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Commercial Deals

Brazilian Lawyer Calls for Funders to Support Litigation for Indigenous Communities in the Amazon

Litigation funding is a powerful tool to redress the balance between powerful defendants with vast wealth and resources at their disposal, and claimants who lack the financial resources to fight back. This contrast is often most sharply seen in cases where indigenous communities are fighting for justice against government entities or corporations that have harmed them, who without third-party funding, would be unable to gain access to the legal system. In a new effort to bring justice on behalf of indigenous communities, Daniel Cavalcante, a lawyer from Brazil, is calling on law firms and litigation funders to support lawsuits against large international corporations harming the people and the environment of the Amazon. In a video published to his YouTube channel, Cavalcante describes how indigenous peoples in the region “suffer the most diverse types of violence, prejudice and oppression”. Cavalcante states that this oppression and harm is being conducted both by foreign companies and by state governments, who have perpetrated “a true ethnic-cultural genocide that decimated their habits, customs and traditions”.
Case Developments Commercial

LCM Announces £7MM in Profit from Carillion Litigation Against KPMG

Investments by litigation funders are always a delicate balance between the risk of a lost case against the potentially lucrative returns should the claim be successful. However, as a new announcement by Litigation Capital Management (LCM) demonstrates, backing the right case can lead to impressive financial gains for a funder. Reporting by City A.M. highlights LCM’s announcement early this week, which stated that the funder had achieved a £7 million return in profit from funding a claim by Carillion’s liquidator against KPMG. The claim that LCM had originally financed in 2021, involved the liquidator filing a lawsuit against KPMG for its failure to competently audit Carillion’s accounts, which had subsequently led to the collapse of the company in 2018.  KPMG had announced last week that it would be settling the case, without disclosing the settlement figure publicly. However, LCM had invested £5.2 million into the lawsuit and with an overall financial return of £12.5 million, resulting in the stated £7 million amount in profit.  LCM’s chief executive, Patrick Moloney, stated that the capital for the investment had been sourced from pension funds in Europe and the US, as well as investment banks and university endowments.
Case Developments Commercial

Harcus Parker Leading Group Litigation Against UK Energy Suppliers

As everyday consumers around the world struggle with rising prices and constrained income, it is no surprise that there is significant interest in litigation representing these consumers against corporations who abuse their power. In the UK, a new group litigation effort looks to take on Britain’s energy companies for their practice of paying brokers to attract new customers and then secretly passing on the cost of those broker fees to these customers. An article by Express & Star covers the news that Harcus Parker, a London-based litigation firm, is reaching out to companies, charities, schools and other organisations who may have been affected. The group litigation focuses on the allegation that energy firms paid ‘secret commissions’ to third-party brokers or introducers, who encouraged customers to sign up with these energy suppliers and then effectively forced the customer to cover these costs by increasing their energy bills. Harcus Parker’s senior partner, Damon Parker, stated that consumers have been unknowingly footing the bill for these practices, with energy suppliers and outside brokers having failed to disclose the existence or amount of these payments. Harcus Parker has stated that it has secured over £10 million in litigation funding to fight the case, and has estimated that the total compensation owed by these energy companies could exceed £2 billion. Potential claimants can contact Harcus Parker through its website.
Case Developments Commercial

Woodsford Funds Class Actions Against Hyundai and Kia in Australia

As class actions continue to gain interest and investment from the litigation funding industry, the automotive sector remains an area full of opportunities, with consumers empowered to bring claims against manufacturers accused of malpractice or deceptive behavior.   Reporting by WhichCar details that multiple class actions have been brought against Hyundai and Kia in the Federal Court of Australia, with the claims alleging that they sold vehicles to consumers that had defective engines with serious faults. The actions, which are being represented by Johnson Winter Slattery and funded by Woodsford Litigation Funding, cover sales of vehicles from 2011 to the present and includes over 20 separate models of car between the two carmakers, with a potential of almost 195,000 cars being affected by these issues. Charlie Morris, chief investment officer at Woodsford, stated that the class actions were designed to ensure these companies face accountability and that the consumers affected can receive adequate financial compensation. Robert Johnston, a partner at Johnson Winter Slattery, emphasised that Kia and Hyundai’s actions specifically harmed Australian consumers, as they were aware of the issues and even recalled vehicles with similar defects in other countries. Hyundai stated that it “stands by the integrity and reliability of its vehicles”, whilst Kia did not respond to WhichCar’s request for comment.
Commercial Regulatory Issues

DAF Appeal in UK Supreme Court Could Endanger Third-Party Funding

As the European Union considers proposals for enhanced regulation and oversight of third-party litigation funding on the continent, there has been much speculation that the UK’s litigation finance industry could benefit from representing a more welcoming market. However, an ongoing appeal by the defendant in two group claims has the potential to disrupt the status quo of litigation funding in the UK, and create major problems for funders operating in the country. An article by Reuters provides an update on the appeal by truck manufacturer DAF, which is now set to be decided by the UK’s Supreme Court. DAF’s has been appealing two lawsuits brought by two groups of truck owners at the Competition Appeal Tribunal (CAT), which allege that that company took part in a cartel that fixed prices and slowed the progress of engine technology that reduced harmful emissions. DAF’s appeal centers around the argument that the claimant groups engaged in funding agreements that fail to comply with regulations that outline the parameters of damages-based agreements. DAF’s lawyer, Bankim Thanki, argued that the Supreme Court should not consider any effects on the wider litigation finance industry, as they are irrelevant to the validity of the appeal. However, the Association of Litigation Funders (ALF) has argued that if the court upheld the appeal on these grounds, then it would put the UK litigation funding industry “in a state of disarray”. The Royal Haulage Association (RHA), which brought one of the original cases against DAF, has highlighted that by permitting the defendant’s appeal, the court would seriously endanger every single collective proceeding in the UK, which all involve funding agreements.
Commercial Deals

Westfleet Advisors Release 2022 Litigation Finance Market Report

As noted in the recent GAO report, there is a distinct lack of publicly available data about the litigation funding industry, which has contributed to the lack of awareness and understanding of the practice by policymakers and legal professionals outside of the industry. However, a new report by Westfleet Advisors provides new insights into the most recent state of the market, and offers some interesting takeaways as to the current direction of litigation finance in the U.S. Westfleet Advisors’ 2022 Litigation Finance Market Report provides an overview of the American third-party funding industry, highlighting that the market continues to demonstrate strong growth, as new capital commitments from funders grew by 16% last year, to reach a total of $3.2 billion. Not only has the scale of new commitments continued to grow, but the average size of these investments has also risen to $8.6 million per transaction. Interestingly, the percentage of client-directed deals has dropped down to 31%, as lawyer-directed deals have become the dominant deal type, reversing the trend of 2021 which saw a near 50/50 split between client and lawyer-directed deals. Given the regularity with which patent litigation dominates the headlines for litigation funding, 2022 actually saw a decline of that market share down from 29% in 2021 to 21% last year. Westfleet suggests that this outsized representation of patent litigation cases being funded in 2021 may have been the result of several portfolio funding deals for patent lawsuits. More insights into the U.S. litigation finance market can be found in the full report.
Commercial

Funding Industry Faces Challenges Ahead

With the two high-profile examples of Lionfish and Novitas Loans having recently made headlines for their struggles, industry analysts and leaders are offering a cautionary perspective on those who see the practice as a guaranteed path to success. A new article by The Times features senior leaders from law firms and funders discussing the potential pitfalls that the funding industry could face, as well as the measures existing funders can take to stay ahead.  Martyn Day, managing partner at Leigh Day, suggests that the determining factor for success will be whether funders can find the right level of risk versus reward, and that in order for a funder to have long-term viability, it needs to have a sufficient level of capital to absorb any losses whilst still backing future cases. David Mann, managing partner of Mann Roberts Solicitors, goes a step further and argues that the industry may be suffering from an oversupply of funders without an equal volume of both valuable and meritorious cases, although the current economic instability may spur an increase in suitable cases to support these service providers. Factor Risk Management’s co-founder, Mohsin Patel, suggests that some parties have incorrectly seen litigation funding as a “pot of gold”, but emphasizes that established funders will be able to continually develop a track record and grow their expertise to offer more favorable investment opportunities. Ellora MacPherson, chief investment officer at Harbour, also points to the fact that successful funders are engaging in broader partnerships with law firms and providing capital to support these firms’ growth, without having to exclusively rely on high-risk investments in individual cases.
Commercial Deals

Big Law in the U.S. Remains Hesitant to Engage in Litigation Funding Deals

Litigation funders and law firms have produced powerful partnerships by combining the legal resources and capital needed to provide access to justice for many plaintiffs. However, despite this often mutually beneficial relationship, data from Westfleet Advisors’ latest research on the industry suggests that many of the big U.S. law firms are still taking a cautious and wary approach to engaging with third-party funding arrangements. An article from Bloomberg Law highlights the findings of Westfleet Advisors’ 2022 industry report, which states that the proportion of cases involving America’s 200 largest law firms has dropped from 41% to 28% between 2021 and 2022. Westfleet’s CEO, Charles Agee, suggests that part of this hesitancy from the big legal players stems from these firms being uncomfortable with the “cross-collateralized” pricing in portfolio funding that can lead to law firms having to pay back the invested capital after only one or two successful cases. Agee goes on to point out that due to this reluctance from some law firms to engage in portfolio funding with traditional funders, some have turned to more standard loan deals with hedge funds and alternative asset managers that offer comparatively lower interest rates. However, Agee stresses that this is not replacing the majority of deals that funders would engage in, and that the usual funder-law firm relationship still remains attractive to those outfits who would rather avoid traditional loan structures.
Commercial Regulatory Issues

Partner Resistance and Regulatory Uncertainty Remain Hurdles for Adoption of Alternative Business Structures

In recent years, we have experienced the relaxation of rules governing ownership of law firms in a small number of states, beginning with Utah in 2020 and Arizona in 2021. However, despite these developments, there has yet to be a wider adoption of Alternative Business Structures (ABS), with industry commentators suggesting that resistance to change among law firms stems from an unwillingness to divert from the traditional partnership model. A new article from The American Lawyer provides an overview of the current attitude towards ABS adoption in the U.S., highlighting both the resistance within the current leadership of law firms and the lack of regulatory unity within the country. Allen Fagin, senior adviser to Validity Finance, argues that control is the determining reason behind law firms’ hesitancy to changing ownership models, and that the possibility of partners losing their individual financial returns to outside investors is a major stumbling block. Despite the ongoing opposition to the practice from many law firms, litigation funders are looking for opportunities to make such investments, with Validity’s CEO Ralph Sutton stating that these align with the industry’s overall goal, which is to provide the capital needed to widen access to justice. Burford Capital has already made one such investment in PBC Litigation in the UK, with Burford’s co-founder Jonathan Molot pointing out that funders and law firms are really “natural partners”. However, the lack of regulatory cohesion between states in the U.S. will no doubt continue to present issues, and David Perla, co-COO at Burford, suggests that it will take time for all parties to become more comfortable with the new regulatory structure before there is wider adoption.