argued that “mass tort litigation has been transformed into a money play: driven, funded and distorted by legal financial entrepreneurs.” It is worth noting that Johnson & Johnson is also in the middle of attempting to settle a large number of claims brought against it over the alleged harm caused by its talcum powder product. Maya Steinitz, professor of law at Boston University, provided a more balanced perspective on third-party funding and emphasized that the most important consideration was how to regulate this “relatively new industry”. Rep. Jamie Raskin of Maryland provided one of the stauncher defenses of the actual benefits of litigation finance, arguing that “a lack of money should not prevent any individual American from seeking justice when they have been harmed.”