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Commercial Regulatory Issues

Opening IMN Panel Discusses Regulation and Education Amidst Industry Growth

IMN's International Litigation Forum began today with a panel moderated by Jason Woodland, Partner at Peters & Peters Solicitors LLP. Panelists included David Greene, Co-President of CORLA, Erik Bomans, CEO of Deminor, Paul De Servigny, Investment Manager at IVO Capital Partners, Ana Carolina Salomão Queiroz, Partner at Pogust Goodhead, Polly O'Brien, Partner at Schulte Roth & Zabel.
The panel focused on emerging trends and developments for the litigation funding industry in Europe. Unsurprisingly, the topic of regulation was front of mind for the panelists, with the approval of the Voss Report by the EU parliament still a key area of concern for the industry in Europe. Polly O'Brien stated that with the growth of litigation funding, it was inevitable that regulation would be on the horizon, but that any cap on fees would endanger certain cases being funded. David Greene highlighted that there seems to be no interest in similar regulation in the UK where 'litigation funding is already regulated by the courts', and claimed that the Voss Report is 'built on misunderstandings of the market'.
Deminor's Erik Bomans took a self-proclaimed 'contrarian' view of regulation, arguing that the very fact regulatory bodies are looking at the industry 'puts litigation funding on the map and on the agenda'. While Bomans acknowledged the negative tone of the Voss Report was not helpful, he maintained that the very fact the debate is taking place within the EU is a positive for the industry. Bomans stated that 'a light touch regulation would be good to see'.
Education was another key topic of discussion amongst the panel, with IVO's Paul De Servigny stating that it had been his 'main goal in the the last 12 months'. Ana Carolina Salomão Queiroz reframed the issue as being about providing information rather than education, while stressing that beyond investors, lawyers and companies; it is the judicial branch and the courts that need more awareness of how third-party funding is widening access to justice. David Greene built on his earlier point regarding the misunderstandings in the Voss Report by stating that politicians and policy makers should be priorities for education.
The panel discussion also contained a brief but illuminating exchange around the possibilities for a secondary market for funded cases. Paul De Servigny highlighted this as an area where he has seen more and more questions being asked by clients, but as of yet IVO hasn't sold any cases on the secondary market. Erik Bomans agreed that while a real secondary market does not exist today, the advent of one would be a positive for the industry because it would increase liquidity and 'where there's more liquidity, there's less risk'. Salomão Queiroz added that there is unlikely to be a secondary market until funding cases is 'seen as a financial product, not a legal product'.
All panelists agreed that there was still no shortage of cases to be funded, as the industry continues to grow, with Bomans stating that Deminor had seen a doubling in the volume of funding requests in the last year. David Greene also suggested that there is currently a strong equilibrium between cases and capital available, arguing that the bigger issue to watch for is the capitalization of funders to ensure financing is available throughout legal proceedings. Polly O'Brien also raised the importance of ATE Insurance to the future of the industry, both in terms of the cost and availability of the product, as well as ensuring that the wording of policy documents adequately protects funders.
Commercial Regulatory Issues

Litica Argues for Increased Awareness of ATE Insurance Among Litigators

ATE insurance has been a well-established product for the last two decades in the UK, and its use in other jurisdictions is beginning to pick up speed. Following the announcement of class-action regulations being rolled back in Australia, one leading provider of ATE insurance suggests that litigators need to be at the forefront of putting this product in front of their clients. Writing in LawyersWeekly, managing director of Litica Australia, Philip Lomax, argues that litigators should be looking to get on the front foot both in terms of understanding ATE insurance best practices, and increasing engagement with clients around this area. Lomax points out that while the use of ATE insurance in Australia had been previously limited to niche cases involving litigation funders and class actions, with upcoming regulatory reform it should now become customary for litigators to inform clients of the available options. Lomax points out that this increased demand is highly likely, reflected by the fact that Litica launched its own Australian division earlier this year. Given that more and more providers will soon be offering ATE insurance, he highlights that it would benefit both litigators and clients to raise their familiarity with the application of the product and those insurers best-placed to offer it.
Commercial Deals

Only 1-week until Information Management Network (IMN)’s International Litigation Finance Forum

On October 18th, 2022, IMN will host the International Litigation Finance Forum in London. The London edition of this one day summit will draw a diverse crowd of investors, litigation funders, brokers, corporate claimants, law firms and other entities in this developing market. LFJ will be reporting live from the event. So if you can't make it to London next week, check our website for regular updates on the panel discussions, which we will post the day of the event. We will also be live-tweeting from our Twitter account. Hope you enjoy IMN in London!
Announcements Case Developments Commercial

High Court shuts down BHP move to block access to class action

The High Court of Australia has today unanimously dismissed BHP’s attempt to block shareholders who are not resident in Australia from participating in a class action against the company.

The case, jointly run by Phi Finney McDonald and Maurice Blackburn, seeks recovery of investor losses caused by the mining company’s alleged breach of its disclosure obligations under the Corporations Act in relation to the catastrophic collapse of the Fundão dam in Brazil in 2015.

The High Court’s decision ends BHP’s multiple unsuccessful attempts over the last three years to exclude the claims of foreign residents who had invested in BHP Billiton Limited securities traded on the ASX, as well as investors in BHP Billiton Plc securities traded on the London and Johannesburg stock exchanges.

Cameron Myers, Special Counsel at Phi Finney McDonald, welcomed the High Court judgment.

“The High Court’s decision promotes access to justice, and confirms Australia’s class action regime as one of the most flexible and efficient mechanisms for resolving common issues between claimants. It ensures that foreign group members can seek redress and vindicate their claims in Australian courts,” he said.

“This decision has positive ramifications for all manner of class actions with an international element, including environmental claims. It will also benefit defendants who wish to resolve their liabilities, instead of cynically seeking to disenfranchise claimants.”

Irina Lubomirska, Special Counsel at Maurice Blackburn, welcomed the result.

“Despite the almost three-year delay occasioned by BHP’s appeals before the Full Federal Court and the High Court of Australia, we have steadfastly opposed BHP’s attempts to narrow the Federal class action regime. By rejecting BHP’s appeal, today’s High Court judgment endorses Parliament’s deliberate choice of a broader representative procedure which enhances access to justice and aids the efficiency of court processes,” she said.

“This is a welcome result not just for BHP’s shareholders but for all prospective group members, wherever located, who may continue to seek redress through our Federal class action regime.”

In today’s judgment in BHP Group Limited v. Impiombato & Anor (M12/2022), the Court stated, “BHP's construction of Pt IVA ignores the Constitution and the legislation passed by the Commonwealth Parliament vesting jurisdiction in the Federal Court, and rewrites the Federal Court of Australia Act.”

“Who makes the claim and where they live does not determine the jurisdiction of the Federal Court or the claims that may be brought in accordance with the procedures in Pt IVA.”

“BHP's construction would undermine the purpose of Pt IVA by not allowing non-residents to be group members in representative proceedings.”

On 31 May 2018, Impiombato v BHP Billiton Limited was filed in the Federal Court of Australia. The class action alleges that BHP breached its continuous disclosure obligations and engaged in misleading and deceptive conduct in its representations to the market.

Anyone who bought shares in BHP from 8 August 2012 through 9 November 2015 inclusive may be eligible to join this class action. Shareholders do not need to take any action to participate, but can register for further information at: www.bhpclassaction.com

Background

BHP, in a joint venture with Vale SA, owns Samarco Mineração SA, which operates the Germano iron ore mine in Minas Gerais state, Brazil. The 5 November 2015 collapse of the Fundão tailings dam at the Germano mine released approximately 60 million cubic meters of waste water in the largest tailings dam rupture ever recorded.

The mudflow flooded the nearby municipality of Bento Rodrigues and killed 19 people. Over 8,000 fishermen lost their livelihoods and 400,000 people lost access to potable water. The mudflow ultimately travelled 600 kilometres to the ocean, creating a toxic brown plume visible from space.

In the period that followed the dam collapse, BHP’s stock price plunged across all markets, falling 22% in Sydney and 23% in London and Johannesburg between 5 November 2015 and 30 November 2015. The class action will seek to recover losses to shareholders throughout this period, during which BHP’s combined market capitalisation fell by more than $25 billion.

Case Developments Commercial

Omni Bridgeway Funds Class Action Against IG Markets

Class actions that gain access to third-party funding have repeatedly demonstrated an ability to redress the balance of power in favour of individuals against large companies. A newly launched action in Australia looks to continue this trend, as an equity market broker is on the receiving end of a class action representing up-to 20,000 investors. Reporting in the Australian Financial Review details the announcement of a class action being brought against IG Markets, for allegedly marketing contracts for difference (CFDs) to investors without properly detailing the risks, and without proper assessment of these investors' ability to undertake such trades. The class action is led by Piper Alderman and is being funded by global industry leader, Omni Bridgeway. Martin del Gallego, a partner at the law firm, stated that IG Markets was improperly marketing these products to inexperienced investors who could not fully evaluate the risk they were undertaking. This case stands out due to its jurisdictional significance, as the sale of CFDs to retail investors is banned in both Hong Kong and the US. Federal judges within Australia have already previously taken a damming view of CFDs, with Justice Jonathan Beach comparing them to heroin.
Commercial Legal Innovation

Coinbase Funds Lawsuit Challenging United States Treasury Department on Crypto Privacy and Innovation 

Brian Armstrong (CEO and Co-Founder of Coinbase) recently announced litigation funding of a new lawsuit that questions the integrity of the United States Treasury's sanctions of Tornado Cash privacy software. Coinbase's litigation investment aims to vindicate six individuals who were added to the United States' sanctions list as part of banning Tornado Cash.  According to Coinbase’s blog, Tornado Cash's open source software design offers a valuable personal privacy protection utility. Coinbase claims that Treasury may have overreacted by sanctioning the entire Tornado Cash software program protocol technology.  Coinbase suggests that law-abiding citizens have a right to privacy, and that congress has not entitled the Treasury to sanction open source software. Coinbase also is concerned that Federal sanctions on open source software may preclude future software innovation.  Coinbase's hope is that the Treasury will reverse the personal sanctions attributed to the six individuals who are the subject of the claim. Additionally, Coinbase hopes to signal the firm's approach to protecting personal privacy and pure cryptocurrency innovation. 
Case Developments Commercial

Funder Purchases Claim Against Medical Company Accused of Fraudulent Restructuring

In the current financial climate, and with many companies still struggling to recover from the effects of the pandemic, the risks of malpractice and wrongdoing by these insolvent companies’ directors and their financial backers has reached the spotlight. In a new case set to be heard before the High Court, a medical company is facing claims that it illegally restructured in order to avoid paying creditors, including victims of a previous lawsuit. Detailed in an article by Yahoo Finance, Hospital Medical Group (HMG) along with its lender, Barclays, and its solicitors, Wilkes, are facing a £40 million claim for allegedly defrauding creditors. The legal action claims that both HMG and Barclays knew that the restructuring was illegal, but carried on regardless with the intention of not repaying outstanding loans. The claim is being brought by Henderson & Jones (H&J), a litigation funder which bought the claim from HMG’s liquidators. This case is sure to gain significant attention for two reasons. Firstly, HMG’s creditors include hundreds of women who successfully brought a claim against HMG for supplying defective and dangerous breast implant prostheses. Secondly, the claim highlights the potential liability for banks who are involved in restructurings, and emphasises the need for these financial institutions to ensure their client’s restructurings are not designed to defraud creditors. Henderson & Jones was co-founded by Philip Henderson and Gwilym Jones in 2016.
Commercial Deals

Cryptocurrency Fraud and Scams Represent Niche Opportunity for Funders

The boom in both interest and investment in cryptocurrency over the last few years has been synonymous with extraordinary stories of massive returns on investment, as well as an equal and growing number of instances of investors falling foul of scams and fraudulent schemes. For most retail investors, there has been relatively little hope of recourse, due to the capital requirements to fund litigation against these crypto schemes. As a result, victims are now looking to funders to finance their claims. An article by Cointelegraph Magazine examines this new trend and highlights specialised funders who are emerging to meet this niche demand, including Nemesis, a new litigation funder. Founded by Jason Corbett, previously a managing partner at Silk Legal, this start-up aims to finance claims against those crypto schemes and projects in order to secure financial compensation for victims, and Corbett argues, to ensure that this niche industry becomes a more secure and trustworthy market. Bill Tilley, managing partner at LegalTech Investor, highlights that these efforts are not without their difficulties, due to the often near-impossible task of pinning down which jurisdiction these defendants can actually be taken to court in. This is reflected by Corbett, who states that the best jurisdictions to bring claims are still those which have more established and broader third-party funding industries, such as the UK, US and Australia.
Commercial

LionFish’s Managing Director Takes Aim at the Voss Report

Since the approval of the Voss Report by the European Parliament last month, which included more stringent regulatory reforms to third-party funding, there has been severe backlash from funders and legal professionals alike, who have argued the suggested proposals would do more harm than good. As LFJ has reported in recent weeks, these critiques have come from across multiple jurisdictions, including industry leaders in Canada who are keen to avoid any emulation in their own country. An opinion piece in The Law Society Gazette by Tets Ishikawa, managing director of LionFish, offers a detailed critique of the Voss Report and argues that it is flawed both in its central premise and the data used to support its proposals. Tackling the report’s claim that funders are frequently seeing returns of over 300% and even reaching 3,000%, Mr Ishikawa highlights that this is based on outdated and out-of-context data points. Instead, he points to the latest data from Burford Capital, which suggests such returns represent a fraction of actual investments by funders, and that a more statistically representative average would be closer to 69%. LionFish’s Ishikawa also argues that while the report’s proposals claim to be in service of protecting consumers, these measures do little to achieve that. Instead, he suggests that the European Commission consider implementing an obligation for losing defendants to pay the funder’s costs, as this would wholly protect claimants from exploitation. Finally, Mr Ishikawa notes that while the report uses Australia as an example of a jurisdiction that has implemented stricter regulation on litigation funding, we have seen in the last few months that Australian courts and now the government have actually reversed course and are implementing reforms to widen access to third-party funding.