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Consumer

Litigation Finance Arrangements in the United States

Like a lot of things in America, the pursuit of justice can be out of reach for all but the wealthy. To pursue a case in the US, litigants have to cover the costs of lawyer fees, out-of-pocket expenses, and any other associated costs. Depending on their situation, potential claimants may be expected to do this while unable to work, injured, or having recently lost significant financial resources. MONDAQ explains that because of the prohibitively high cost of litigation, well-capitalized wrongdoers can deflect lawsuits with threats of high costs, or with lowball settlement offers. Contingency fee agreements may be helpful for plaintiffs in some situations. But rates can be as high as 50%, and still do not cover filing fees, discovery, and deposition costs. So while CFAs can be helpful for some, it’s not a solution to the widespread, runaway costs of modern litigation. Litigation Finance is a rapidly growing industry for good reason. It allows investors to fund individual cases, or a portfolio of several, in exchange for a stake in any award given or settlement reached. TPF can be utilized for consumer and commercial litigation and can be used at any point in the legal process—including enforcement of an award. Before accepting a case, funders conduct due diligence on the case itself, and those involved in it. Essentially, funders are providing funds in a situation where the case itself is the only collateral. The non-recourse nature of funding means that if the case is not successful, funders can lose their whole investment. 
Commercial Regulatory Issues

Singapore Allows No-Win, No-Fee Arrangements in Arbitrations

As of January 12, conditional fee arrangements—once banned outright in Singapore—are now permitted in some case types. No win, no fee agreements are allowed in international and domestic arbitrations, some mediations, and certain proceedings in the Singapore International Commercial Court. Straits Times details that the proceedings in question are those involving high-end commercial disputes. According to Singapore’s Minister for Law, Edwin Tong, allowing conditional fee arrangements will help domestic lawyers compete with lawyers outside the country who are not bound by rules prohibiting CFAs. He also explained that conditional fee agreements increase access to justice, allowing businesses with meritorious claims to pursue cases despite lacking the available funds with which to do so. Conditional fee arrangements could take the form of ‘no win, no fee’ agreements, or ‘no win, less fee’. Lawyers may also choose to charge an uplift fee on successful claims. Singapore is not the only jurisdiction to abolish prohibitions against CFAs. The United States, Canada, Australia, England, and Wales are among those who now allow CFAs in a variety of forms. According to Tong, the Singapore ministry is examining whether the use of CFAs should be expanded to other case types. He notes that CFAs should not be considered a replacement for traditional fee structures. He also affirms that safeguards, such as written agreements signed by lawyers and clients, will be put in place to protect clients from potential abuse.
Commercial Legal Innovation

Litigation Funding via ILO

Litigation finance has a new tech savvy way of doing business, with the emergence of Initial Litigation Offerings (ILO). So far, there has been only one group to gain notoriety employing an ILO. Weed vs. Hemp crop destruction is the controversial ILO investment subject.  RounTabelGroup.com reports that a $1B+ California based hemp operation was allegedly destroyed by agricultural mercenaries sponsored by the government. The operation has launched an ILO to gain investment dollars to start litigation.  The ceiling to the ILO offering is $5M, and is being brokered in $100.00 increments. This is the world’s first approach to litigation funding via ILO.  SEC regulation requires registration of such funding levels under certain conditions related to crowdfunding. However, the SEC has remained silent on the specifics of ILOs.
Commercial

Stonward’s 2022 Litigation Finance Predictions

Stonward forecasts a bright future for litigation finance and third party investment opportunities for 2022. Cash flow is the heart of every successful enterprise, as such Stonward finds liquidity being an extremely attractive bonus for third party clients.  Stonward recently published a LinkedIn feature outlining five trends for litigation finance developments in 2022. Here are some of the highlights:
  1. Regulatory clarity will bring cross-border litigation finance opportunities to fruition. 
  2. COVID-19 bears new opportunities for litigation finance agreements.
  3. Class action and antitrust litigation is set to increase, with third party investors sure to follow.
  4. Litigation portfolio finance will mature with risk mitigation facilities forefront. 
  5. Long term relationships will foster legacy profitability. 
Check out Sonward’s report to learn more about their 2022 predictions.
Commercial

Litigating Universal Cognitive Liberty

Freedom of thought is recognized by the Universal Declaration of Human Rights (UDHR). Interestingly,, cognitive liberty is not recognized as an international human right. Some want to change that, making the argument that humanity has the right to be free to think whatever they want (freedom of thought).   The Ottawa Citizen reports that the Canadian armed forces have launched ‘psychological operations’ as an experiment in government propaganda to counter civil disobedience. International human rights scholars are quick to point out that the lack of protection of cognitive liberty in such instances is due to the relative lack of technology capable of directly interfering with mental autonomy at the time the core human rights treaties were created.   Similar to a ransomware attack, the technology behind such operations can be abused. Canada is said to have exploited advanced technologies without the authority to do so. Even worse, it is alleged that Canada forcefully abused technology in the unsanctioned production of reports that appeared to be aimed at cognitive activities of Canadians. 
  • Other reports highlight similar technologies being explored by the New York City Police Department. 
  • In 2021, members of the National Lawyers Guild won $650,000 in litigation financed fees from abuse of the technology in New York. 
The semantics empowering freedom of thought as a human right hold new opportunities for modern international recognition of the right to cognitive liberty. 
Commercial Deals

Litigation Funding May See Boost from Rise in Commercial Cases

After a COVID-caused dearth of commercial cases, it’s beginning to look like disputes are on the rise. During a pandemic, it makes sense for companies to forego risky litigation in favor of conserving resources. In-house legal departments, however, are already reporting an increase in commercial cases that are only expected to grow. Law 360 details that a rise in commercial litigation will likely also lead to increased use of third-party litigation funding. As the Litigation Finance industry grows in maturity, and more legal firms have positive experiences with funders—applications for legal funding will only increase. Companies would do well to implement claims recovery strategies and vet existing claims to determine which should be pursued. A recent survey by Ernst & Young shows that 63% of lawyers (external and in-house counsel) reported eschewing litigation during the pandemic. A stunning 81% of respondents said they negotiated contracts to stay out of court, while 1/3 of respondents reported deferring or ignoring a valid legal claim due to a desire to reduce costs. These are situations where litigation funding can be especially helpful. More than half of companies surveyed say they’re expecting an increase in the volume of claims, while 66% of external legal counsel are in agreement. At least 1/3 of counsel surveyed report already seeing an increase in litigation. Stephen McBrady, partner at Crowell & Moring LLP, explains that the commercial litigation space is already seeing more recovery-oriented action. It is troubling though, that despite the expected increase in litigation, attorneys are not seeing an uptick in resources. In fact, half of lawyers surveyed by Burford Capital say they expect legal budgets to be reduced. In-house lawyers, therefore, should expect to do more work with fewer resources and greater time constraints. With that in mind, it makes sense to look to litigation funding as a way to continue pursuing litigation without taking away from the operating budget.
Commercial Deals

LegalPay Partners with Jumbo Finance

FinTech startup LegalPay has recently formed a partnership with non-banking financial company, Jumbo Finance. The Delhi-based start-up focuses on litigation funding for insolvencies. Business Today explains that the stressed asset market in India has an estimated TAM of about $150 billion, and will almost certainly see an uptick in deals in the near future. According to the Reserve Bank of India, the gross non-performing asset ratio could increase from 7.48% (March 2021) to 9.8-11.22% by March of this year. LegalPay founder and CEO Kundan Shahi claims that his company is aggressively capturing the insolvency market.
Commercial Regulatory Issues

Can a Defunct Company Sue? Courts Respond with a Resounding “Maybe”

Pursuant to a case involving bid-rigging from some of the world’s largest banks in 2013, a 2019 dismissal affirmed a longstanding precedent in the United States: Dead people can’t sue. Generally speaking, this applies to defunct companies as well. In order to initiate a lawsuit, the person or entity must exist. Chief Executive details that the Second Circuit Court of Appeals in New York reversed that decision. It reasoned last March that it doesn’t matter if the plaintiffs died before they filed suit—so long as someone still living had a viable stake in the case. This set off the US Chamber of Commerce, among others, which warned courts that this decision could lead to third-party legal funders anonymously launching cases simply for profit. The Chamber of Commerce went so far as to ask SCOTUS to overturn the reversal. It claims that the Constitution limits federal court involvement to cases that revolve around “real controversy” that have a tangible impact on “real persons.” It went on to suggest that the ruling would empower class-action lawyers, funders, or hedge funds to act unscrupulously. While that’s certainly possible—all industries have bad actors—is that really a reason to limit which cases can be pursued?
Commercial Regulatory Issues

Recovering TPF Costs in Arbitrations: The Current Approach

Five years ago, Essar vs Norscot brought about a landmark decision. The English High Court upheld a ruling requiring that the defendant cover the claimant’s costs associated with legal funding in the arbitration. Now it appears that arbitral tribunals are increasingly likely to award costs associated with procuring third-party legal funding. Omni Bridgeway explains that third-party funding costs may refer to the funder’s success fee, which is one of many payouts funders receive when a claim is successful. Plus, the costs can include reimbursing funders for costs paid over the course of the arbitration itself. In Essar, courts cited three reasons for awarding WPF costs:
  • The respondent engaged in “reprehensible conduct” well beyond typical breach of contract—thus spurring the arbitration.
  • The claimant’s lack of resources
  • The respondent’s actions, intended to take advantage of the claimant’s lack of financial resources.
Recovery of TPF costs is now a common part of arbitrations in multiple jurisdictions. A recent tribunal decision in Singapore held that tribunals do have the authority to award recovery of claimant legal costs—including those associated with third-party legal funding. What changes have been spurred by the Essar ruling? First, disclosure of funding agreements early on in the arbitration process is preferred. Some jurisdictions, Singapore and Hong Kong, for example, now require this. Next, some tribunals have signaled a willingness to include TPF costs of ATE (after the event) insurance premiums. One tribunal determined recently that a claimant’s ATE premium was a necessary part of their TPF costs—and could be recovered just as any other TPF costs. Finally, tribunals are evaluating the “reasonableness” of TPF costs sought, as they determine whether to award costs. In Essar, the TPF costs were about three times the legal and arbitration costs. Clearly, tribunals are responding to the necessity of third-party funding in arbitrations, and are ruling accordingly.