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Commercial Legal Innovation

Four Ways Law Firms Can Use Litigation Finance

Expanding beyond the traditional scope of single case funding is a key priority for many litigation funders across the globe, with both portfolio financing and law firm funding becoming a key part of these business models. When it comes to discussions of law firm financing, it can often seem as if this is a broad and nebulous term, but there are several ways which law firms can benefit from, and make use of, third-party funding. In a blog post from Omni Bridgeway, Naomi Loewith, director of strategic partnerships – Canada, offers an overview of four ways that law firms can take advantage of litigation finance to grow and strengthen their businesses. Firstly, Loewith raises the common issue of firms who are burdened by large sums of unpaid WIP matters, where clients have been unable or late in paying their bills. In such scenarios, outside funding can be a useful remedy, benefitting the client who can now alleviate financial obligations, and ensuring that the firm is able to continue acting in these cases whilst still ensuring cash flow. Outside of clients failing to pay their bills, Loewith also raises the opportunity for firms to expand their businesses by acquiring a new line of business. Funders can provide the capital to kickstart these new operations until they are self-sustaining, with the additional benefit that funding requires firms to repay only once revenue is being generated. As a third use case, Loewith highlights that as law firm mergers are expected to increase in frequency post-pandemic, a firm that uses portfolio financing can demonstrate to partners that it has guaranteed revenue and a lower risk portfolio. This pre-existing financing option can make the merger process more efficient and even position the firm as a more attractive merger target. Finally, Loewith suggests that for those firms looking to geographically expand, the same kind of portfolio financing can act as a powerful catalyst to support expansions which are naturally capital intensive. As with the previous examples, third-party funding can provide the needed financing without forcing the firm to take on more debt.
Case Developments Commercial

Details of Nanoco Settlement Distribution Revealed

The nature of the litigation finance industry means that it is often difficult for outsiders to gain insight into the particulars of individual funding arrangements, or the intricacies of any returns on investment. However, there are rare occasions where we can find glimpses into the underlying fundamentals of the industry, and how funders find value in the long-term investments they pursue.  An article in DirectorsTalk Interviews, sheds light on one such investment as it provides an overview of Nanoco Group’s latest trading update, which includes details of highlights for the financial year.  As LFJ reported in February of this year, Nanoco reached a $150 million settlement agreement with Samsung Electronics to end the long-running patent infringement lawsuit that Nanoco had brought against the tech giant. The February announcement also confirmed that GLS Capital had been funding the case, after Nanoco had first announced its use of an anonymous third-party funder in July of 2020. However, through this update, we can now see a rough approximation of how that settlement will be distributed. Nanoco revealed that a £62.1 million tranche of the settlement was received in March 2023, with the “majority used to pay funders and advisors”. Whilst there are no details of how this sum will be divided between the funder and other parties, it is notable to see that a significant portion of the final settlement will be returned to third parties. Nanoco also stated that the second tranche of the settlement payment, totaling $75 million, will be received solely by Nanoco by 3 February 2024. This total is less $3.25 million due to Korean withholding tax.
Case Developments Commercial

Woodsford-Funded Class Action Targets Three UK Lenders

Despite the recent Supreme Court decision, class action cases still represent a prime opportunity for litigation funders in the UK, with another lawsuit having recently been filed that seeks accountability from three financial institutions over their alleged anti-consumer practices. An article by Proactive Investors provides a summary of the class action case being brought against three British lenders, who allegedly charged higher rates for motor finance customers in order to fund brokers’ commissions. The lawsuit is targeting Black Horse (a Lloyds’ subsidiary), Santander UK and MotoNovo Finance, stating that these lenders overcharged their customers between 2015 and 2021, with total excessive charges approaching £1 billion. The class action is being funded by Woodsford and is being led by the law firm Scott + Scott, who stated that the litigation would seek to “hold large companies to account” over these practices. Doug Taylor, the class representative for the action, alleged that these lenders used the commissions to “incentivise dealers” and as a result, “Customers unknowingly paid more for their car loans.” Although MotoNovo Finance and Santander UK did not comment on the case, a spokesperson for Black Horse stated that the company “continue to comply with regulatory requirements that apply in relation to the payment of commission and the disclosure of commission to customers.” After the lawsuit was filed in the High Court last month, the Competition Appeal Tribunal will now decide whether the claim can move forward.
Commercial Deals

Shareholders and Funders Find Common Ground in ESG Lawsuits

With emphasis and attention being placed on companies’ commitment to their ESG agendas, net-zero targets and broader corporate governance, it is unsurprising to see an uptick in litigation focused on this area. The combination of investors who are seeking to hold corporate boards to account for their failings or false statements, and a strong third-party funding industry, likely means that we will see this activity continue to increase over the coming years. An article by Bloomberg looks at the ongoing trend towards investor-led lawsuits that are being brought against corporations over their ESG failings or misstatements. The reporting highlights that many of these cases are using a specific area of UK law to bring their claims, namely Sections 90 and 90A of the Financial Services and Markets Act 2000. These legal provisions stipulate a company’s liability for making misleading statements or failing to disclose information which results in shareholder losses. According to the law firm Bryan Cave Leighton Paisner, there have been 13 cases brought under these provisions in the last decade. Of these 13 lawsuits, seven are still ongoing, four have been settled, with one successful and one failed claim apiece. James Hennah, partner at Linklaters, noted that whilst investors are becoming increasingly focused on ESG issues and shown a willingness to take these concerns to court, it is also true that “these claims are notoriously hard to bring, particularly for ESG issues.” Bloomberg’s article also notes that these investor-led lawsuits represent a good opportunity for litigation funders, many of whom see alignment with their own focus on ESG issues and can see the potential for lucrative returns on their investments. The reporting highlights a 2022 report from Woodsford that stated the funder was pursuing one of these types of claims under the FSMA provisions, having identified two multinationals that had made false statements to their investors. Emily Blower, managing associate at Simmons & Simmons, puts the proposition for third-party financiers in simple terms: “If a claim succeeds, there’ll be a recovery — that’s of interest to litigation funders.”
Announcements Case Developments Commercial

Attorney Lynwood Evans Appointed to Leadership Role in Camp Lejeune Water Contamination Litigation

Ward and Smith is pleased to announce that litigation attorney Lynwood Evans has been appointed to the Plaintiffs' Executive Committee in the litigation over contaminated water at Camp Lejeune. This appointment is particularly significant as we are quickly approaching the first anniversary of the Camp Lejeune Justice Act. This legislation paved the way for veterans, family members, and workers stationed on the base between 1953 and 1987 to seek compensation and justice for their suffering. However, because claims of this nature have never before been litigated, there has been substantial uncertainty and limited progress made since the passage of the Act despite tens of thousands of claims having been filed. Everyone is hopeful that this newly appointed leadership structure will provide the framework for progress. The Executive Committee assists and advises lead counsel and co-lead counsel in the undertaking of coordinating and conducting these proceedings. Its members also serve on subcommittees to execute a comprehensive litigation plan and ensure oversight, accountability, and coordination throughout the process. One of the subcommittees is the Law and Briefing Subcommittee, on which Mr. Evans will serve.  Reflecting on his new role, Mr. Evans stated, "I am honored to be appointed to the Plaintiffs' Executive Committee and the Law and Briefing Subcommittee in this crucial litigation. Together with the dedicated leadership team, I am confident that we will be able to work collaboratively with the Government and Court to create the framework within which these claims can eventually be brought to conclusion." Mr. Evans is now the third Ward and Smith attorney chosen for a leadership position in this historic litigation process. Recently, the US District Court of the Eastern District of North Carolina named attorneys Charles Ellis and Ret. Major General Hugh Overholt as Liaison Counsel. They are serving as intermediaries between the Court, the Plaintiffs' Leadership Team, and unrepresented victims. "We are encouraged by the appointment of 3 of our attorneys to leadership positions in this groundbreaking litigation and believe that their participation will help propel the legal process forward," remarked Brad Evans, Ward and Smith's Co-Managing Director. Ward and Smith's entire Camp Lejeune litigation team is dedicated to advocating for victims seeking justice for damage caused by the water contamination. Those interested can contact Ward and Smith directly or visit our website for more information about how we can help them begin their journey toward justice. About Ward and Smith Ward and Smith is a full-service law firm in North Carolina with offices in Asheville, Beaufort, Greenville, New Bern, Raleigh, and Wilmington. The firm has more than 100 attorneys knowledgeable in more than 35 practice areas, from agribusiness to zoning. For more information, visit https://www.wardandsmith.com/.
Commercial Deals

Harbour Funds Bamboo Law Acquisition of Regional UK Law Firm

As the environment for litigation funders in the UK is set to undergo some turbulence, we will likely see increased efforts by funders to diversify their activities beyond individual case funding. One sub-sector with enhanced activity is law firm funding, and for the second time in as many months, a funder has stepped in to provide capital for the acquisition of a law firm. An article by Insider Media reports on the acquisition of Hawkins Hatton by Bamboo Law, with Bamboo’s purchase financed by Harbour Litigation Funding. The deal to buy Hawkins Hatton was advised on by Ortus Group, which researched a range of potential buyers for the firm before selecting Bamboo as the ideal acquirer.  Colin Rodrigues, partner at Hawkins Hatton, stated the acquisition will provide “real opportunities for growth” and will allow the team to focus on delivering high quality services “while leaving administration in the hands of experienced professionals.” Speaking about the question, Bamboo’s founder, Michael Burne, emphasized that Bamboo “wants to do more sensible deals with great law firms like Hawkins Hatton”. As LFJ reported in July, this will not be the first law firm acquisition funded by Harbour in recent times, as the funder provided financing for Rothley Law’s acquisition of Shoosmiths’ ‘private client practice’.
Case Developments Commercial

Investors in RCR Class Action Raise Concerns Over Prolonged Duration

Investor-led class action cases are often viewed as lucrative targets for litigation funders, bolstered by the fact that they offer an opportunity to support investors in seeking legal redress against companies that have misled their shareholders. However, just like any litigation, the protracted duration of these cases can cause issues with investors, as we are seeing in a class action brought in New South Wales, Australia. Reporting by The Australian Financial Review reveals that investors in the collapsed engineering corporation, RCR Tomlinson, are growing frustrated with the continual delays and lack of progress in a class action brought against the company. The investors’ complaints focus on the lack of a settlement nearly five years after the class action was filed, even though the lawsuit has received funding from both Burford Capital and Omni Bridgeway. The Financial Review heard from investors with ongoing concerns that Quinn Emanuel Urquhart & Sullivan, the law firm leading the case, are not proceeding efficiently and may be benefiting financially from the prolonged duration of the litigation. Damian Scattini, partner at Quinn Emanuel, responded to these concerns by emphasising that they had been unsuccessful in reaching a settlement during a mediation on May 30, but were hopeful that a resolution could be achieved at the next mediation session on August 24. The article also highlights that this is not the first time the case has been hit by criticism, noting that a short seller report published by Muddy Waters in August 2019 alleged that Burford was “misrepresenting some of RCR’s financial data and any recovery from the class action would be “little to nothing”. Burford responded at the time by claiming that the report was “misleading” and not an accurate analysis of RCR.
Case Developments Commercial

Parties in Burford-Funded Argentina Claim Remain Far Apart on Payout Amount 

Cases with a prolonged duration and timelines that span nearly a decade are not uncommon for those in the business of litigation finance. However, even in cases where claimants receive a favourable judgement, there is always the issue of determining the size of the award, which further prolongs these lawsuits. A recent article by Bloomberg Law provides an update on the three-day trial in the case of Petersen Energia Inversora, S.A.U. v. Argentine Republic, which ended with the opposing parties still $6.5 billion apart on what they think the proposed payout should be. The case, which dates back to 2015, was brought on behalf of YPF SA shareholders, who argued that the Argentine government failed to offer a required payout after it re-nationalized the oil company in 2012.  As LFJ previously reported, Judge Loretta A. Preska ruled that Argentina was liable for the shareholders’ losses in a summary judgement in March of this year. During last month’s trial in the Southern District of New York, the shareholders argued that the payout could amount to as much as $16 billion, whilst Argentina provided a much lower estimate of $9.5 billion. The significant distance between the two amounts revolved around a number of key issues, including the date that the government took back control of YPF, with the two parties specifying dates that are three weeks apart.  The outcome of the trial has particular significance for Burford Capital who invested $16.6 million in the litigation, and following the March judgement, had stated that the final award could total in excess of $7.5 billion. This figure is notably lower than Argentina’s proposed payout. However, Judge Preska provided no estimate of when she might deliver a ruling on the payout and attorneys for the Argentine government have already made clear that they will appeal the award, regardless of the Judge’s ruling.
Case Developments Commercial

UK Legal Funder Confirms Appointment of Administrators

Since the Supreme Court handed down its judgement on litigation funding agreements last week, there has been much discussion of the difficulties that funders may face to survive in an environment rife with new challenges. However, a recent article offers an important reminder that regardless of this latest ruling, the legal finance industry has always been a challenging market for businesses to survive in. Reporting by The Law Society Gazette provides an update on the struggling law firm funder, VFS Legal, which recently confirmed that it had appointed administrators to handle payments. The article confirms that after VFS had informed the court that it would be appointing an administrator, Alvarez & Marsal Europe LLP has since announced that it would be handling the administration moving forward. Sarah Collins and Mark Firmin are named as joint administrators for the company. According to the Gazette’s reporting, VFS Legal had provided £150 million in funding to support over 25,000 cases across the last eight years, with law firms including Slater and Gordon having previously received funding. However, by 30 June 2022, VFS reportedly owed £38.7 million in repayments within the following year, primarily comprised of a bank loan for £35.6 million. The Gazette notes that VFS’ administrators are considering several routes forward for the company, which could include “finding a buyer for VFS Legal as well as collecting the current book debt from law firms.”