At last week’s European Litigation Funding Conference, a session dedicated to UK collective actions generated much discussion over the possibilities on the horizon for such cases, particularly those at the Competition Appeal Tribunal (CAT). Additionally, a recent judgement in the High Court suggests that we may only be in the early days of collective actions in the UK, and that even outside the CAT, the courts may be building the foundation for a regime that is willing to accommodate a wide range of collective actions.A new blog post by Erso Capital looks at the potential consequences of the decision by Mr Justice Robin Knowles in the case of Commission Recovery Ltd v Marks & Clerk LLP & Anor, which allowed a representative action to move forward on behalf of a class of claimants. Erso notes that Mr Justice Knowles' judgement suggests that where these collective actions are run by lawyers with capital from litigation funders, the claim’s representative becomes more of a ‘figurehead’ leader that is not biased towards other claimants. This allows the representative to lead the litigation in a manner that does not only benefit some claimants.In Mr Justice Knowles’ judgement from February, he quoted Lord Leggat’s statement in Lloyd v Google that, ‘In these circumstances, there is no reason why a representative party cannot properly represent the interests of all members of the class, provided there is no true conflict of interest between them.’ Erso suggests that this judicial recognition of the important and beneficial role undertaken by lawyers and funders is an encouraging sign for the future of collective actions in England & Wales. With such judicial support, actions outside of the CAT may be able to gain significant ground, and as Mr Justice Knowles put it, ‘we are still perhaps in the foothills of the modern, flexible use of CPR 19.6’.
As the litigation funding market continues to embrace an increasingly diverse and complex set of deals and partnerships, established industry leaders are looking at ways to provide services that can connect different parties to maximise the number of funding opportunities. In a recent interview, the founder of the legal finance consultancy Versaras, discusses his plans to ‘save law firms and clients time and money’ and help guide them through the continuously expanding range of funding options available.Speaking with Commercial Dispute Resolution, Matthew Denney, founder and principal at Versaras, spoke about the current state of the litigation funding industry, describing it as a market that is ‘changing all the time’ with ‘new entrants, new platforms and new attitudes’. Against this backdrop, Denney launched Versaras as a solutions provider for funders, lawyers and clients, which can provide guidance and advice as to the best route forward.Denney highlights the time and cost savings that Versaras can provide to lawyers who are looking to engage with funders, claiming that by utilising his services these firms can instead use that time saved to ‘focus on that case or other cases, or business development initiatives.’ Denney acknowledges that many law firms have experience when it comes to selecting the right funding option, but that by using a third-party with the right experience and knowledge to evaluate the best course of action, ‘it makes everything more efficient for the client and the firm.’In the same interview, Denney suggests that Versaras will also explore other uses of third-party funding outside of litigation, such as financing planning applications for property development. Discussing the interchangeability of this type of funding, Denney states ‘there is not a huge amount of difference between an outcome of a court case or an arbitration hearing, or a planning application.”
Whilst outside observers traditionally think of litigation finance in terms of single case funding, the maturation of the industry has seen funders increasingly focus on portfolio funding efforts that can mitigate risk whilst still providing strong returns on investment. It is also true that portfolio funding is by no means the end of the road when it comes to the evolution of legal funding, as prominent litigation finance firms are exploring opportunities to provide direct financing to law firms.In a new editorial for Bloomberg Law, Maurice MacSweeney, director of legal finance and sales planning at Harbour Litigation Funding, offers a compelling overview of the benefits and opportunities for funders willing to explore engagements that go beyond single case financing. MacSweeney frames this strategy in terms of moving past ‘binary outcomes’ in terms of winning or losing an individual case, instead funders can look at flexible portfolio structures which can reduce the upfront risk for the funder, and therefore enable lower pricing on such deals.Law firm financing is another option that has been growing increasingly attractive, especially in the current economic climate that finds law firms with restricted budgets struggling to find the capital necessary for growth and internal development projects. Not only can this option be useful for established law firms looking to ‘monetize work in progress’, but also for lawyers looking to start their own firms, who would otherwise struggle to secure the necessary startup capital.
At last week’s litigation funding conference held by Brown Rudnick, the topic of collective actions in the UK generated an interesting discussion, with panelists noting that the upcoming Supreme Court decision could impact the entire third-party funding industry. As LFJ reported last month, the DAF appeal resulting from lawsuits brought at the Competition Appeal Tribunal (CAT), has put UK funders on alert, as many are carefully watching to see how the Supreme Court will act.In an article for The Law Society Gazette, Rachel Rothwell takes a look at the background to this appeal which had its hearing in front of the Supreme Court last month, and also looks forward to what the potential consequences could be if the judges were to side with DAF and rule that litigation funding agreements (LFAs) should be classified as ‘damages-based agreements’ (DBAs). Rothwell points out that while the general assumption may be that the Supreme Court will not side with DAF’s arguments, having been rejected twice by both the CAT and a Divisional Court of the High Court of Justice, there is no guarantee as to the outcome. Analysing the history of past Supreme Court decisions, Rothwell highlights that the two judges who did not side with the majority in the claimant-friendly decision in Merricks v Mastercard, were both also present in last month’s hearing. If the Supreme Court does side with DAF’s appeal, Rothwell suggests that whilst some LFAs could be renegotiated to adhere to the regulations for DBAs, this would not be a solution for opt-out collective actions due to the Competition Act 1998 stating that DBAs are unenforceable in those proceedings. As a result, if this worst-case scenario for funders does come to pass, Rothwell argues that only the government may be able to take swift action by amending the legislation relating to DBAs.
Last week, Brown Rudnick hosted its second European Litigation Funding Conference, which brought together a crowd of international thought-leaders from across the industry, and provided attendees with an agenda filled with insightful discussions on a wide array of issues. The conference proved to be a beneficial experience for all, with Augusta Ventures co-founder Robert Hanna describing it as ‘the pre-eminent litigation funding conference in Europe, if not the world’. Following a successful inaugural showing in 2022, this year’s event reinforced the maturation of the litigation funding industry, with panelists keen to dive into the opportunities and challenges that funders, law firms and other industry participants are facing. In addition to the high-level topics that continue to shape the market such as ESG and collective action litigation, the conference featured panels on areas that are still maturing within the litigation funding space, including crypto litigation and opportunities for a secondary market. After an introduction from Brown Rudnick partner Elena Rey, the conference kicked off with a keynote address delivered by Anya Neistat, Legal Director of The Docket initiative at the Clooney Foundation for Justice. Having recently returned from conducting research and investigations in Ukraine, Neistat spoke of the importance of litigation which can help provide justice for victims of atrocities and war crimes. Highlighting the fact that survivors and NGOs often lack the means to take on complex litigation, Neistat emphasised that ‘litigation funding can be absolutely critical to allow survivors to get on the offensive.’ The first panel of the day featured a unique discussion of the emergence of crypto litigation, with the panelists discussing the primary challenge of accurately valuing this bespoke practice of litigation, as well as the underlying crypto-related assets. Moderating the panel, Stephen Palley of Brown Rudnick pointed out that despite the relatively new state of crypto litigation, he has found that courts are adapting well, and has ‘yet to find a judge who just says, “I don’t get it”’. Whilst members of the panel disagreed on whether all cryptocurrency is fundamentally ‘snake oil’, all agreed that valuation was the most important hurdle to overcome, with BDO’s Simon Greaves stating that a major issue is ‘how do you value it at the point of recovery’ when the worth of these assets can vary so wildly over time. James Collins KC of Essex Court encouraged industry participants to take a broad view of what crypto litigation might entail, suggesting that the future will see ‘claims in almost every area of law’. Steven Friel, CEO of Woodsford, kicked off the discussion by defining the current environment as one where ‘opportunities vastly outweigh challenges’ and praised the CAT’s willingness to ‘have an expansive definition of what is a competition claim’. Whilst the speakers expressed some concern about the ongoing Supreme Court appeal, which, as part of the defence strategy, is attempting to call into question certain aspects of the claimant’s funding agreement in the CAT – that strategy has failed at first instance and in the Court of Appeal. There is a high level of sophistication among the judiciary in this area and significant support for funding as a part of the landscape of collective actions in the UK. Without funding, good claims simply are not viable. After a short break, the next panel looked at the investor perspective on litigation funding as an asset class, with Chad Clamage of Victory Park beginning the discussion by reinforcing the central principal that litigation funding remains ‘attractive as an uncorrelated asset class’. Robert Hanna stated that ‘there has never been a better time to be a funder’ with demand at an all-time high, and that ‘in the current economic environment, liquidity is going to be king’, as a wider investor base for funding emerges. D.E. Shaw’s Sarah Johnson cautioned that duration still remains an obstacle for many investors, highlighting that durations that start to approach 7 to 10 years can block investment ‘even if all the other factors are there’. Nick Moore of AON put the spotlight on the increasingly beneficial relationship between funders and insurers, describing it as a situation where ‘two industries with a history of mutual cynical disregard, are now coming together’. The morning’s final session touched on the in-house perspective on litigation funding, with Suber Akther of Siemes Energy describing the difficulties faced by legal departments where they are ‘always under pressure’ to reduce costs and increase efficiency. Rocco Pirozzolo from Harbour Underwriting advised that whilst it may not always be viable for in-house teams, the best approach is for them to ‘look at the options out there, be open to it’. However, he also noted that work still needs to be done to counter the narrative that funders will control litigation, stating that ‘this myth has to be dispelled’. Andrew Jones of Fortress Investment Group reframed the issue at stake for in-house counsel, arguing that ‘a general counsel is an investor in litigation just like a funder, the only question is whose money you are going to use’. The hot topic of portfolio and law firm financing kicked off the afternoon’s agenda, with Burford Capital’s Leeor Cohen emphasising that one of the core fundamentals for this approach is that a ‘portfolio is not worth more than what is actually in the portfolio’. Looking at the factors that funders must consider in portfolio deals, Tom Steindler from Exton Advisers highlighted four key considerations: open versus closed portfolios, the identity of the borrower, what the capital will be used for, and the method of repayment of proceeds. The panel closed its discussion by looking at future trends with Cohen and North Wall Capital’s Alex Garnier agreeing that we may see the less-specialised and opportunistic financiers exit the market, whilst Chris Neill of Pogust Goodhead predicted more collaborative efforts in the industry. The penultimate panel for the day saw a fascinating discussion around collective redress in Europe, with panelists representing firms in France, Germany, the Netherlands and Spain. Emily Woolcott from Woodsford stated that ‘the Netherlands is the most attractive EU jurisdiction,’ which was widely echoed by the other panelists. Paul de Servigny from IVO Capital contrasted the French market’s unwelcoming environment for class actions with Spain, which stands out as a market ‘becoming an attractive location’. Discussion around the EU’s new collective redress directive featured interesting insights into the differing routes toward implementation in each country, with Tobias Glienke of Greenfort arguing that its introduction ‘could be a real gamechanger in Germany’, where the draft law looks to go beyond the directive by allowing small business participation and also include civil claims. The panel also discussed the crossover between the directive and the prominence of ESG litigation in Europe, with Frank Peters from Bureau Brandeis highlighting that environmental cases will be a major feature in the Netherlands, particularly around ‘polluter pays’ and greenwashing claims. To close out the day, the much-awaited panel on secondary market opportunities provided attendees with an overview of the state of that market, as well as the potential routes for growth in the future. Patrick Rode from Deminor differentiated between jurisdictions, and stated that where countries have a more mature primary litigation funding market, we are also seeing the development of a more ‘advanced secondary market’. Therium Capital Management’s Ben Smyth highlighted that the very concept of secondary deals still faces challenges, as there is ‘a lot of cynicism why the seller wants to get rid of the asset’. The issue of transparency was also one of the main challenges raised, as Ben Moss from Orchard Global asserted that for trust in sellers to exist, ‘the reasoning needs to be visible’. In looking to further develop the market, David Vanaskey from Wilmington Trust Company suggested that lessons can be learned from outside the industry and that there is a ‘need to use technology solutions that are utilised in other secondary markets’. Overall, Brown Rudnick’s second European Litigation Funding Conference once again demonstrated the breadth of experience in the industry and managed to deliver a full day of engaging content with speakers bringing current and relevant insights to each discussion. Attendees across the event remarked on the quality of panelists, which was facilitated by Brown Rudnick’s team of moderators who skillfully guided each discussion across interesting and impactful topics.
Litigation funding is most often associated with commercial litigation, and primarily focused on plaintiff-side funding, as these are the cases with the surest route to a profitable return on investment. However, a new funding opportunity is looking to break that mould, as 4 Rivers Services is seeking investors to fund the defense costs of a high-profile criminal case which will pit a rapper against the U.S. Justice Department.An article from Reuters provides the details on this unique situation, which has originated from the Justice Department’s indictment of Fugees rapper Prakazrel Michel on charges of a criminal conspiracy relating to illegal donations of foreign money into Barack Obama’s 2012 election campaign, and two separate cases of lobbying the Trump administration. Whilst at first glance, this may not appear to be an obvious litigation finance opportunity, the funding advisor and broker 4 Rivers is looking for investors to fund Michel’s upcoming defense costs.Peter Petyt, co-founder and CEO of 4 Rivers, stated that he is looking for investors to provide at least $2.6 million in funding, with the financial return guaranteed by either the recovery of previously forfeited assets if Michel is acquitted, or a share of Michel’s future revenue from his music career. Petyt recognized that the case may be ‘difficult to finance’ due to its unique circumstances, and while he has received interest from funders in the opportunity, they had not yet secured an agreement as of the time of Reuters’ publication.Mr. Michel’s trial is currently scheduled to begin on March 27 in the U.S. Federal Court for the District of Columbia.
The issue of disclosure is once again front and center in a patent litigation suit. In the US District Court for the District of New Jersey, the identities of the funders of an infringement suit against a Merck & Co. company were revealed.Reporting by Bloomberg Law details the latest development in Microspherix’s lawsuit against Organon, a Merck & Co. spinoff company, over the infringement of patents for a contraceptive implant. In a court filing on March 15, the plaintiff’s attorneys revealed that it had received funding from Law Finance Group and from a GLS Capital affiliate, Zepata SPV. GLS Capital recently made headlines in another case, after its client Nanoco Technologies reached a $150 million settlement with Samsung Electronics over another patent infringement lawsuit.The filing also confirmed that Kirkland & Ellis, who are acting for Microspherix, were engaged on a contingency arrangement, and that in 2022 the firm had ‘agreed to share a portion of any proceeds it receives from this matter with LFG and GLS in exchange for a non-recourse payment of a portion of its estimated fees for the matter.’It is also noteworthy, given recent events, that the court filing explicitly states that ‘none of LFG’s, Zepata’s, or GLS’s approval is necessary or required in any way for litigation decisions or settlement decisions in the action.’
Given all of the economic and geopolitical uncertainties at play, industry leaders and analysts are expecting insolvencies to continue to rise, which will create opportunities for funders focused on the space. This has been reflected in an update from one of the UK’s leading funders of insolvency litigation, which has announced record new case investments, case completions and cash recoveries in the current financial year to date (FY23 YTD).In a trading update to the London Stock Exchange, Manolete Partners has announced that it has made 246 new case investments for FY23 YTD, an increase of 55% compared to 159 new investments for the entirety of FY22. In parallel, Manolete stated that in this time period, it had also completed a record 168 cases, along with a record cash recovery from already completed cases of £26.2 million. According to the company, this has led to a consecutive five month run of profitability through the end of February 2023, with Manolete expecting a strong recovery of profitability in FY24.As LFJ had previously reported, Manolete has been engaged with Barclays on a pilot programme to recover misappropriated funds from the government’s Bounce Back Loan Schemes. In the trading update, Manolete revealed that 119 companies have been included in the pilot scheme, with 45 cases assigned to Manolete. Of these cases, Manolete claims that three have already been settled and a further seven have settlement offers, with only one of these cases not having offered or agreed to repay the full amount of misappropriated loans.Manolete’s CEO, Steven Cooklin, stated that ‘the UK is now experiencing record high levels of insolvencies and that is directly leading to the Company's impressive operating performance’. However, the trading update did also reveal that the Court of Appeal had dismissed Manolete’s appeal to a High Court judgement from last year, and that £750k in costs relating to the case ‘will now be written off in H2 FY23 and a line drawn under the matter.’
Insolvency and bankruptcy litigation remain one of the top targets for litigation funders, fuelled by the current economic uncertainty and the prolonged after-effects of the Covid-19 pandemic, which left many businesses in dire financial trouble. The recent implosion of Silicon Valley Bank (SVB) has only added to this fertile environment for insolvencies.In an article by City A.M., LCM’s chief executive Patrick Moloney stated that SVB’s collapse would likely cause a “myriad of litigation”, which will only further compound the difficult circumstances that many corporations are facing. Moloney highlighted the fact that in such an environment, liquidators will be keen to utilize litigation financing as a tool to pursue any resulting lawsuits.In the same interview, Moloney pointed to the dramatic rise of class action claims in the UK as another sector that LCM is pursuing. Moloney suggested that this increase in class actions is largely due to the “change in the law that’s allowing these claims to come through”, with funders like LCM standing by to provide the needed capital to move these claims forward.
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