Trending Now

All Articles

3587 Articles
Commercial Legal Innovation

Funders Must Move Beyond Providing Capital and Add Value Through Collaboration

To close out IMN’s International Litigation Finance event, a panel discussed the ways in which corporates and institutional investors are using litigation finance. Moderated by Stefano Catelani, Founding Partner at Calimala Legal, the panelists included Andrew Leitch, Senior Associate at Bryan Cave Leighton Paisner LLP, Sonia Hadjadj, Chief Insights Officer of Crafty Counsel, Noah Wortman, Director-Global Collective Redress for Pogust Goodhead, Verity Jackson-Grant, Head of Marketing and Business Development at Simmons & Simmons and Steven Friel, CEO of Woodsford.

The panel began with Steven Friel challenging the oft-repeated claim that corporates use litigation finance to offset legal costs from their balance books, stating that in Woodsford’s experience, this is rare and not the primary motivations for corporates. Friel went further and argued that in regular commercial litigation there isn’t often a great incentive for corporates to seek third-party funding, saying that ‘more has been said about it than done’. Instead, Friel noted that the real value of litigation funding to these institutions tends to be in group litigation, where a funder like Woodsford can bring these opportunities to stakeholders’ attention, organize them and then manage the process moving forward. Verity Jackson-Grant agreed with Friel’s position and highlighted that it was refreshing to hear a funder challenge this mantra which is regularly repeated by other industry leaders. She pointed out that while corporates are not using litigation finance for every kind of case, there are occasions where ad hoc cases can represent cash flow issues or just unnecessary hassle for using legal spend, where a company will then take advantage of third-party funding. Instead, Jackson-Grant argued that litigation funding should be seen as a tool that can be used when it adds value. Noah Wortman emphasized that in his experience of working with institutional investors and particularly pension funds, the value of bringing in a third-party funder often stems from a desire to outsource the management of these cases externally. Not only does it offload administrative responsibilities and alleviate strain, but funders can actually add real value through their experience and insight from working on similar cases. Wortman also emphasized that in order to maximize value, funders must highlight that the relationship is collaborative and a partnership beyond just funding. Sonia Hadjadj brought the insightful perspective of in-house legal counsels, stating that for those in that role, every decision has to be reinforced by a business case, and in order to justify bringing in a funder, in-house counsels need the support to actually bring a viable business proposition to the CFO. Andrew Leitch put forward that this is an area where education and information still plays a key role in helping to overcome these obstacles, and that all leaders in the industry need to continue to provide that education wherever possible. Woodsford’s Friel also stated that funders need to be experts at removing obstacles in the litigation process, and offering more than just capital, arguing that if all a funder can provide is capital then ‘clients want us to be cheap, fast and quiet.’ Jackson-Grant added to this idea, suggesting that funders need to move away from the message of ‘funding is your solution’ and instead work collaboratively with lawyers and insurers to offer options to general counsels, and then let those counsels choose the solution that best fits their problem.
Commercial Legal Innovation

Wide Range of Insurance Solutions Available to Litigators and Funders

Building on the earlier fireside chat about ATE Insurance, IMN's conference began its afternoon agenda with a panel exploring the broader impact of insurance on the litigation funding market.

The panel was moderated by Steve Jones, Executive Director & Joint Practice Head at Gallagher, and the panelists included: Robin Ganguly, Executive Director for UK & EMEA at Aon, Carlos Ara, Equity Partner at Cuatrecasas, Mohsin Patel, Co-Founder & Director of Factor Risk Management Ltd and Rocco Pirozzolo, Underwriting Director at Harbour Underwriting.

The panel began with an overview by Rocco Pirozzolo on the ways in which insurance providers have innovated to meet the needs of funders, as the capacity required for these cases has continually increased. In particular, he focused in on Security for Costs cover, which has been designed to combat defendants' use of this mechanism as a stalling tactic. Pirozzolo explained that this can come in the form of an anti-avoidance endorsement or deed of indemnity. As a result, Pirozzolo argued, these tactics force defendants to instead look at the merits of the case and often settle.

Mohsin Patel addressed the market growth which has seen the volume and scale of requirements for insurers increase. As a result, some industry leaders are looking to co-insuring arrangements and therefore, the importance of brokers has also grown, as they can help reduce that 'transactional angst'. Patel also highlighted the utility of Capital Protection Insurance (CPI), which can allow a funder to remove the downside risk of losing a claim in exchange for a lower potential return. Patel argued that CPI can make a broader range of cases financially viable, thereby benefitting both funders and lawyers.

Moving from single-case to portfolio insurance, Robin Ganguly examined the ways in which insurers will assess the risks of different types of portfolios. For those with existing historic cases to be insured, insurers can tailor a policy for a secondary market sale based on factors including case duration and funder involvement. For those empty or forward looking portfolios, it is the funder's track record that the insurers are underwriting. Ganguly also stressed that insurers can put limits on policies for these portfolios including case type and size, jurisdiction of cases, and can even mandate insurer approval of individual cases.

Carlos Ara agreed with the panel that the evolving market is experiencing a wider breadth of investors, and that this has also opened the way for insurance policies that can be taken out after the initial investment, or in cases where secondary market transactions are possible. Ara also raised the suggestion of greater collaboration between funders and insurers, with opportunities for them to collaborate on the creation of new products for clients.

Mr Pirozzolo also covered the cases of defendants taking ATE insurance policies. He explained that this was a less common occurrence, in part because it is much more difficult for a defendant to define what would count as a win. Outcomes are clear when the claim is dropped or the defendant is successful at trial, but other degrees of success make it harder for insurers to offer the right cover for a defendant. Pirozzolo did raise the very rare example where insurance can be provided, which only kicks in if the case goes to trial, but in his own words, 'it's jolly hard to do'.

Commercial Fundraising

Funders Diversify Their Capitalization Sources, Driven by ESG and Emerging Markets

In a panel during the morning of IMN's International Litigation Finance event, the topic of differing approaches to capitalization and sources of investment was discussed. The panel was moderated by Dennis Knitowski, EVP & Head of Capital Markets at Cartiga, LLC and featured Patrick Moloney, Managing Director of LCM, Andi Mandell, Partner at Schulte Roth & Zabel and Katherine Mulhern, CEO of Restitution Impact Limited.

The discussion began with the panelists exploring the evolving nature of funder capitalization. LCM's Moloney spoke to his firm's blended approach, where its business model is that of a fund manager whilst also utilizing listings on both the Australian and London Stock Exchanges. Moloney noted that this has been an evolution as the company and wider industry has matured, and that LCM is now seeing interest from increasingly sophisticated investors, including endowment funds.

Andi Mandell discussed her view on the North American market, where there has been an increased interest from private equity and hedge fund entities that are keen to provide funding to law firms. Mandell noted that recent legal reforms in states like Arizona and Utah, which allow non-lawyers to share in the firms' revenue, has also driven further investment. However, Mandell clarified that this new Alternative Business Structure has also attracted bad investment into the sector.

In a different area of focus, Katherine Mulhern's Restitution works in the space of supporting post-war newly democratic government, and therefore has a wider approach to seeking investment. Mulhern explained that Restitution works with everyone from foundations and donors to ESG investors and insurers.

The panel also discussed the need to garner mainstream appeal for the litigation funding industry in order to increase the pool of investors engaged with funders. Moloney highlighted that the industry went from being viewed as 'the dark arts and then loan sharks', but the perception of the industry has already shifted dramatically. Mandell noted that ratings agencies are now more willing to rate some transactions in the market, but also raises the issue that the IRS has still not provided concrete tax guidelines for funding deals, which is a barrier to some investors.

When looking to attract new investors, the panel agreed that ESG investors are likely to represent an increasingly large share of the market, as the number of ESG-related cases is continuing to rise. However, Mulhern pointed out that the Sustainability and Governance aspects of ESG are less-defined, but that if funders can successfully define and measure impact, then class actions in this field will be a valuable asset. Moloney also suggested that emerging markets play a similar role in broadening a funder's portfolio, as they continue to look for jurisdictions with evolving legal systems to open the door for third-party funding.

A discussion of the impact of technology and data on litigation funding led to a question around the rise or cryptocurrency and the blockchain, and whether it has had a significant impact on funders. Moloney acknowledged that it is beginning to encroach on funding and has utility for those looking to trade in business and cases. However, Mulhern provided a unique view, and described it as a mixed blessing. She pointed out that while crypto can unlock capital, it is also widely used in countries with weak regulatory oversight to hide money.

Announcements Commercial Deals

EU and UK market are set to capture 15.8% of global litigation funding, poised for strongest growth worldwide

Deminor, a leading international litigation funder, projects that the investment potential for litigation funding in Europe is set to reach USD 1.8bn annually, representing nearly 16% of the global market. This is according to the white paper, Litigation Funding from a European Perspective, released today. Deminor predicts the investment potential for litigation funding in Europe is set to reach nearly USD 3.7bn in 2025 (+100%), compared to USD 17.8bn globally in 2020.

The actual amount invested in litigation annually is still a fraction of the investment potential estimated at 27% (USD 486m in Europe).  As a percentage of total litigation spend, actual amounts invested by third party funders in litigation represent less than 1%.  Real investments in litigation are likely to move closer to the investment potential over the next years, but fears that third party litigation funding is driving up the cost of doing business in Europe are largely overdone.

The white paper predicts the ESG agenda will be one of the drivers for growth in the UK and Europe, with cases having already been heard claiming damages for environmental harm. Climate and human rights issues are equally set to benefit from litigation funding over the next few years as this market looks to keep up with changing social issues. Other areas for growth include anti-trust damages, commercial litigation, including intellectual property, and data breaches.

Erik Bomans, CEO of Deminor, commented: “The growth of litigation funding in Europe will not only create a shift in perception, but in consumers’ and businesses’ ability to successfully resolve legal disputes that otherwise wouldn’t be accessible to them. Given the economic uncertainty, Deminor anticipates the market will shift towards businesses using the funding to be strategic with capital and release money that would otherwise be tied up in litigation. This is also likely to lead to more successful litigation outcomes where businesses can benefit from the knowledge of experts in the field.”

The report forecasts that while the EU market is still relatively small, the increase in the use of litigation funding is expected to hit annual growth of 8.3% in the next five years. Growing costs and focus on working capital is a key factor, prompting businesses to free-up working cash from long-term litigation projects and use litigation funding as a financial management tool. The United Kingdom is set to be the biggest single market contributor, with annual investment potential reaching USD 1bn.

Countries such as Germany and the Netherlands have been key players facilitating collective actions ahead of the European Representative Action Directive which makes a collective action mechanism available for consumers in all EU countries in the future. Several business lobby groups are calling for regulation of the litigation funding industry but, given the industry’s small scale in comparison to the litigation market as a whole, this looks premature.

Erik Bomans added: “Regulation is not necessarily negative and may create more certainty and transparency in the market, provided it is used to protect fair market competition and access to justice for all market players regardless of their financial means. The goal should be to give consumers and smaller companies litigation options to support justice, to champion social progress and to restore balance.”

About Deminor

Founded in 1990, Deminor is a leading privately-owned and international litigation funder with offices in Brussels, Hamburg, Hong Kong, London, Luxembourg, Madrid, Milan and New York. Deminor’s name, derived from the French “défense des minoritaires”, reflects its origins in providing services to minority shareholders. Deminor is still very much defined by the pursuit of good causes and its determination to restore justice for clients. Combining skill sets from 16 different nationalities and 14 languages, Deminor has funded cases in 18 jurisdictions including the Americas, the Middle East and offshore centres such as the Cayman Islands and Bermuda. With specialists in arbitration, intellectual property, competition, corporate & post-M&A, investments, enforcement, and tax litigation, Deminor has achieved positive recoveries for clients in more than 81% of the cases it has funded, against an industry average of 70%.

Commercial Legal Innovation

The Evolving Role of ATE Insurance in Litigation Funding

In the first fireside chat of IMN's inaugural event, Lucy Pert, Partner at Hausfeld, spoke with Rocco Pirozzolo, Underwriting Director at Harbour Underwriting, about the evolving role of ATE insurance in litigation funding.

The conversation began with a discussion of how the nature and demand for ATE Insurance has evolved over the last two decades. Mr Pirozzolo highlighted that between 2000 and 2010, most ATE policies were taken out directly with litigants. However, after first encountering litigation funding in 2007, the sector has experienced a complete reversal, with most policies in the last decade coming from funders.

In terms of the types of cases that are attracting ATE Insurance, Pirozzolo claims that it has largely followed the trends of the wider litigation funding industry. Over time, the volume of cases has shifted from unitary claims and insolvency misconduct claims to a large amount of class action claims, as well as commercial litigation cases which are now attracting third-party funding.

Discussing the challenges that ATE insurers face, Pirozzolo highlights that they cannot afford to blindly rely on funders' due diligence, as there are different levels of return on investment and risk compared to funders. Similarly, when assessing a case, Pirozzolo argues that while funders are able to first analyze the possibility of enforcement and the true value of the case, insurers must nearly always begin by solely assessing the merits of the case.

Responding to Ms. Pert's question around the high costs of ATE Insurance, Mr Pirozzolo argues that ATE is unique due to the binary outcomes that are possible for any given policy. As a result, there is very little margin for error compared to other types of insurance which can rely on the principle of many premiums paying for a small number of claims.

Furthermore, Pirozzolo rejected the idea that the high costs of litigating is the fault of funders, lawyers or insurers individually, instead pointing to the current environment which has fueled these rising expenses. He went on to say that despite these costs, it is the partnership between these players which allows the litigation funding industry to deliver wider access to justice.

The fireside chat concluded with Mr Pirozzolo offering his view on what anyone should look for in a good ATE provider. In particular, he highlighted an 'A' rating from one of the agencies, the ability for the insurers to deal with complex issues such as providing a deed of indemnity, and finally ensuring that the provider has a team of experienced and high quality professionals.

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.