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Commercial Regulatory Issues

Chamber of Commerce Claims Litigation Funding Represents Threat to National Security

While litigation funding is seen by many as a vehicle for widening access to justice and changing the balance of power in favour of consumers and plaintiffs who lack the capital to seek legal redress, there are institutions who view it as a nefarious influence on the legal system. The U.S. Chamber of Commerce has recently reemphasised its opposition to third-party funding, with the release of a report questioning the national security risks of litigation finance. Outlined in an article by Reuters, the report produced by the Chamber’s Institute for Legal Reform, claims that the intrusion of third-party funding into American litigation could allow foreign adversaries to damage the United States through funded litigation. In particular, the report suggests that foreign funders could influence litigation designed to sow division in the country, or gain access to confidential corporate information through these lawsuits. The report, which was written by four attorneys at Skadden, Arps, Slate, Meagher & Flom, proposes that foreign funders be required to register under the Foreign Agents Registration Act (FARA). The Chamber also continues to seek wider regulation of the industry with a focus on increasing disclosure requirements for all funders.
Commercial Regulatory Issues

ICSID’s Secretary-General Reflects on Developments and Rule Changes for Third-Party Funding

International arbitration and dispute resolution remains one of the most complex and wide-ranging areas which litigation funders are involved in. The International Centre for Settlement of Investment Disputes (ICSID) sits at the heart of this activity, and its leadership is well-placed to observe the latest developments and trends, as demonstrated by a recent interview with ICSID’s secretary general. On the latest episode of D.C. Bar Communities’ The Tea on International Arbitration podcast, Meg Kinnear, secretary-general of ICSID, was interviewed by Nicole Silver, investment manager at Validity Finance, and Gaela Gehring Flores, partner at Allen & Overy. Looking back on her tenure over the last 13 years, Kinnear points out that ICSID’s membership has grown from 143 to 158 states in that time, which has also been reflected in the volume of caseloads. Reflecting on backlash against ICSID from political figures in the US, Kinnear stated that most of these perspectives are a result of misinformation or a simple lack of information, especially with common myths such as states always being on the losing end of this type of arbitration. However, in recent years Kinnear believes that there has been somewhat of a change in broader opinions, and that while the system is continually evolving and improving, state perspectives are becoming more favourable. Discussing ICSID’s new rules, especially in regard to transparency and disclosure of third-party funding, Kinnear highlighted that having last been amended in 2006, these rules were overdue for a change. Litigation funding was a key area of consideration, with Kinnear making it clear that it was not ICSID’s role to condemn or endorse third-party funding. Kinnear also reiterated that the main focus for this rule was to avoid conflicts of interest, not to enhance disclosure or discovery.
Commercial Deals

Leading Indian Funder Promotes Utility of Litigation Finance for Homebuyers

Recent regulatory developments by the Insolvency and Bankruptcy Board of India (IBBI) have altered the legal status of homebuyers, to now be counted as ‘financial creditors’. As a result, those purchasing homes can go to the National Company Law Tribunal (NCLT) to seek resolution of any disputes with sellers or builders, opening a new avenue for litigation funding to provide support to consumers. Writing for the Financial Express, Kundan Shahi, CEO of LegalPay, highlights that homebuyers in India have traditionally faced a litany of legal issues when purchasing, but previously have not had the legal status or the capital to seek redress. However, under these reformed rules, Shahi believes that homebuyers should take advantage of third-party funding to resolve such disputes without incurring further expenses or additional risk. In particular, Shahi notes that in situations where there are ongoing delays due to real estate developments being behind schedule or facing further complications, buyers can seek compensation. Additionally, he raises the key point that even where buyers had legal redress previously, their lack of funds meant any chance of seeing an expedited resolution in the court system was slim. Yet with the help of funders, consumers can achieve a faster resolution.
Commercial Deals

Litigation Funding as an Antidote to Fraudulent Insolvency Practices

The ongoing fallout from the pandemic has seen a rise in insolvencies, and with that rise, there have been numerous examples of companies unlawfully restructuring in order to avoid compensating creditors. Litigation funders can provide a valuable antidote to this kind of fraudulent behavior and enable creditors to seek justice. Speaking with the Financial Times, Gwilym Jones, director at Henderson & Jones, highlights that liquidators are often left powerless in these situations and lack the capital to dedicate to an investigation. However, by bringing the option of third-party funding to the table, creditors can provide a tool to balance the equation and identify what assets can potentially be recovered. Jones points out that some liquidators may lack the experience, or may be initially hesitant to approach a funder, therefore it may be up to creditors to either suggest this approach or to contact the funder to reach out to the liquidator. However, Jones argues that the communication between creditors and funders should not end there, as they may be able to provide valuable insight and information that could guide potential future litigation.
Commercial Regulatory Issues

Patent Counsel Argues Litigation Finance is Exploiting Weak Patent Approvals

There has been plenty of commentary in recent months arguing that litigation financing has revolutionized the patent dispute market, providing an invaluable asset to inventors and patent holders who have been unjustifiably exploited by corporations. However, this viewpoint is not unanimously held, and some industry figures believe that the presence of third-party funding is doing more harm than good. In an opinion piece for Bloomberg Law, Joshua Landau, patent counsel for the Computer & Communications Industry Association, argues that the vast number of low-quality patents granted every year has created a fertile market to be exploited by ‘non-practicing entities’ (NPEs). He claims that funders and investors are able to use these overly broad patents to sue businesses, with the primary aim of securing a return on investment rather than protecting intellectual property. In Landau’s opinion, another major issue with these funded lawsuits is the lack of transparency, something that has become a regular topic in patent disputes in the US where funders are involved. He claims that where funders are not visible to the courts, it allows litigants to represent themselves as small inventors taking on large corporations, rather than being backed by equally large financiers.
Commercial Deals

How the Time Value of Litigation Should Influence Investment Decisions

When considering the pros and cons of engaging in litigation, the issue of costs cannot be considered without also factoring in how long the process could take. As a result of systemic backlogs and inefficiencies, the ability to accurately assess the ‘time value of litigation’ is paramount when determining the appropriate quantum–an in turn, whether an investment in the claim is warranted.  In a new piece of analysis for Thomson Reuters’ Dispute Resolution Blog, LionFish’s managing director, Tets Ishikawa, provides an in-depth look at the mathematical breakdown of this concept. At the centre of the argument is the idea that the further prolonged the litigation process, the more the present day cost value is diminished.  Ishikawa argues that through this model, it is plain to see why defendants can and do seek to extend the duration of litigation processes, as they are in fact arbitraging the time value of litigation. In his view, it is symptomatic of a wider issue in the legal system, one which encourages parties to commit wrongdoings and pay for their misdeeds later at a lower value than if they were brought to justice more swiftly.
Consumer

Litigation Funding has Upended the Balance of Power in Medical Malpractice Cases

One area of litigation funding that receives less time in the spotlight but carries great importance is in the realm of medical malpractice and personal injury cases. According to industry insiders, the emergence of third-party funding for these types of claims has dramatically reoriented the balance of power away from medical insurers and into the hands of individual plaintiffs. Speaking with South Florida Hospital News and Healthcare Report, Matt Gracey, managing director of Danna-Gracey, points out that litigation finance allows claimants to fight cases they wouldn’t otherwise have the capital to sustain, and then avoid settling early where cases may have prolonged timeframes. He goes on to argue that this development should not only be a concern for doctors, but any other commercial entities that could be targeted with litigation funded by third-parties. Gracey highlights the important statistic that insurance companies were previously winning 85-90% of cases brought to trial, yet in instances where a plaintiff has the support of a litigation funder, plaintiffs are now winning by the same landslide ratio. He states that insurers must continue to analyse the types of cases that funders are having successful returns on in order to be better prepared, and must also realise that doctors must evaluate the financial capabilities of their insurers to make sure they can measure up against this new force of capital for plaintiffs.
Commercial Deals

Scotland Represents Potential Growth Jurisdiction for Class Actions

The rise in the volume of class actions in Europe has shown no sign of slowing down in recent years, with more and more cases demonstrating the possibility of success, especially for consumers bringing legal actions against multinational corporations. With this growth, litigators and funders alike are keen to pinpoint jurisdictions where this success can be built upon. Writing for Lawyer Monthly, Richard McMeeken, a partner at Morton Fraser Lawyers, argues that Scotland may be the next country to see an explosive rise in class action activity. He identifies the three key factors that could fuel this growth: the relatively low cost of bringing class action claims, the low adverse costs risk and the presence of a mature litigation funding industry. When it comes to the final factor, McMeeken states that Scotland benefits from the lack of legislative and regulatory restraints on the use of third-party funding in this type of litigation. This is further supplemented by the use of After The Event (ATE) insurance, which can provide additional security for claimants where there is the risk of adverse costs order. However, McMeeken explains that Scotland has not yet seen the kind of activity present in other jurisdictions, due to the fact that the Scottish legal system has only recently adopted procedures for these types of proceedings, and as of today, has been restricted to opt-in class actions. McMeeken expects that if courts are able to replicate this openness in regards to opt-out cases, and as the system becomes more familiar with a broader swathe of class actions, Scotland could see significant activity in the near future.
Announcements Commercial Legal Innovation

New research reveals growing business impact of in-house lawyers and legal departments as they increasingly generate cash recoveries

Burford Capital, the leading global finance and asset management firm focused on law, today releases new independent research based on a survey of 300 GCs and heads of litigation in the US and UK that demonstrates the transformative way that GCs view legal department impact. GCs seek to add value to the business, and affirmative litigation recoveries play an increasingly important role. GCs also see a role for their law firm partners and for legal finance, especially in relation to fostering innovation and providing support for affirmative recovery programs.

Christopher Bogart, CEO of Burford Capital, said: “Burford’s latest independent research shows that GCs are determined for the legal department to increase their business impact. Legal finance can help them, and the research shows that GCs are increasingly open to cost- and risk-sharing with third parties and that law firms need to be ready to talk to clients about this solution.”

Among the core findings of the research:

  • GCs are ambitious for the legal department’s impact in generating liquidity and transcending its traditional understanding as a cost center.
    • Over half (54%) say the legal department is understood to add value to the business by pursuing recoveries through litigation or arbitration.
    • An even larger majority (69%) say identifying new ways to add value to the business is the most important means by which in-house lawyers can contribute to the success of the company.
  • Still, many see opportunities to do more, specifically in adding value through meritorious affirmative recoveries.
    • Over half of those surveyed (51%) say they need to build infrastructure and process to add value through meritorious affirmative recoveries.
  • GCs expect law firms to be ready to provide guidance on value generation.
    • A solid majority (65%) say that receiving guidance from law firm partners about opportunities to innovate or add value to the business is one of the most important factors in individual GC success.
    • Six in ten say either that their panel litigation firms have spoken to them about legal finance in the last five years or that the firm’s doing so would have contributed to the company success.
  • Legal finance is poised to play an increasingly important role in GC success.
  • GCs see a role for legal finance, especially in relation to their affirmative recoveries.
  • Just under a third of GCs (27%) say their companies have used legal finance.
  • Similarly, almost six in ten say either that they reviewed legal finance partners in the last five years or that doing so would have contributed to the company’s success.

The 2022 GC Survey can be downloaded on Burford’s website, where full results are also available. The research report was conducted in June 2022 by GLG via an online survey, with responses from 300 US and UK GCs, heads of litigation and other senior in-house lawyers responsible for their companies’ commercial litigation.

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 principal offices in New York, London, Chicago, Washington, DC, Singapore, Sydney and Hong Kong.

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

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