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Commercial Special Features

An LFJ Conversation with Kundan Shahi, Founder and CEO of LegalPay

LegalPay is the only company in India which provides different financing solutions to businesses for their legal services and/or litigations. Founded by Kundan Shahi in 2019, LegalPay now has a team of more than 100 staff managing more than USD 400 million of claims under management.

Kundan Shahi is an alumnus of IIM Bangalore's startup incubator, NSRCEL and had perviously founded a LegalTech company. He deeply believes in relieving the burden on Indian judiciary, and to further that cause he supports Bharat Disputes Resolution (BDR), India’s largest online dispute resolution platform.

Below is our conversation with Mr. Shahi:

What is the litigation funding landscape like in India? What are the unique challenges and opportunities for funders operating there? 

At present, litigation finance in India is at an embryonic stage, reflective of its burgeoning legal expense market. A combined total of around 40 billion dollars encompasses both individual and business legal expenditures, a figure poised for further escalation with the country's rapid economic expansion and the surge in cross-border transactions. The imminent ascension of India to become the world's third-largest economy is projected to further amplify the legal expense market's growth. Distinguishing India from other jurisdictions is the absence of a contingency fee model, necessitating the demand for alternative financing avenues. The concept of third-party funding (TPF) was initially alien to the legal landscape, often perceived as illicit by legal practitioners. The awareness around litigation finance has been minimal until recently.

What types of cases does LegalPay fund? What case aspects do you look for? What are some of the things you look to stay away from?

LegalPay has made substantial investments to cultivate awareness within the business sphere, elucidating the financial dimensions of litigation. This concerted effort has yielded a notable increase in litigation finance inquiries from businesses. In contrast to conventional jurisdictions where stakeholder interests are aligned (plaintiff, lawyer, funders), in India, only funders and plaintiffs share a common interest. We are a low trust society with price sensitivity. Consequently, possessing deep pockets alone does not guarantee access to lucrative opportunities. To navigate this landscape, an innovative blend of technology and distribution strategies is imperative for robust deal origination.

One of the major concerns for funders is case duration. India is not known for speedy case resolutions. How do you manage this risk factor?

The reputation of India's judicial system for protracted case resolutions is acknowledged, yet empirical data reveals incremental improvements. While perceptions linger, the expansive realm of disputes provides ample room for astute selection. Adaptation is key in this price-sensitive climate; prioritizing plaintiff interests ensures risk management remains a cornerstone. Businesses have started understanding the financial perspective of litigation which encourages them to opt for alternative disputes resolutions.

You recently launched Contract Defense, a free service protecting businesses from disputes arising from BNPL. What can you tell us about this? 

Our recent introduction of "Contract Defense" serves to bolster trust and provide businesses with a safety net against disputes arising from the contract bought using our framework. This innovative offering extends an interest-free credit line to manage legal expenses and covers initial legal costs stemming from contractual agreements facilitated through our BNPL platform. This engagement serves as a prelude to forging robust relationships, positioning us to offer litigation finance when needed. To use Contract Defense, all the customer needs to do is create a contract through any lawyer or law firm in India and pay for it using our BNPL payment method. If any legal disputes arising from the contract, the customer can simply transfer the legal expense to LegalPay, and we will cover the cost of all possible disputes.

What are your predictions for the future of litigation funding in India? How will this market evolve?

Forecasts for the litigation funding landscape in India remain resoundingly positive. As awareness burgeons, businesses are keen to transfer the financial risk of litigation to platforms such as ours. The aftermath of a Delhi High Court judgment has triggered heightened discussions and inquiries, attracting international funders and law firms seeking symbiotic collaborations. The expansive market paves the way for coexistence and flourishing among several prominent litigation funders, contingent upon their adept adaptation to the intricacies of the Indian landscape.

In conclusion, the canvas of litigation funding in India is unfolding with remarkable potential. The convergence of economic growth, legal dynamics, and the desire for risk transfer converge to paint a promising trajectory for this evolving sector.

Commercial Deals

LCM Funding Confirms $13.6m in Financing to Panthera Resources’ Subsidiary 

Whilst the duration of litigation and arbitration proceedings often take focus in discussions of dispute funding, we are not privy to the degree of analysis and due diligence which funders undertake before finalising any financing arrangements. However, in recent months, we have gained an insight into one such example, observing the time it has taken for LCM Funding and Panthera Resources to go from initial agreement to final confirmation. An article in ShareCast covers the announcement by Panthera Resources that LCM Funding, a subsidiary of Litigation Capital Management, has completed its due diligence and confirmed that it will provide funding for a claim brought by Indo Gold (IGPL), a Panthera subsidiary. LFJ reported in February that LCM Funding and Panthera Resourced had entered into an arbitration funding agreement for IGPL’s claim against the Indian government, but the following months saw multiple deadline extensions for LCM Funding to complete its due diligence on the claim. This announcement also reveals that LCM Funding will be providing a total of $13.6 million in financing to IGPL, a sum that has risen from the initially stated $10.5 million in financing announced in February. Mark Bolton, managing director at Panthera Resources, stated the company was “pleased that LCM has reaffirmed its view that IGPL has a meritorious claim against the Republic of India.” He further praised “LCM's detailed examination,” and highlighted that it had been “supported by advice from multiple legal, mining and valuation experts over many months.”
Case Developments Commercial

NZ Supreme Court Rules in Favour of Mainzeal’s Liquidators

There has been much written about the utility and benefits of litigation funding for liquidators and creditors pursuing legal redress against failed companies. A recent judgement from New Zealand’s highest court has once again demonstrated that whilst these proceedings are by no means quick, third-party funding can be a powerful tool for those seeking access to justice. Reporting by the NZ Herald provides an overview of last week’s judgement handed down by New Zealand’s Supreme Court, which ordered the directors of failed construction firm Mainzeal to pay more than $50 million to its creditors and subcontractors. This judgement puts an end to over eight years of litigation following Mainzeal’s liquidation in February 2013, which saw creditors lose over $111 million. The judgement comes over a year after the Supreme Court heard the final appeal in March 2022, with the court ruling that Mainzeal’s directors had breached its duties under the Companies Act and allowed the business to trade in a manner that lacked care or diligence, thereby creating a substantial risk of financial loss for creditors. BDO has acted as the liquidator of Mainzeal and had received financing from Auckland-based funder, LPF Group, with legal costs over the preceding years rising to nearly $10 million. Andrew McKay, partner at BDO, highlighted that the judgement was not the end of the journey, stating that “we are committed to recovering the damages awarded by the court including in part from the insurers, enforcement action against the directors to ensure creditors receive compensation for their financial losses.”
Commercial

Aristata Capital Talks Impact Litigation Funding

As pressure grows from all corners of society for companies to have a greater focus on their social and environmental impact, investors are facing the very same pressures to address their ESG agenda. For litigation funders, there is a unique opportunity to drive both immediate and long-term change by supporting legal actions that can hold companies and institutions accountable for their wrongdoing or inaction. A recent Moral Money feature from the Financial Times explores the world of impact litigation funding, putting the spotlight on Aristata Capital and speaking with Aristata’s founder and CEO, Rob Ryan. As LFJ reported last month, Aristata recently announced the closing of its impact litigation fund (ALIF I), having secured almost $52 million in capital for the new fund. Speaking with the FT, Ryan highlights that Aristata is differentiating itself from the wider litigation finance market with its dedicated focus on lawsuits that can achieve meaningful social and environmental impacts. Explaining the funder’s approach to achieving social change through litigation financing, Ryan said that “At some point, there’s going to be that tipping point where companies say, ‘it’d be better to change our operating behaviour than face this increasing risk of successful litigation’.” Aristata has reportedly already confirmed financing for five separate claims, which include legal actions representing indigenous communities in the south Pacific, underpaid workers in Australia, and a community in south-east Asia who faced human rights abuses from a corporation.
Consumer

The Alliance for Responsible Consumer Legal Funding (ARC) Statement Regarding the Minnesota Supreme Court Decision Maslowski v. Prospect Funding Partners, LLC, et al. v. James Schwebel, Esq., et al.

A21-1338        Pamela Maslowski, Respondent, vs. Prospect Funding Partners LLC, et al., Appellants, vs. James Schwebel, Esq, et al., Respondents. Court of Appeals: 1.         A repurchase rate in a litigation financing agreement is not subject to Minnesota’s usury law, Minn. Stat. § 334.01 (2022), when repayment of the purchase price is contingent upon a recovery in the underlying litigation. 2.         Remand to the district court is appropriate to address plaintiff’s challenge to the repurchase rate under the common-law doctrine of unconscionability. 3.         The repurchase rate specified in the litigation financing agreement began to accrue after the agreement was signed, not after our abolition of the former common-law prohibition on champerty. Reversed and remanded. Justice Anne. K. McKeig. Concurring, Justice Gordon L. Moore, III, Justice Natalie E. Hudson, and Justice Margaret H. Chutich.

“We are very pleased that the Minnesota Supreme Court took its time in rendering a thoughtful decision in this matter and, once again, held that the consumer legal funding contract at issue was enforceable. The decision is consistent with what courts and legislatures have said across the country, that this product is not a loan and should not be treated as such,” stated Eric Schuller, President of the Alliance for Responsible Consumer Legal Funding.

“Following the Court’s logic in its June 2020 opinion that the transaction did not violate the common law prohibition on champerty, the Court today correctly recognized that, “A repurchase rate in a litigation financing agreement is not subject to Minnesota’s usury law” This well-reasoned decision joins others across the country in the growing consensus that consumer legal funding transactions are not loans and should not be treated like loans.”

About ARC 

The Alliance for Responsible Consumer Legal Funding (ARC) is a coalition established to preserve legal funding as a choice for the many Americans who have suffered an unexpected economic loss due to an accident and have a pending legal claim. Legal funding can help families pay for immediate personal needs such as rent, mortgages, car repairs, utilities and groceries while they wait for their claims to settle fairly. ARC trade association promotes practices and regulations that lead to informed decisions between individuals and their attorneys, so families have more options—not fewer.

Eric Schuller

President

Case Developments Commercial

Woodsford-Funded Class Action Against Ardent Leisure Reaches $26M Settlement

The power of litigation funding to drive successful outcomes for shareholder-led class action claims has once again been demonstrated, as a Woodsford-funded action has achieved a settlement with one of Australia’s largest leisure companies.  Reporting by Business News Australia reveals that Ardent Leisure, the Australian leisure company which owns and operates the Dreamworld theme park, has settled a shareholder class action for $26 million. The class action, which began in June 2020, alleged that Ardent had misled its shareholders over safety measures at Dreamworld in the lead-up to the 2016 Thunder River Rapids Ride accident which led to the deaths of four people.  The class action was run by Piper Alderman and received funding from Woodsford, with the claim also including allegations that this misleading conduct had led to an artificial inflation of Ardent’s share price between June 2014 and October 2016. The final settlement accounts for roughly 10 per cent of the $260 million that shareholders lost in the aftermath of the tragic incident in 2016. In a statement regarding the settlement, Ardent explained that the company’s board “determined that the commercial decision to settle the shareholder class action that had been ongoing for over three years was one made in the best interests of the company and its shareholders.” Of the $26 million settlement, Ardent will only register $4 million of that amount as an expense, with the remaining balance of the settlement being fully insured.
Commercial Deals

Funders See Increasing Opportunities in Bankruptcy Litigation

As the global economy continues to struggle to stabilize, corporate finances are constantly under stress and the volume of corporate defaults is rising. Whilst this obviously represents a worrying trend, it has also created opportunities for litigation funders who have recognized an opportunity to make significant returns by investing in bankruptcy litigation. An article from The Wall Street Journal and shared on MSN, details the rise in recent years of third-party funders’ involvement in bankruptcy lawsuits, with both companies and their creditors looking to make a quick financial return for selling the rights to disputes in bankruptcy court. Ken Epstein, investment manager and legal counsel at Omni Bridgeway, highlights that funders are “seeing a recognition of litigation assets as another source of value for companies and their unsecured creditors in a more robust way than we have in the past.”  The article notes an increase in bankruptcy litigation funding by some of the leading funders, including Burford Capital, whose first engagement with bankruptcy cases dates back to 2010. Since then, Burford has been involved in many claims involving bankrupt companies including the Magnesium Corp. of America claim in 2015 and the ongoing Petersen Energia Inversora claim against the Argentine government. Chris Bogart, chief executive of Burford, explained that the funder is seeing more growth in this sector and is “being asked to look at more cases than we have in the last couple of years.” However, WSJ’s reporting also shows that these bankruptcy lawsuits are not without complications or disputes between investors, lenders and funders. The article highlights the example of Benefit Street Partners’ financing of a lawsuit on behalf of unsecured bondholders of Sanchez Energy. Rival investors, including the established funder Lake Whillans Capital, are now challenging the litigation loan and arguing that ‘a court-appointed creditor representative signed away too much of the lawsuit’s value.’
Commercial

Omni Bridgeway’s Matsui Talks ‘Exponential Demand for Dispute Finance’ in Asia

As the litigation funding industry becomes an increasingly mature and established investment market within the American and European regions, competition between funders will naturally push them to look for the next most-promising jurisdictions. Of all the potential growth regions, Asia’s position as a rapidly expanding economic powerhouse means that funders are keen to establish strong foundations for what they hope will be a plentiful litigation finance market in the coming years. In a recent interview conducted by Star Anise, Eloise Matsui, investment manager at Omni Bridgeway in Hong Kong, provides an overview of the current trends in the Asian litigation finance market and offers insights into Omni Bridgeway’s approach to this region. Matsui highlights Singapore and Hong Kong as two jurisdictions with potential for substantial growth, with both having “permitted funding of international arbitrations and insolvency litigation.” Outside of these two key jurisdictions, Matsui notes that most other Asian countries “are civil law jurisdictions where litigation funding is not restricted”, and that the region’s potential market size is huge, given the rapid pace of economic growth across many states. In particular, she suggests that the amount of inbound investment into Asia will naturally “give rise to high-value commercial cross-border disputes and, in turn, exponential demand for dispute finance.” In terms of Omni Bridgeway’s specific areas of focus, Matsui highlights India and South Korea as two jurisdictions of interest, with the funder “already working with substantial local businesses to resolve disputes on the international stage.” She also argues that litigation finance is becoming “increasingly mainstream as a cost and risk mitigation option” within Asia, and that Omni Bridgeway is “seeing increasing applications for funding and funded cases.”
Announcements Consumer

THE AMERICAN LEGAL FINANCE ASSOCIATION COMMENDS MINNESOTA SUPREME COURT DECISION ON CONSUMER LITIGATION FUNDING

The Minnesota Supreme Court took a significant step to ensuring equal access to justice with their decision in Maslowski vs. Prospect Funding Partners LLC. yesterday, overturning the trial court and Court of Appeals holding and ruling unanimously that Consumer Litigation Funding is not subject to usury law as there is no absolute requirement to repay. In their decision, reversing the trial court and Court of Appeals, the Minnesota Supreme Court ruled that the repurchase rate in Prospect’s agreement was not subject to Minnesota’s usury statute. The American Legal Finance Association (ALFA) filed the only amicus curiae brief in this case on behalf of the interest of their members.

“The Minnesota Supreme Court’s ruling in Maslowski vs. Prospect Funding Partners LLC. again made clear Consumer Legal Funding is not subject to usury laws and recognized the fundamental differences between Consumer Legal Funding and a loan,” said Jack Kelly, ALFA Managing Director. “The decision closely follows ALFA’s primary presentation in its amicus curiae brief to the court on the matter and stands as a testament to the importance of Consumer Legal Funding, backing individuals in their pursuit of justice while promoting fairness and equity. We commend the Minnesota Supreme Court for recognizing the merits of ALFA’s argument. Empowering consumers through legal funding is core to ALFA’s mission. We will continue to advocate for fair regulations, ensuring access to justice without jeopardizing financial stability."

In its decision, the Minnesota Supreme Court unanimously reversed the Minnesota trial and Court of Appeals and held that the repurchase rate in Prospect’s agreement was not subject to Minnesota’s usury statute. The Court based its decision on the fact that there was no absolute obligation of repayment in Prospect’s contract. This was ALFA’s primary argument in its amicus curiae brief and the Court’s opinion closely follows ALFA’s argument. Consumer Litigation Funding contracts do not have an absolute requirement of repayment and do not require repayment if the case does not result in a monetary award.

The key section of the opinion states, “In the current case, the trial court and Court of Appeals rejected Prospect’s argument that the obligation of repayment was not absolute, reasoning that Prospect’s underwriting process seeks to ensure that the parties they contract with will win their underlying case. But something being extremely likely to happen necessarily accepts the possibility, however small, that it may not happen. It simply cannot be said that Prospect’s ability to recover the money given to Maslowski is absolute.”

Brian Montgomery, David Oliwenstein, and Eugenie Dubin of Pillsbury Winthrop Shaw Pittman LLP represented the American Legal Finance Association in their amicus curiae brief.

About American Legal Finance Association (ALFA): ALFA represents the leading consumer legal funding companies across the country. The organization supports sensible regulation in the industry that protects consumers through increased transparency while ensuring access to consumer legal funding. Learn more at https://www.americanlegalfin.com/.