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Key Trends and Drivers for Litigation Funding in 2023

Watch this insightful webinar recording from early 2023, where key Litigation Finance stakeholders delve into critical factors shaping the industry's future. Discover their perspectives on navigating a potential recession, capitalizing on promising legal sectors, and responding to the heightened public awareness generated by events like the 60 Minutes segment. Video Passcode: 2Ld&znB!
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Commercial Regulatory Issues

EU Representative Action Directive Could Generate New Opportunities for Funders

Analysis of regulatory development in the European Union has largely focused on the potentially negative consequences of the proposed changes outlined in the Voss Report. However, there is equal opportunity for the EU’s Representative Action Directive to generate a wave of group action activity across the continent, with funders able to capitalize on these forthcoming opportunities. In a piece of analysis on Bloomberg Law, Keir Baker and Chris Warren-Smith of Morgan, Lewis & Bockius, examine the potential impact of the directive and how it could shape the European class action landscape in 2023 and beyond. With member states required to amend their own laws to fall in line with the directive by 25 June 2023, the continent will soon see a greater degree of standardization in the regulation of representative actions. Of most interest to funders will be the provision in the directive that requires member states to allow the use of litigation funding, with the caveats that the source of funding must be disclosed if there are perceived conflicts of interest, and that the financing should not shift the action “away from the protection of the collective interests of consumers.” The authors note that states such as Cyprus and Ireland, where litigation funding has previously been heavily restricted, will be most likely to experience a surge in representative action opportunities for funders. Baker and Warren-Smith emphasize that whilst the directive is designed to provide a more unified set of guidelines, it does allow for individual member states to tailor their implementation of the rules. This will include the standards set out for the use of opt-in or opt-out regimes, as well as the minimum number of class participants required for it to move ahead. Therefore, this may create a new environment in which those looking to bring collective actions will pick their jurisdiction of choice more carefully, with countries like the Netherlands likely to be hotbeds of activity given their willingness to go even further than the bounds of the directive in creating an accessible framework for representative actions.
Commercial Deals

Crypto Bankruptcies Attract Interest from Litigation Funders

Once viewed as a bold new frontier for retail investment, cryptocurrency has suffered in recent times with huge declines in the value of certain currencies, alongside a number of crypto companies either collapsing or falling foul of scandals involving customers being misled and defrauded. However, as many industry analysts have been speculating, it seems that the resulting bankruptcy filings of crypto firms is drawing the attention of litigation funders who may look to fund consumers’ claims and generate significant returns on investment. Reporting by Pensions & Investments discusses the recent crypto bankruptcies of companies such as Genesis and FTX, noting that the fallout from these collapses is likely to draw investor interest in related litigation. Commenting on the potential litigious activity, Brandon Baer, CIO of Contingency Capital, stated that the firm was looking at potential claims in this space, but there was not complete clarity at this stage as to how different consumers will be classified, such as whether a customer who deposited cash with FTX will be treated equally with a customer who deposited actual cryptocurrency. Mr Baer also highlighted that Contingency was seeing an uptick in interest in litigation finance from institutional investors such as pension funds and foundations. He emphasized the fact that litigation funding retains a degree of separation from investment assets more closely tied to the stock market, and therefore it is viewed as an opportunity for institutional entities to further diversify their portfolio.
Commercial

London Litigators Spotlight Litigation Funding Among Top Disputes Trends

The current economic climate seems to represent a perfect storm of destabilizing factors, with countries still dealing with the after effects of the pandemic, inflation on the rise and the war in Ukraine affecting supply chains and more. As a result, litigators are predicting one of their busiest years yet in terms of disputes, and a panel of London’s top legal professions have offered their perspectives on what key trends we can expect to see in the year ahead. Detailed in Legal Business, nine of London’s leading dispute lawyers weighed in on what 2023 would have in store for the world of disputes. Summarizing the overall climate, Julian Copeman, disputes partner at Herbert Smith Freehills, compared the situation to the 2008 financial crisis, where it took a couple of years for disputes to gain momentum, and in the same way, Covid-related disputes are likely to become a more prominent feature than ever. Looking at individual trends, litigation funding is identified as one of the key beneficiaries of this surge in activity. Alex Sciannaca, litigation partner at Hogan Lovells, confirms that he has seen an increase in interest from clients towards pursuing third-party funding of their claims. Copeman also speaks to the growing maturity of the funding industry, noting that funders with a wide portfolio of cases are able to lower their risk profile and will continue to attract investment despite the poor economic climate.  Toby Robinson, a dispute resolution partner at Travers Smith, also highlights competition litigation as both a top trend and an attractive prospect for litigation funders, but does caution that claims which have issues establishing damages will be unlikely to attract outside financing. Linklaters’ global head of disputes, Alison Wilson, pinpoints ESG as a particularly fertile area for disputes in 2023, particularly around greenwashing claims and legal action being brought against governments. Other key dispute trends highlighted for 2023 include collective proceedings actions, crypto and blockchain litigation, and investigatory activity by regulatory bodies leading to more lawsuits.
Commercial

UK Funder Novitas to Write Off £90MM Over Unsuccessful Cases

An important reminder of the volatility of the funding industry has come into the spotlight, as a UK merchant banking group announced its litigation funding arm had failed to find success from its investment in cases. Reporting by The Law Society Gazette covered an update from Close Brothers Group announcing that its litigation funding business, Novitas, would be writing off £90 million from a portfolio of cases that had “limited prospects of successfully progressing through the courts”. This follows a decision in July 2021 by Close Brothers to withdraw from the litigation funding market, and not to pursue any new investments in the sector. Novitas was first acquired by the group in 2019, and was working with a number of different law firms when it suffered from a run of unfortunate events. According to reporting by the Gazette, Novitas had previously drawn the Financial Ombudsman’s (FOS) attention around its activity with solicitors, who allegedly pressured divorcing clients to enter into high-interest loans. Whilst this activity dated back prior to its acquisition by Close Brothers, it was only last month when Novitas was found by the FOS to have failed to execute adequate income verification on a borrower, and has been forced to repay both the interest and additional charges.
Commercial Deals

LegalPay Announces Joint Venture with Goldi Solar Group

Despite being viewed as a less prominent market in the global scope of litigation funding, India continues to experience a regular cadence of legal finance activity. This is in large part due to the presence of LegalPay, the country’s leading funder, which once again made headlines with the announcement of its joint venture with Goldi Solar Group, a solar manufacturing business. Detailed in an article by BWDisrupt, LegalPay’s joint venture with Goldi Solar Group sees the funder acquire a minority stake in Padmalaya Finserve, a non-banking finance company (NBFC) dedicated to legal and insolvency financing. LegalPay secured an operational stake in the company, which aims to provide loans to cover legal costs through no-cost EMIs. LegalPay’s CEO, Kundan Shahi, emphasised that this joint venture would allow the funder to broaden its reach in the legal finance space and continue to innovate its service offering for businesses. Ishver Dholakiy, managing director of Goldi Solar, stated that “LegalPay as a partner brings their sector expertise and robust tech infrastructure necessary for establishing a strong dominance in the sector."
Commercial Regulatory Issues

Amicus Capital Highlights the Ethical Nature of Litigation Funding

Critics of litigation funding often cite a myriad of reasons why the practice should come under increasing regulation, claiming it lacks transparency and that funders exert control over the litigation process. However, proponents of the industry are not remaining silent in the face of these arguments, with one funder highlighting the ethical nature of third-party legal funding. In a blog post on LinkedIn, Amicus Capital Group puts forward three core elements that establish litigation funding as a more ethical practice than other forms of lending or outside finance. Firstly, the article emphasises the non-recourse nature of the financing, which means clients are never liable to repay any costs if the case is unsuccessful. Litigation funding sets itself apart from other means of financing, as it assumes risk for cases without demanding financial return in the case of a negative outcome. Secondly, the idea that funders are controlling litigation is a misguided one. Funding agreements are the source of capital, but they are not designed to give funders control over the legal strategy, nor any decision-making capacity over areas such as settlement negotiations.  Finally, the article reinforces the principle that funders do not jeopardize attorney-client privilege, and as has been demonstrated in recent cases, confidential information that is shared with the funder is not at risk of being made discoverable. Amicus’ blog post draws upon previous analysis by the ABA, which covered common misconceptions about litigation funding.
Case Developments Commercial

Manolete’s Claim Against Law Firm Survives Request for Summary Judgement

Whilst litigation funders and law firms often have a mutually beneficial relationship, this does not eliminate the possibility of the two parties being at odds with one another. That is the case in the UK, as Manolete Partners is suing law firm Sampson Coward over a dispute regarding the latter’s role as an escrow agent for one of Manolete’s clients. Reporting by Legal Futures provides an update in the dispute, as the High Court has denied Sampson Coward’s request for summary judgement of the claim. The case is centered around Manolete’s claim that Sampson Coward failed to adequately act as the escrow agent for funds lent to two property development businesses owned by Nigel Jeremy Weir. Manolete alleges that Sampson Coward allowed Mr Weir to use £2 million of the lenders’ financing for personal expenses, and that the law firm “improperly acted” on the sale of assets, which diverted profits from one of the companies without commercial justification. Sampson Coward had sought summary judgement on a number of grounds, including the basis that if a claim were to be brought around the use of the financing, then it must come from the lenders themselves and not the borrower. Deputy Master Teverson of the High Court denied the request, by stating that this reason and the other justifications provided by Sampson Coward were not sufficient basis for summary judgement
Case Developments Commercial

Victims of Post Office Horizon Scandal to Receive Full Compensation

The recent history of group actions in the UK have demonstrated the substantial power of groups of individuals to seek legal redress against large entities, especially when supported by capital provided by litigation funders. However, as one recent case has demonstrated, these initial actions can only go so far, and in order to receive satisfactory financial compensation, these groups must continue to fight for their cause. An article by ComputerWeekly covers the latest developments in the ongoing campaign of former sub-postmasters who were impacted by the Post Office Horizon scandal. The victims of the scandal were erroneously blamed for accounting disparities caused by accounting software, which led to over 500 employees forced to pay huge fines and in some cases were sent to prison after being wrongfully convicted for fraud and theft. The Justice for Sub-postmasters Alliance (JFSA) succeeded in their group litigation order (GLO) in 2019, but despite being awarded damages totaling £58 million, only received £11 million after having to cover legal fees that had been paid by a funder. However, in June of last year, the JFSA succeeded once again, as a judicial review found that the government must pay for the difference in compensation. In an update last week, after an initial meeting between the GLO’s Compensation Scheme Advisory Board and the government’s Department for Business, Energy and Industry Strategy (BEIS), it was announced that additional compensation would be provided to “restore the claimants to the position that they would have been in if the scandal had not happened.”