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Commercial Regulatory Issues

Settlement CFOs in Australian Federal Court

The viability of third-party litigation funding relies on the ability of funders to ensure that if their funded case reaches a successful conclusion, they will be able to secure an adequate financial return to make their investment worthwhile. However, recent developments in the Australian courts have demonstrated the difficulties of this process as it relates to the practice of courts making common fund orders (CFOs). A recent piece of analysis by Herbert Smith Freehills examines the potential consequences of a ruling by Justice O’Callaghan in the Federal Court of Australia, in the case of Davaria Pty Ltd v 7-Eleven Stores Pty Ltd, which denied the litigation funder’s application for a settlement CFO. The analysis illustrates that this ruling built upon the High Court’s 2019 decision in BMW Australia Ltd v Brewster, which found that s 33V of the Federal Court Act 1976 does not allow the court to order a pre-settlement CFO. Justice O’Callaghan’s ruling went further, by stating that the Brewster ruling made it ‘clear enough’ that s 33ZF equally does not grant the court the power ‘s 33V of the Federal Court Act 1976’. This issue has since been referred to the Full Court of Australia, which is in the process of receiving submissions from Attorneys-General in Australia, and will likely then offer clarification as to the court’s power around making CFOs at later stages of litigation. Herbert Smith Freehills’ article offers additional analysis of the situation, suggesting that ‘this will not be the end of the debate regarding funding models and their permissibility’ and that ‘there will likely be continued innovation in funding markets’. Among other observations, the analysis also reinforces the fact that these developments do not affect the situation in the New South Wales Supreme Court, which ruled in 2022 that courts do have the power to make settlement CFOs.  
Case Developments Commercial

Details of Funding Behind J&J Talc Lawsuits Revealed

Whilst the topic of disclosure in litigation funding has primarily been dominated by discussions around the financing of patent infringement lawsuits, the issue remains a key one across the whole spectrum of third-party litigation funding. Large class action claims against major corporations have been prime opportunities for funders looking to gain lucrative rewards, and new reporting by Bloomberg Law has shed light on one of the highest profile examples. An article by Bloomberg Law reveals the details of third-party funding in the ongoing lawsuits brought by consumers against Johnson & Johnson over the alleged cancerous effects of its talc-based baby powder products. The reporting reveals that it is Virage Capital Management and TRGP Capital who have been working with law firms representing plaintiffs in these cases, having funded over 500 of the 60,000 claims brought against J&J. Bloomberg Law’s Emily Siegel highlights that the reason this information is available to the public is because a 2021 rule enacted in New Jersey ‘requires parties using outside funding to disclose certain information about their backers.’ Of particular interest is the fact that since the rule came into force nearly two years ago, there have only been nine examples of disclosed funding out of over 800 filings examined during that period. Burford Capital’s Andrew Cohen stated that he hasn’t seen a significant impact since the rule was introduced, with very few discovery requests following these rare disclosures, and that the main effect has been to burden litigants with the cost of these additional filings. Of the nine lawsuits that had disclosed third-party funding, familiar names from the industry included Legalist, Longford Capital and Omni Bridgeway.
Announcements Commercial People Moves

Signature Litigation announces appointment of partner Jérémie Fierville to strengthen its corporate and financial dispute resolution expertise in Paris

Specialist disputes law firm Signature Litigation today announces the appointment of dispute resolution specialist Jérémie Fierville as Partner in their Paris office. Jérémie joins Signature Litigation from the French dispute resolution boutique law firm he founded eight years ago, after having spent nine years at a major international law firm. With experience in both Paris and London, Jérémie has developed a strong expertise in corporate, shareholder and financial disputes. He acts for a broad range of French and international companies and financial institutions, which he represents in strategic pre-litigation and litigation matters, as well as mediation proceedings. Jérémie also gives dispute resolution law and business law lectures to postgraduate students at University Paris Panthéon-Assas. Jérémie joins Signature Litigation alongside Senior Associate Luca Bódi and Associate Arthur Lamandé from Fierville Avocats, strengthening the Firm’s dispute resolution practice. Commenting on the appointments, Founding Partner of Signature Litigation’s Paris office Thomas Rouhette stated: “We are delighted to welcome Jérémie and his team and to add his extensive experience to our dispute resolution offering as part of our commitment to grow our Paris partnership.”  Kevin Munslow, CEO of Signature Litigation added: “Jérémie’s appointment represents our commitment to sustained growth across all of our offices, as well as strengthening our multi-jurisdictional client offering. Jérémie already has a recognised presence in the Paris and London markets for his corporate, shareholder and financial dispute expertise, and our conflict-free platform will allow him to further extend his reach and practice.”  Jérémie Fierville, newly appointed Partner at Signature Litigation further commented: “I am particularly enthusiastic about the prospect of joining Signature Litigation, an international law firm entirely dedicated to dispute resolution, which develops for its clients a unique offer on the market combining legal excellence, operational efficiency, and the strength of more than 70 talented solicitors and avocats", he explains. “With my team, I am pleased to be able to bring my expertise in corporate and financial disputes to the Paris office.” Now in its eleventh year, Signature Litigation comprises 20 partners and over 100 members across its offices in London, Paris and Gibraltar. Jérémie’s appointment follows the recent appointment of international arbitration and dispute resolution specialist Tsegaye Laurendeau as partner in September, and the promotion of leading international arbitration lawyer Neil Newing to the Firm’s partnership in October. Jérémie Fierville is Signature Litigation’s newly appointed corporate litigation partner, with over 15 years’ experience acting in highly complex, international commercial and corporate litigation, with a particular emphasis on shareholder disputes. Thomas Rouhette is a founding partner of the Paris office of Signature Litigation and a leading commercial and international litigator. Previously a partner in a major international law firm, Thomas has almost 30 years’ experience in litigation. Kevin Munslow is CEO of Signature Litigation. Signature Litigation is a law firm specialising in commercial litigation, international arbitration and regulatory investigations. Founded in 2012 in London, Signature Litigation also has offices in Paris and Gibraltar.
Commercial Regulatory Issues

Former House Committee Chair Argues Third-Party Funding Threatens U.S. Industry and Security

As we saw earlier this week, efforts by individual U.S. courts and judges to mandate increased disclosure requirements for third-party litigation funding continues to generate fierce debate. Echoing prior critiques made by the Chamber of Commerce and current lawmakers, a former congressional leader has added his voice to the discussion and argued that foreign litigation funders pose a threat to both U.S. industry and national security. In an op-ed for Bloomberg Law, former U.S. representative, Buck McKeon, who served as the Chair of the House Armed Services Committee from 2011 to 2015, argues that new regulations are required to ‘prevent litigation funders from manipulating US innovators and our IP system.’ In the opinion piece, McKeon equates foreign funding of IP and patent litigation to efforts by foreign parties, with the intention to steal intellectual property through espionage, claiming that funders ‘leverage US courts and patents without oversight or transparency.’ McKeon’s central thesis is that the lack of transparency around the involvement of third-party funders could allow malicious actors to damage U.S. businesses through costly litigation, whilst also gaining ‘access to sensitive information during legal proceedings.’ McKeon also suggests that these funders ‘are able to direct lawsuits from behind the curtain’, although it should be noted that funders regularly assert that their funding agreements prohibit any control over the litigation process. McKeon concludes by suggesting that in order to combat the influence of foreign investment in U.S. litigation and the lack of transparency around these activities, action must be taken through federal legislation or through amendments to the Federal Rules of Civil Procedure.
Commercial Regulatory Issues

New European Directives Will Fuel Class Action Growth

At a recent litigation funding conference, much time was devoted to the potential implications of the EU’s Representative Actions Directive (RAD) being implemented by member states later this year. One London law firm argues that it is not just the RAD, but also the EU’s Product Liability Directive (PLD) that will ‘supercharge’ the already bustling levels of class action activity across Europe. In an article originally published on Law360, Edward Turtle and Harriet Jones, associates at Cooley, predict that the combination of these two directives represents ‘a fundamental shift in the European risk landscape’ and will catalyse a major increase in product liability class actions within the EU. Although the PLD is not expected to come into force this year, with implementation unlikely to occur before 2024 or even 2025, changes to the EU’s liability regime will make it easier for consumers to prove their claims, whilst broadening both the scope of potential claims and the range of damages awarded. Among the various changes to the liability regime included in the directive, Turtle and Jones point to the inclusion of digital products and services, as well as adding liability for online marketplace operators. The PLD also provides new disclosure requirements for defendants to provide technical information, widens recoverable damages to include psychological harm, and redistributes the burden of proof by ‘creating new presumptions of defect’. Turtle and Jones argue that while the combination of these new directives does not directly mirror the U.S. model, the EU system still shares similarities as the RAD includes the allowance for third-party funding of class actions and the lowering of the ‘threshold to initiate proceedings’. The new regime also is set up to increase the likelihood of settlements, and at the same time, rebalance the financial incentives by ‘claimants will have the upper hand when it comes to costs.’
Case Developments Commercial

LCM Announces 261% Return on Investment for Comet Insolvency Litigation

Funding of insolvency-related litigation continues to demonstrate its potential, as just this week Litigation Capital Management (LCM) revealed that it achieved an impressive return on investment in its funding of a case brought by Comet's liquidator. This follows the High Court’s ruling in favor of Comet’s liquidator in December 2022, which ordered the retailer’s former parent company, Darty, to pay £110 million into the Court. Covered by Legal Futures, the announcement by LCM revealed the realization and cash receipt of its investment in the liquidator’s case, which yielded a 261% return on invested capital. LCM stated that whilst Darty is still appealing the Court’s judgement, the liquidator had secured a judgement protection insurance policy and ‘an application was made to the Court for payment out of court of sufficient monies to pay LCM’s entitlements pursuant to the Litigation Funding Agreement as well as the cost of defending the appeal.’ From LCM’s original investment of £4.5 million, the funder achieved a £12 million profit. LCM’s CEO, Patrick Moloney, stated ‘This is the second substantive Resolution of a Fund I investment. The Resolution provides a further example of how the use of managed third party investment funds leverages the return to LCM’s balance sheet and its equity investors.’ The previous resolution of a Fund I investment came in February as a result of the settlement of a funded case brought against KPMG, over failures to properly audit Carillion’s accounts.
Commercial Regulatory Issues

Looks Dubious – The Third Ground to Restrain a Lawyer from Acting

The following piece was contributed by Valerie Blacker, commercial litigator focusing on funded litigation, and Amelia Atkinson, litigation and dispute resolution lawyer at Piper Alderman. Strata Voting Pty Ltd (In Liq) v Axios IT Pty Ltd and Anor[1] is a funded single plaintiff action. It involved a recent examination of the Court’s power to prevent a lawyer from acting in proceedings for a conflict of interest. The authors represented Strata Voting in its successful defense of the restraint application. The Third Ground Less frequently invoked than the first and second grounds (misuse of confidential information and breach of fiduciary duty), the third category upon which to restrain a lawyer in a position of conflict from acting in a matter is known as the “inherent jurisdiction” ground. The Court can restrain lawyers from acting in a particular case as an incident of its inherent jurisdiction over its officers and control of its processes.[2] The jurisdiction is enlivened where there is an objective perception that a lawyer lacks independence such that the Court is compelled to interfere and remove the lawyer from acting in the matter. In other words, the position of the lawyer makes the Court uneasy. The test for intervention is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice, including the appearance of justice, requires that a legal practitioner should be prevented from acting.[3] Axios’ failed application The jurisdiction to enjoin a solicitor from acting is to be regarded as exceptional, and to be exercised by the court with caution. That was the basis on which his Honour Judge Dart of the South Australian Supreme Court dismissed the application brought to restrain Piper Alderman from acting for the liquidators. Here, Piper Alderman is acting for the company in relation to a dispute which was in existence before the winding up commenced.  The liquidator retained Piper Alderman to continue acting for the company for the purpose of the litigation, the subject of the existing dispute. The supposed conflict was said to have arisen from a proof of debt which Piper Alderman lodged for about $47,000 in fees incurred prior to the administration. The argument was that Piper Alderman’s impartiality was impaired by the fact that unless the litigation is successful, Piper Alderman will not be paid its outstanding fees because there will be no funds in the winding up to do so. Axios contended that “the conduct of the solicitor was so offensive to common notions of fairness and justice that they should, as officers of the Court, be restrained from acting”. However, his Honour considered the firm’s status as creditor to be unremarkable. Even in a case where a substantial sum (over $830,000) was owed to lawyers by their insolvent client,[4] there was no risk to the proper administration of justice. As everyone knows, solicitors routinely act in matters where they are owed money including conditional costs agreements, risk share arrangements, contingency fee arrangements and agreements that include uplift fees, to name a few. The restraint application in Strata Voting was unsurprisingly and swiftly[5] dismissed with costs. Conclusion If an opposing party asserts that a lawyer should be restrained from acting for the opponent, it is necessary for a clear case to be made that the lawyer is in a position where he is fixed with an interest of such a nature that he may fail in his overriding duty to the court. It requires proof of facts, and not mere speculation as to motive. The risk to the due administration of justice has to be a real one. Otherwise, a litigant ought not to be deprived of the lawyer of his choice. -- About the Authors: Valerie Blacker is a commercial litigator focusing on funded litigation. Valerie has been with Piper Alderman for over 12 years. With a background in class actions, Valerie also prosecutes funded commercial litigation claims. Amelia Atkinson is a litigation and dispute resolution lawyer at Piper Alderman with a primary focus on corporate and commercial disputes. Amelia is involved in a number of large, complex matters in jurisdictions across Australia. For queries or comments in relation to this article please contact Amelia Atkinson | T: +61 7 3220 7767 | E:  aatkinson@piperalderman.com.au [1] Unreported, Supreme Court of South Australia, Dart J, 23 January 2023 (Strata Voting). [2] Kallinicos & Anor v Hunt [2005] NSWSC 118 at [76] (Kallinicos). [3] Ibid. [4] Naczek & Dowler [2011] FamCAFC 179, [84]. [5] In a 5-page judgment.
Commercial Deals

Forecasting UK Litigation Trends for 2023

It is impossible to separate the future direction and trends of litigation funding from the broader movement of the litigation sector itself, as investors are naturally drawn towards those areas that are increasing in both activity and financial value. A new blog post from one of the industry’s leading insurers offers predictions for the litigation trends in the UK we should expect to see for the rest of 2023. The blog post released by Harbour Underwriting examines the current state of UK litigation and suggests what areas funders may be pursuing most actively. Unsurprisingly, competition claims are highlighted, citing the 10 Collective Proceedings Orders (CPOs) that have been already approved by the Competition Appeal Tribunal (CAT), along with the 24 opt-out CPO applications which began in 2022. A spectre remains over UK competition claims, with the upcoming Supreme Court decision likely impacting how these claims can be funded by third parties. The article goes on to spotlight securities class actions as another major area of focus, with high profile cases likely setting the stage for even more activity if they reach successful outcomes. Similarly, fraud-based litigation is seen as a potential growth area, fueled by the aftermath of the pandemic, and which has already seen claims being brought against companies who allegedly misused government loans. As has been discussed by other industry commentators, insolvency litigation is also expected to be a significant trend in 2023, given the current economic instability that has put additional pressure on companies already struggling to recover from the effects of Covid-19. Whilst ESG litigation is always of interest to funders, Harbour Underwriting highlights the variety of cases that exist under this broad umbrella, and suggests the sector will remain a prominent target market for litigation funding. Finally, mergers and acquisition litigation is offered as another trend, with the author speculating that a rise in the number of deals, as well as the speed of those transactions, could pave the way for litigation focusing on ‘valuation and warranty disputes and claims for misrepresentation.’
Commercial Legal Innovation

Above the Law and Lake Whillans Launch Litigation Finance Survey

In the GAO report on the litigation funding industry published last December, one of the key takeaways from its research was the lack of publicly available data around the market and its participants. However, some industry firms and publications are leading the way on gathering such data, as Above the Law and Lake Whillans are partnering once again on their annual litigation finance survey. Announced in an article by Above the Law, the latest addition of the publication’s annual survey of attorneys and in-house counsel is being launched in partnership with funder Lake Whillans. The research aims to study these individuals’ perspective on litigation funding, with the overarching theme of ‘Is Litigation Finance An Effective Option In A Down Economy?’ The survey includes questions such as ‘What are the most important considerations in choosing a litigation financier?’ and ‘Has litigation finance become more relevant to your practice in the last year?’. The survey is brief and all responses are anonymous, with participants given the chance to win a $250 gift card. Law firm attorneys and in-house counsel are invited to complete the survey here.