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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.”
Commercial Deals

Using Litigation Finance to Generate Value as a CFO

Litigation funders often discuss the benefits of third-party funding for corporates in terms of shifting legal costs off their balance books, allowing companies to pursue beneficial litigation without incurring significant financial risks. Looking ahead to a year that will likely see corporate CFOs under financial pressure from market instability and potential recession, one funder has put forward its view on how CFOs can leverage legal finance to create value. Writing in the Burford Quarterly, Jordan Licht, chief financial officer at Burford Capital, suggests that CFOs should look at opportunities to turn the legal department into a domain for generating liquidity, rather than being a cost center for the company. Firstly, Licht emphasizes that where companies are able to leverage third-party funding, viable litigation claims should be treated like assets by CFOs, given the fact that they have the potential to return significant value without taking financial risk. Secondly, Licht puts forward the option of legal finance monetizations, where working capital is provided to advance part of an ongoing claim or outstanding award, thereby unlocking fresh liquidity for a CFO that can then be used for any other business priority. Finally, Licht returns to the key pillar of how CFOs should be using litigation finance: by reducing expenses and preserving capital during tough economic times, without needing to sacrifice the opportunity and financial return of pursuing legal claims.
Commercial Consumer

GAO Releases Study of Litigation Finance Market

Litigation funding has reached a level of maturity where it is now viewed as a common feature of many jurisdictions’ legal systems, rather than a rare occurrence, leading to wider conversations about how its use should be regulated by national governments. Whilst criticism of the practice exists from politicians and third-party pressure groups in the U.S., it is important to note the role of government agencies in shaping the future of regulation, including the Government Accountability Office (GAO). At the end of last year, the GAO released its study into the characteristics and trends of third-party litigation funding, aiming to provide an overarching picture of the current state of the market and the connected policy implications. The GAO stated that the purpose of this study was to fill the gap in public data about the industry, and to examine the issues raised by critics of litigation finance, such as questions around transparency and disclosure. The GAO’s study, which included an analysis of previously collected data by funders, reports by outside parties, and direct interviews with those involved in the industry, looked at all aspects of litigation finance between 2017 and 2021. The report included an examination of the advantages and disadvantages of third-party funding of litigation, as well as existing gaps in the markets and potential policy solutions and regulatory options. The GAO report is already receiving praise from industry participants. “The GAO report illustrates that proper regulation of the industry is welcome. The Alliance for Responsible Consumer Legal Funding (ARC) and its member companies welcome appropriate regulation,” said Eric Schuller, President of ARC, who added that “ARC members follow a set of best practices that are the industry standard.” The full report can be found here.
Commercial Regulatory Issues

Court Ruling Reinforces Principle of Confidentiality Between Plaintiffs and Funders

Disclosure remains one of the hottest topics in the world of litigation funding, as courts, legislators and pressure groups are all weighing in on the level of transparency that should be required for funding arrangements. However, a recent ruling from the Eastern District of Texas has reinforced the principle that funders and their clients should still be permitted a reasonable degree of confidentiality when it comes to documents shared under non-disclosure agreements. Analysis by Lake Whillans summarizes a decision from the Hardin v. Samsung Electronics case in Texas, where the court ruled the legal memoranda shared between a plaintiff’s counsel and prospective funders should not be open to discovery. In this patent infringement case, the defendant had sought discovery of a confidential memorandum that counsel had provided to funders prior to filing suit, arguing among other reasons that it was necessary to see the information in these documents relating to “valuations placed on [Plaintiff’s] patents”. The court did not find merit in Samsung’s arguments, holding that such documents were in fact protected attorney work, having been shared under a confidentiality agreement. This judgement aligned with the 5th circuit’s precedent that this kind of document should be protected from discoverability, given that its "primary motivating purpose” was to “aid in possible future litigation”. Despite the ongoing battles around disclosure and discoverability in patent infringement cases, funders will no doubt welcome the continued recognition of the principle of confidentiality between plaintiffs, their counsel and funders.