The arena of international disputes saw a hive of activity in 2022, as jurisdictions around the world began to return to a faster pace in the wake of the pandemic and disruptive sub-sectors of the economy, bringing new areas of opportunity for litigation. Looking forward to the next 12 months, the founder of one of London’s boutique litigation firms has put forward her top trends to watch in the world of international disputes. Writing in The Global Legal Post, Natasha Harrison, founder and managing partner of Pallas Partners, has identified five key factors that she is keeping an eye on for 2023. Firstly, Harrison pinpoints securities litigation as being a lucrative area moving forward, driven by a healthy appetite for investment from litigation funders and opportunities for in-house counsels to generate significant financial gains from successful litigation. Looking at the global economic instability and ongoing financial pressures on businesses, Harrison also sees restructuring and insolvency disputes as a potential hotbed of activity. Similarly, fraud-based litigation is identified as another growth area, partially resulting from the aftereffects of the Covid-19 pandemic, and the misuse of relief funds from state governments. Moving into the world of acquisitions and transactions, Harrison points to a rise in private equity disputes as a key growth area, driven by the fallout from the high volume of transactions in 2020/21 that may come under scrutiny for issues around improper valuations or misrepresentation of financial statuses. Finally, Harrison sees competition litigation as fertile ground for increased activity, and once again, another area where the influence of litigation funding could play a significant role.

Bitcoin Satoshi Vision (BSV) launched with high hopes of digital asset innovation. Once at a market value over $8.1B, today BSV hovers around an $850M market cap. Softwhale, a litigation finance investment vehicle for digital assets, is now representing 243,000 UK residents in a first of its kind digital asset anti-competition trial. The fund is looking to clawback over £9.9B in damages from exchanges that delisted BSV trading activities.  BNN Bloomberg profiles Robert Buckland MP (UK's former Lord Chancellor and Justice Secretary) and Lord David Currie (UK's first chairperson of the Competition Markets Authority) who are the founders of BSV Claims Limited. Lord Andrew Tyrie (former UK Conservative lawmaker) has been named to represent the firm's advisory board. Likewise, BNN Bloomberg reports controversial digital asset entrepreneur Calvin Ayre has launched Softwhale out of Antigua. Ayre is the CEO of Bodog, an online gambling platform and is the-self proclaimed 'largest BSV blockchain investor.’  BSV Claims Limited and Softwhale aim to reset BSV's utility as a legitimate digital asset investment. Both firms claim that anticompetitive behavior has defrauded investors and is the chief reason behind the downfall of BSV. 

As LFJ reported last week, the UK financial services sector is bracing itself for a surge in litigation this year, as leading British banks look to be on the receiving end of a wave of class actions. However, this may not be the only driver of litigation activity for financial services entities in 2023, as a new study suggests that last year’s pension funds crisis could catalyze another wave of lawsuits targeting asset managers and advisers. Reporting by the Financial Times covers new research by the London Solicitors Litigation Association (LSLA), which found that UK lawyers are expecting a rise in legal activity relating to the fallout from the government’s ‘mini-budget’ and the impact on liability driven investment (LDI) strategies in September 2022. The LSLA’s president, Nicholas Heaton, suggested that it was likely that LDI-related lawsuits would begin to appear, and that whilst the volume of such claims was less certain, he highlighted that the presence of litigation funders would continue to drive the growth in class action suits. However, Anna Rogers, senior partner at Arc Pension Law, pointed out that the viability of these LDI claims and their ability to successfully receive significant compensation will not be straightforward. Rogers highlights that asset managers facing such litigation may be able to offer a credible defense by putting the burden of understanding on pension trustees, who could in turn place blame on investment consultants.

Disclosure in litigation funding continues to be one of the leading topics of discussion for the industry, particularly driven by recent U.S. patent dispute cases that have led to fiercely contested disclosure orders by federal courts. Whilst funders are largely resistant towards blanket disclosure orders, especially when it comes to the details of litigation funding agreements, one member organization that seeks to deter invalid patent assertions has made the argument for greater transparency. In an op-ed for Delaware Online, Jonathan Stroud, general counsel at Unified Patents, argues that as transparency is a central tenet of the justice system, funders who are involved in financing patent infringement lawsuits should have to meet the same transparency requirements as other participants in court cases. He argues that funders either explicitly or implicitly exert control over the litigation process, therefore it is in the courts’ interest to know both their identity and the degree of influence that these financiers have over the plaintiff’s litigation. Stroud cites familiar arguments that the presence of third-party funders both influence the litigation process, and increase legal costs for all parties. He also echoes recent claims by the Chamber of Commerce and State AG’s that litigation funding by foreign state and non-state actors represents a threat to U.S. security. Stroud concludes by encouraging more courts to follow the recent examples of Judge Connolly in Delaware, and enforce disclosure requirements for funders involved both in patent disputes and other litigation proceedings.

With the litigation funding industry experiencing exceptional growth despite the uncertain economic climate and instability across the globe, the practice is not only attracting specialist funders, but also interest from broader investment firms. As an investment opportunity largely insulated from macro-economic events, funds are increasingly seeking to diversify into the asset class.  An article by Hedgeweek spotlights one such example, as Hedonova, a global hedge fund with offices in Los Angeles and Tallinn, has reported impressive financial growth last year due to its portfolio of alternative investments which include litigation finance. Hedonova saw its assets under management grow from $160 million to $400 million in 2022, whilst reporting an annual gain (post fees) of 32.8%. According to Hedonova’s website, litigation finance represents a maximum of 10% of its portfolio allocation and has experienced historical returns of 56.8%. The hedge fund has also partnered with traditional funders such as Burford Capital and LegalPay as part of these investments. In 2022 alone, Hedonova’s litigation finance investments generated a return of 58%.

As LFJ reported earlier this week, the UK has experienced a surge in class action lawsuits over the last year, and there are no signs that this trend is slowing as we begin 2023. Whilst Big Tech companies were identified as one of the main targets in our previous article, new research suggests that the UK’s largest banks are also a top target for class actions, and litigation funders are playing a key role in driving these claims. An article from Financial Reporter highlights new research by law firm RPC, which has identified 109 class or group actions against some of the UK’s largest financial institutions. Among the industry-leading firms targeted by these claims, Barclays is facing 41 actions, whilst HSBC and NatWest are also on the receiving end of a significant volume of cases, with 31 and 28 apiece.  One of the key drivers of these claims is the aftermath of the LIBOR interest rate manipulation scandal, with 41 cases focusing on this wrongdoing and another 18 are targeted at banks alleged to be in breach of the US Anti-Terrorism Act. However, RPC’s Daniel Hemming argues that the “quantum of these cases” is high enough that it is regularly attracting the interest of litigation funders who are enthusiastically pursuing investments in these class actions. Simon Hart, another partner at RPC, states that whilst many of these claims focus on compliance violations, he expects ESG-related class actions to increasingly dominate the space in the years to come.

The use of litigation funding has been seen by many as a method for equalizing the balance between plaintiffs and defendants, providing the needed capital to enable parties to seek legal redress against larger and more well-financed entities. However, some legal analysts are concerned that despite its growing role in the litigation area, third-party funding is not being held to the same levels of transparency and disclosure as other parties involved in litigation. In an article on The National Law Review, Malerie Ma Roddy and Jonathan Judge of ArentFox Schiff LLP, raise the issue of litigation funders being exempt from the disclosure requirements applied to “corporate interests and insurance agreements”, which critics claim is creating an inequality in the system. The authors point out that while corporates with a financial stake in the plaintiff’s company and agreements with insurers face mandatory disclosure, courts have largely been hesitant to apply the same standards to funders. Roddy and Judge highlight the lack of commonality between states in terms of legislation outlining disclosure requirements, citing states such as Wisconsin, West Virginia and New Jersey as jurisdictions that have enacted mandatory disclosure rules for third-party funding of cases, whereas Illinois’s laws on litigation funding do not require automatic disclosure. The lack of federal legislation to unify disclosure requirements for funding agreements is pinpointed as the cause of this inconsistency.

UK-based H2O Asset Management is under regulatory investigation by the French financial crime enforcement auditors. H2O is accused of breaching financial instrument ownership laws.  Pensions and Investments reports that Bruno Crastes (H2O Group CEO) received a €15M penalty, with Vincent Challiey (H2O Group CIO) panelized €3M. Furthermore, regulators assigned €75M in fines for H2O AM totalling €93M or $99MUSD.  French assessors claim H2O's mismanagement yielded significant investor losses. As of June 30, 2022, H2O maintained €12.3B in assets under management. In November, 2020, Natixis Investment Managers elected to cancel a 10 year agreement with H2O, liquidating 50.01% stake ownership in two tranches, immediately capitalizing 26.61%. Natixis plans a six year horizon for complete divestiture.  H2O has claimed innocence of wrongdoings, suggesting French authorities issued the group penalty in the absence of fraud or mismanagement by H2O.  Deminor announced that it is financing litigation for victims of H2O's Natixis managed asset fund. Deminor is representing 1,500 individuals on a non-recourse basis. After meeting with French authorities, H2O announced formalizing a reserve allocation to cover the maximum potential fine as a cash flow precaution.