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Commercial Regulatory Issues

Schulte Roth & Zabel Partners Criticize Key Recommendations in the Voss Report

Regulation will be a key industry focus in 2023, with the stage having been set by the Voss Report passed by the European Parliament in September. However, the report’s proposals have received significant criticism, and one law firm has offered careful analysis of issues posed by five of the Voss Report’s central recommendations. In an article for ThoughtLeaders4 Disputes, partners at law firm Schulte Roth & Zabel, Polly O’Brien and Boris Ziser, have examined the following recommendations from the report: capital adequacy, adverse costs, fiduciary duty, a cap on fees, and disclosure of funding arrangements. O’Brien and Ziser note that it already benefits funders to ensure they have sufficient capital to finance activities, and question how a universal standard could be applied, whilst also questioning whether industries outside of litigation finance are held to such standards. Regarding the proposal to make funders liable for adverse costs, the authors highlight that this seems to sit at odds with the report’s stated aim to lower the costs of litigation and widen access to justice, as enforcing such a measure would increase the risk for funders and thereby necessitate higher fees. On the suggestion that funders should maintain a fiduciary duty to the claimant, O’Brien and Ziser observe that while such a duty appropriately exists for a funder to its investors, there seems to be no reason for this to exist for clients who have no need for financial recourse where a claim is unsuccessful. The recommendation for a cap on fees is highlighted as an idea that seems misguided in trying to use a one-size-fits-all approach to all cases, regardless of individual differences in risk and capital required, and would also lead to funders being hesitant to finance cases in the EU. Finally, the authors criticize the similarly blanket approach to disclosure by highlighting that the details of a funding arrangement should have no relevance to a claim’s merits, and that enforcing such detailed disclosure will only encourage defendants to prolong cases where they can see the financial burden will drain a claimant’s funding resources.
Case Developments Commercial

Judge Recommends Confirmation of $1.8 Million Award for Woodsford

\Despite the mutually beneficial partnership between litigation finance companies and lawyers, one ongoing dispute in U.S. federal court had placed a spotlight on a strained relationship between a funder and law firm. However, the dispute between Woodsford and Hosie Rice, which LFJ originally reported on in September, looks closer than ever to being resolved. A recent article by Bloomberg Law details the latest development in the case, after a recommendation was issued by US Magistrate Judge Sherry Fallon, saying that the federal district court in Delaware should confirm a $1.8 million award to Woodsford. The judge found that Hosie Rice had not provided sufficient legal reasoning to overturn the award set by a panel of three arbitrators. This arbitration found that Woodsford was entitled to collect fees from Hosie’s case against Google, where the funder had provided $800,000 in funding. Woodsford’s chief executive officer, Steven Friel, reiterated the company’s position that the basis of the dispute was a “straightforward debt collection matter”, whilst the law firm said that it would continue to fight the award despite Judge Fallon’s recommendation. Both parties will now await the Delaware federal judge’s decision as to whether it will grant the award to Woodsford.
Commercial Deals

Shareholder Class Action against AVZ Minerals to be Funded by Omni Bridgeway

Shareholder-led class actions are on the rise, with investors seeking to hold corporations to account where they engage in misleading or deceptive statements, and litigation funders are increasingly eager to fund these actions. One of the latest examples was reported by the Australian Financial Review, covering a shareholder class action being brought against AVS Minerals, an exploration company based in Australia. Omni Bridgeway is funding the action which alleges that AVZ misled its investors over its ownership rights to a hard rock lithium deposit in the Democratic Republic of Congo, called the Manono Project. The claim alleges that AVZ failed to disclose relevant information related to its ownership of the project, which led to an increased valuation of AVZ’s shares on the stock market. Law firm Johnson Winter Slattery will be running the claim, and will represent investors who purchased shares during an almost year-long period between May 17 2021 and May 6 2022.
Announcements Case Developments Commercial

£110 million Comet Group judgement in favour of funded party largest ever claim successfully brought under the UK’s 1986 Insolvency Act

LitigationCapital Management Limited (AIM:LIT),an alternative asset manager specializing in dispute financing solutions internationally, is pleased to announce positive progress on two investments within its portfolio. Successful Judgment in investment in English court litigation As announced on 23 June 2021, LCM entered into an agreement to provide a finance facility to Geoffrey Carton-Kelly, a partner of FRP Advisory ("FRP"), additional liquidator of CGL Realisations Ltd (In Liquidation), formerly known as Comet Group Ltd ("Comet"). This investment forms part of LCM’s Fund I portfolio of investments. In November 2022, judgment in the High Court was awarded in favour of Mr Carton- Kelly (the funded party) for approximately £110m. This judgment is understood to represent the largest ever (by value) preference claim successfully brought under the UK’s 1986InsolvencyAct. The Defendant to the proceeding has obtained permission to appeal the judgment, which will delay the maturity of the investment, but will be paying the judgment amount into court. This investment has been significantly de-risked from both a merits and recovery risk perspective. The financial performance of this investment is protected against the passage of time by way of an increasing multiple of invested capital. The size of the investment made by LCM is within the median range for an investment within Fund I. Clarification of press report on an LCM investment Following recent press speculation, the Company is providing an update on a further Fund I investment involving claims against Poland under both the Energy Charter Treaty (ECT) and the Australia-Poland Bilateral Investment Treaty (BIT), which has now been heard by an Arbitral Tribunal. Following completion of the hearing, the Arbitral Tribunal will render an Award in due course. There is no specified date for an Award to be rendered and there is no certainty as to what the outcome of that Award will be. Revenue recognition In line with LCM’s revenue recognition, the Company will only recognise revenue associated with these matters at the point in time it has more certainty on the final outcome, including following any appeal where relevant, or when there is more clarity around the recovery of funds. We remain confident that with respect to the awards set out above these will generate returns in line with management expectations, notwithstanding that, the timing within which each award will be realised remains uncertain. The Company generally expects the duration of investments to increase to between 36 - 42 months. Patrick Moloney, CEO of LCM, commented: “We are pleased with the significant progress on these key investments. The successful judgment in the High Court of England demonstrates LCM’s strength in project selection and we look forward to reporting further once each of these investments has reached a conclusion.” About LCM Litigation Capital Management (LCM) is an alternative asset manager specialising in disputes financing solutions internationally, whichoperatestwobusiness models. The first isdirectinvestments madefromLCM's permanent balance sheet capital and the second is third party fund management. Under those two business models, LCM currently pursues three investment strategies: Single-case funding, Portfolio funding and Acquisitions of claims. LCM generates its revenue from both its direct investments and also performance fees through asset management. LCM has an unparalleled track record driven by disciplined project selection and robust risk management. Currently headquartered inSydney, with offices in London, Singapore, Brisbane and Melbourne, LCM listed on AIM in December 2018, trading under the ticker LIT.
Commercial Regulatory Issues

Funder Argues Disclosure of Funding in International Arbitration Can Be Beneficial

Disclosure of litigation funding remains one of the most discussed industry topics as we head into the end of the year, with disclosure requirements and disputes occurring in jurisdictions around the world. In the realm of international arbitration, one funder argues that disclosure should not be viewed as a negative, but as a useful tool for strengthening the client’s claim. Outlined in a new piece of analysis by William Panlilio, an investment manager at Litigation Capital Management (LCM), the issue of disclosure in international arbitration is reframed to focus on its benefits for funders. Mr Panlilio points out that while there are no formal rules around disclosure in this area, it is generally accepted that both the presence as well as the identity of litigation funders in international arbitration should be discoverable. Panlilio argues that this should not be seen as undesirable, as the existence of a funding arrangement can act as a strong signal to all parties concerned that the claim is supported by a third-party who has assessed it as being substantial and likely to succeed. Additionally, it can dissuade the opposite party from engaging in stalling tactics in the hope of draining a claimant’s financial resources. Panlilio does specify that discoverability should not be exhaustive, as the details and exact nature of a funding arrangement should not play any role in a tribunal’s decision-making, nor is it relevant to the merits of a claim.
Commercial Deals

CASL Funds Class Action by Aboriginal Communities Against Australian Government

Litigation funding is perhaps at its most impactful when it can be used by individuals or groups of citizens to hold their government to account. A new class action in Australia is once again demonstrating this impact, as a leading funder is supporting a new action by Aboriginal communities against the regional authorities. Detailed in an article by National Indigenous Times, the Northern Territory’s public housing body is facing a class action suit brought by Aboriginal remote community residents who allege that the regional government has failed to ensure that local housing meets safety standards. The class action brought by residents of Gunbalanya is being funded by CASL, and takes aim at both the Territory and Commonwealth governments for failing to resolve tenant complaints about the quality of housing. Madeline White, a senior associate at law firm Phi Finney McDonald, which is leading the case, argued that this class action is not only about securing compensation for those residents involved in this lawsuit, but also for the wide array of remote Aboriginal communities throughout Australia. This is also not the first case of its kind, with similar lawsuits being brought in 2016 and 2019 by communities in Santa Teresa and Laramba.
Commercial Regulatory Issues

Aussie Government to Roll Back Litigation Funding Restrictions

Regulatory developments are at the front of mind for funders around the world, with significant proposals being discussed to place restrictions on third-party funding in the European Union, whilst other jurisdictions look to open their legal systems to increased involvement from funders. In a welcome development for funders in Australia, the government has made good on its commitment to reverse litigation funding restrictions put in place by the prior administration. In an announcement by the Department of the Treasury, the Australian government announced that its plans to exempt funders from investment regulations have now come into force. This reversal of the previous government’s position, which LFJ reported on in September, means that funders will once again be exempt from regulations including the managed investment scheme and Australian financial services licensing, according to a release by the Australian Securities & Investment Commission. Stephen Jones, the Assistant Treasurer and Minister for Financial Services, said in the statement that litigation funders play a crucial role in the government’s broader aim to widen access to justice. He also stated that the Treasury would continue to evaluate the Australian Law Reform Commission’s wider recommendations, to ensure that the country’s class action regime would produce ‘fair and reasonable outcomes’.
Commercial Regulatory Issues

60 Minutes Underscores Need for Litigation Funding, While Highlighting Lack of Regulatory Oversight

This Sunday’s “60 Minutes” featured a segment on the growth of litigation funding. Host Leslie Stahl highlighted the industry’s important role within the Legal Services sector, but also pointed out the lack of regulatory oversight which can lead to ethical concerns. “Litigation funding can help in cases where otherwise the little guy who’s suing would just get crushed or lowballed by defendants with deep pockets,” Stahl explained as part of her opener on the necessity of the funding industry. “The problem is, this market is exploding, with almost no rules or oversight.” Stahl profiled a litigation funding claimant: Craig Underwood’s family farm. Underwood had one customer—a hot sauce maker. When that customer pulled out of a contractual obligation, Underwood faced financial ruin. He sued his former client and won a breach of contract claim.  But the hot sauce maker appealed, and Underwood couldn’t afford to keep fighting. That’s when he heard of litigation funding, and found Burford Capital. Underwood took $4MM from Burford to continue fighting, and won the appeal and the $23MM. When it was all said and done, Underwood still had to pay his attorneys, and then compensate Burford to the tune of $8MM. Asked whether he thought that payment amount was predatory, Underwood emphatically said no, given that Burford stepped in and funded his case when no one else would. “They basically rescued us.” Christopher Bogart, co-founder and CEO of Burford, noted that on average, the funder will double its money on a successful outcome, explaining that funders take enormous risk, given the non-recourse nature of their investments. He emphasized that Burford has a roughly 90% success rate. Stahl then interviewed Maya Steinitz, law professor at University of Iowa, who pointed out the ethical considerations at play here. Steinitz explains that although funders like Burford claim not to interfere in how a case is managed, there is nothing legally stopping a funder from compelling a client to settle. Consumer Legal Funding was also featured prominently in the program, where Stahl explained that the funding helps poor people pursue their legal claims. Yet she also pointed out how claimants are routinely charged very high interest rates by funders, highlighting RD Legal Funding’s alleged ‘predatory behavior’ in the 9/11 victims’ compensation fund case. The program concluded by pointing out how essential litigation funding is to American society. “Accessing the courts in a civil process is a luxury good in America” explained Maya Steinitz.  “It’s simply too expensive to bring your case in a court.”  That said, Steinitz is calling for more oversight of this largely unregulated industry.
Announcements Commercial Legal Innovation

“60 Minutes” Scheduled to Air at 7:30 PM, ET/7:00 PM, PT After Football on the CBS Television Network

Burford Capital will be featured on CBS’ 60 Minutes this Sunday, December 18 at 7:30 PM ET/7:00 PM PT [after to Sunday Night Football (please check local listings)].

Schedule for the show is as follows:

CONVOY OF LIFE – Scott Pelley reports from Ukraine, where more than 1,000 children are fighting cancer amid Russian attacks on hospitals and the power grid, putting their lives in immediate danger. A renowned American hospital and 21 countries have stepped in to help. Kristin Steve and Nicole Young are the producers.

LITIGATION FUNDING – Lesley Stahl reports on litigation funding, a relatively new multi-billion-dollar industry where investors fund lawsuits in exchange for a slice of the award. It can be lucrative and help level the playing field against big corporations with deep pockets, but it’s growing rapidly with little rules or oversight. Shachar Bar-On and Jinsol Jung are the producers.

LOURDES – Bill Whitaker reports from the Sanctuary of Our Lady of Lourdes, a Marian shrine in southern France and the site of 70 medical miracles recognized by the Catholic Church. 60 MINUTES goes inside the Lourdes Office of Medical Observations where world-renowned doctors and researchers conduct decade-long investigations into the dozens of claims of miraculous cures made every year. They determine which cases can be medically explained and which cannot. Nichole Marks is the producer.