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Commercial Regulatory Issues

The Dawn of Litigation Finance in South Africa

South Africa is experiencing the emergence of litigation funding as a key driver of access to justice. Regulation, however, figures to be the burning issue foreshadowing thorny ethical debates regarding the country’s nascent litigation funding marketplace.  Cms-lawnow.com profiles insights across continental Africa, highlighting South Africa as a prime market for investment in litigation finance. The future of the industry depends on the actions of attorneys who engage third party investment in client litigation. South African lawyers must embrace pure intentions when parties enter into funding agreements. Without such stewardship, litigation finance stands to be banned by South African lawmakers.  Conflicts of interest are obviously a must to avoid. In the United States, third party funders hold a passive role in the litigation process. South Africa’s market is still budding, thereby generating concerns over who will be making strategic decisions.  Similarly, ownership of the overall work product in South African litigation funding agreements is vague. Regulatory guidance can solve such matters, but until then, funders and attorneys must strive to promote and embody avantgarde ethical standards to protect claimants. 
Commercial Legal Innovation

LegalPay Aims to Democratize Litigation Finance

Legal Pay is a standout across India, championing the goal of access to litigation finance tools and services. Traditionally, many in India were forced to rely on friends, relatives and/or personal loans to fund litigation if they did not have access to adequate capital. Today, Legal Pay is not only spearheading litigation funding, but also bespoke insolvency products.  Recently, Asia Tech Journal’s Ashu Agrawai (AA) sat down with Kashish Grover (KG), Legal Pay’s Chief Investment Officer, for a video interview on the future of litigation finance in India. Here some key takeaways from the conversation:  AA: What is the construct of Legal Pay? What kind of products are you doing? You basically rate and assess the quality of an asset and open it up for people to invest, right?  KG: You have actually summarized what we are doing in a very plain way. I think that the vision or idea is to help structure the entire litigation finance funding market to help plaintiffs who do not have money… You create wealth and diversify.   AA: What is the role that you play?  KG: It can take ages for cases [to mature]. That is where our filtering criteria comes into play… We only take a cut or receive any money once you win a case or receive the money. The idea is pretty simple, but we have our own proprietary algorithm that rates each case on scoring criteria.  AA: Is the money coming from your coffers? Is the money coming from partners? Because financial institutions have continued to stay away from [litigation finance].  KG: Imagine this: We have a pool or different basket of funds. If this case fits in, we allocate the case. We have investors who can invest $20,000 - $25,000. Basically, digitizing a VC model.  The interview with Legal Pay extends nearly an hour. Follow the link above to check out the entire video. 
Commercial

Texas Wrestles with Backlog as Energy Market Bounces Back

It’s estimated that the state of Texas will be dealing with case backlogs for the next 3-5 years—particularly for in-person jury trials. Before COVID, Texas saw more than 10,000 jury trials per year. In 2020, jury trials numbered 222. While the energy market is bouncing back, it will take a long time before it reaches pre-COVID levels. With all that in mind, litigation funding can offer low-risk solutions that can be highly profitable and beneficial. Validity Finance explains that as of June 2020, COVID created a bleak landscape, especially with regard to key industries. At that time, the price of oil was below the zero mark, unemployment hovered around 13%, and revenue losses were plaguing the healthcare system. Months later, bankruptcies were piling up at an alarming rate—with the energy sector being among the hardest hit. At the same time, the Texas court system ground to a halt. In 2019, it was common to have an average of 186 jury trials per week. Between March–December 2020, that number fell to just four trials a week. COVID continues to negatively impact the global economy, causing rampant uncertainty as to when, if ever, things will return to normal. Legal services, however, have enjoyed boom times during the pandemic. Legal funding in particular has grown by leaps and bounds. COVID has inspired creativity and adaptability in the legal field, while third-party legal funders are managing record sums of cash from investors clamoring for uncorrelated assets with the potential for high returns. Legal firms and clients alike are making use of Litigation Finance to share risk, bring in revenue, and pursue cases that would otherwise not be economically feasible. Legal funding also allows firms to engage in alternative fee agreements, providing greater flexibility to clients. As the world continues to address the impacts of COVID, litigation funding stands by to assist.
Commercial Regulatory Issues

Tribunal Award for Costs Upheld by English High Court

Is an award for costs of legal funding an excess of power? Not according to the English High Court. The High Court recently affirmed that tribunals may award costs for litigation funding. This is the second High Court ruling rejecting challenges to an award of funding costs. Burford Capital explains that “other costs,” as defined by section 68 of the English Arbitration Act, can indeed include costs associated with obtaining legal funding from a third party. The first case to affirm this was Essar Oilfields Services v Norscot Rig Management. Earlier this month, the issue of arbitrators awarding funding costs was affirmed in Tenke Fungurume Mining SA v Katanga Contracting Services. Both cases confirmed that awards for funding costs cannot be challenged under section 68. The challenge from TFM asserted several grounds of irregularity that impacted the proceedings in an unfair way. Ultimately, TFM argued that awarding funding costs was an excess of power—but was not able to demonstrate that the tribunal exercised a power it did not have. Thus, the argument was dismissed. TFM further argued that the award of funding was inappropriate under public policy grounds—owing to the established public policy in favor of award enforcement. Unsurprisingly, third-party legal funders found this ruling welcome. It appears to foreshadow the widespread acceptance of allowing parties to recover the costs of obtaining third-party funding. It’s also probable that more cases have contained similar rulings—but aren’t known publicly, as they are confidential. Arbitrators have long had the authority to award “other costs” associated with a case—and therefore awarding costs associated with legal funding cannot be an excessive use of power. English courts have long supported litigants recovering costs they undertake to defend their rights. This could apply not just to funders, but to expert witnesses, research, and other costs associated with a case.
Commercial Regulatory Issues

Litigation Finance a ‘Sleeping Beauty’ in Germany

Access to justice in Germany is awakening a ‘Sleeping Beauty’ (that being litigation finance), according to a new report. Heavy hitters such as Roland, Foris, Allianz and Legial dominated the German litigation finance market for well over a decade. Now, new opportunities are sprouting up across Germany, as tech-savvy investors help claimants ‘beat Goliath.’  The German publication Deutscheranwaltspiegel.de released a new essay outlining litigation finance as one of the most discussed legal instruments in German civil law. The report highlights a mood of accommodation to litigation finance as an import of ‘American Conditions.’  Litigation finance in Germany is being sought as a tool of opportunity to tackle thorny insurance cases. According to the report, one German hotel proprietor purchased business interruption insurance before COVID-19, only to be left empty-handed when the insurance company ran out of cash. He turned to a litigation finance investor to help save his hotel business from ruin.  Deutscheranwaltspiegel.de shares that regulation is coming into focus, as one-off litigation wins can cost consumers more than they bargained for. Similarly, some critics speculate that savvy litigation financiers could extort frivolous lawsuits.  Germany appears to be evolving from the ‘rights of the fittest,’ to justice for all. As such, the German litigation finance market will be one to watch over the coming year.
Commercial Deals

Frozen Accounts Seek Litigation Funding

Business professionals sometimes find themselves in a situation where their operating account has been frozen due to an unforgiving legal circumstance. Evolving past this scenario can be painful, especially with no access to capital.  The Canadian publication Alllaboutestates.ca, shares that litigation funding is a smart decision when funds are tied up, regardless of the reason. For example, estate litigation often yields situations where property and other assets are haggled over before the ultimate decision of ownership is reached.  With competing claims on capital or property, whoever feels they are the rightful owner may find his or herself with no cash on hand to take sophisticated legal action. Claims of fraud are one such instance, according to the report. Other scenarios include multiple parties claiming various percentages of a pot of money. What is the most efficient way to litigate success in such instances? Alllaboutestates.ca highlights that litigation funding is emerging as a strong option in various instances when accounts/assets are frozen, with claimants forced to wrestle up cash in order to properly pursue a legal argument. 
Commercial

Litigation Finance Predictions for 2022

Litigation Finance has enjoyed a successful 2021. More players entered the funding space, funds were raised at a rapid clip, and more capital was deployed than in any previous year. Overall, there’s a general recognition that litigation funding brings fairness to the legal system.

Validity Finance’s Ralph Sutton has four predictions for Litigation Finance in the new year. He believes that the public’s understanding of third-party funding will increase, expanding the idea that it is a net gain for society. A recent survey showed that nearly 90% of attorneys who have used litigation funding affirm that it gives clients greater access to justice. That bodes well for the continued growth of the industry.

Third-party funders are beginning to recognize their place in the sociopolitical ecosystem. Funders are taking steps to advance initiatives related to the environment, social justice, and governance. So-called ESG goals are inspiring funders to give grants and zero-profit loans to worthy entities like the Innocence Project. A roundtable held earlier this year consisted of academics, funders, and judges to consider starting a social impact litigation fund to provide capital for worthy causes.

Offsetting risk via insurance is expected to grow in popularity. ATE (after the event) insurance is not a new product, but it’s being used in new ways to mitigate risk in funded cases. Ultimately, this type of insurance allows fund managers to keep more awards and settlements. While expensive, insurance for cases or portfolios can protect principal amounts—sharing risk between funders and insurers.

Changes in rules regarding ownership of law firms by non-lawyers could lead to sweeping, industry-wide changes. Exceptions to ethical Rule 5.4 may offer firms the ability to raise capital like any other business. This, in turn, allows law firms to recruit new talent or take more risk. Many states have or are considering this rule change, including California, Florida, New York, Illinois, and Texas.

Commercial Fundraising

The Impact of COVID on Litigation Funding

While many industries suffered during the pandemic, Litigation Finance has flourished. Most industry professionals believe the growth and maturation of third-party legal funding will continue into the new year and beyond. Bloomberg Law details that in the first nine months of this year, law firm revenues increased an average of 14%. In some AMLaw 100 firms, per partner profits have reached an all-time high. The introduction of regulations impacting legal funding, along with the founding of multiple professional organizations has led to changes within the industry. Economic factors alter the ways some cases are vetted for funding. For example, assessing a defendant’s ability to pay an award or judgment. Because of this, it can be more difficult for plaintiffs to get backing from a litigation funder. Meanwhile, business interruption claims against insurers are plentiful, but insurers are successfully getting cases dismissed more often than not. It’s likely that in the coming months, funders will flock to complex cases with the potential for high payouts. Cross-border breach of contract cases covering manufacturing and logistical failures, or delays in delivery are the most common. Inflation rates and competition for legal talent are expected to accelerate the rise in prices for legal services. Fortunately, the funding market has no shortage of capital, and that is expected to continue as investors seek out uncorrelated investments. Changes in law firm ownership rules are pending in multiple jurisdictions. This change is expected to result in third-party funders buying into big firms, altering some dynamics while offering clients more creative and flexible pricing options. The discussion over disclosure of funding agreements will continue until or unless a consensus is reached. While some jurisdictions are passing regulations requiring disclosure, others have determined that the source of funding is rarely relevant to the facts of a case.
Commercial Deals

Litigation Funding Gaining Popularity in Poland

Polish attorneys are navigating the lack of congruence in the country's emerging third party litigation funding space. Many claimants are not aware of the benefits of third party funding, and the different aspects of how investments of this nature can benefit their bottom line.  RP.pl reports positive structural shifts taking shape, rallying popularity in third party litigation finance. Many international investors have entered the Polish market looking for returns. RP notes that in terms of arbitration proceedings, third party funding has now become a permanent fixture in Poland.  The RP feature outlines several visionary funding scenarios for claimants and plaintiffs to consider. One unique instance applies to both parties participating in third party funding, for example related to a counterclaim. RP shares that this feature is extremely risk-focused, in that the funder would habitually require a high degree of certainty as to the counterclaim’s success.  The success of Poland’s third party litigation funding market hinges on overall public awareness. Many individuals are looking to attorneys to promote and inform awareness associated with features of third party funding.