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Announcements Case Developments

Litigation Capital Management: Successful award in LCIA international arbitration

Litigation Capital Management Limited (AIM:LIT), an alternative asset manager specialising in dispute financing solutions internationally, announces the delivery of an award in favour of the funded party in an international arbitration, under the LCIA (London Court of International Arbitration) rules.  The arbitration, seated in London and brought under the rules of the LCIA was for the determination of a construction dispute relating to a development in the Middle East.

This investment forms part of LCM's Direct Investment Portfolio and was 100% funded from balance sheet.

As a result of this award LCM has received approximately £9.8m (AUD$18.4m) in revenue, which includes the return of LCM’s investment of £2.8m (AUD$5.1m). This investment generated ROIC on the investment of 255%, with an IRR of 195%. The life of this investment was 26 months.

Patrick Moloney, Chief Executive Officer of LCM, commented: "This successful Award is the realisation of one of the first investments which LCM entered into following the opening of its London office in 2018 and demonstrates the successful application of its underwriting process to an expanding range of investments both in terms of geography and claim type.  This award is an excellent result for both LCM and our funded party." 

Litigation Capital Management (LCM) is an alternate asset manager specialising in disputes financing solutions internationally, which operates two business models. The first is direct investments made from LCM'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 in Sydney, with offices in London, Singapore, Brisbane and Melbourne, LCM listed on AIM in December 2018, trading under the ticker LIT.

Announcements Commercial Legal Innovation

Kerberos Capital Management Announces World’s First ESG-Linked Debt Product for Litigation Finance Markets

Kerberos Capital Management announced today the introduction of a groundbreaking new direct lending product to law firms with a margin ratchet linked to ESG targets – the first debt product of its kind in Litigation Finance markets. The program is intended both to recognize and reward firms that have already established a commitment to advancing ESG factors in their work, and to incentivize qualifying firms to continue those efforts into the future.
To qualify for the program, firms must (A) demonstrate a material and ongoing commitment to providing pro bono legal services, (B) generate a threshold amount of revenue related to ESG-advancing case types, and (C) establish that they do not prosecute cases or otherwise conduct business in ways that run counter to ESG principles (a negative screener test). Key Performance Indicators related to each of these three primary qualifying factors will be assessed at the loan’s inception and monitored throughout the duration of the loan period, with downward margin adjustments ranging from 50 to 100 basis points.
“At some level, most plaintiff-side litigation can be thought of as advancing social interests, as it is through this work that individual rights are vindicated and accountability is imposed. In the same vein, litigation financing in general has ESG attributes, because the capital provides increased access to justice. But we wanted to go further,” said Joe Siprut, CEO & CIO of Kerberos. “Certain categories of cases warrant special acknowledgment for advancing ESG interests to a unique extent, and Kerberos’ new ESG product is intended to incentivize the prosecution of those cases. Building these incentives into our debt products will drive better ESG practices and outcomes.”
About Kerberos
Kerberos Capital Management is a boutique alternative asset manager. We seek to provide our clients excess return at every point along the risk-reward spectrum with an emphasis on yield, opportunistic, and hybrid strategies. Kerberos’ flagship strategy is providing innovative capital solutions to law firms. The depth of our private credit and direct lending platform has enabled us to generate differentiated absolute and risk-adjusted returns in litigation finance markets, regardless of the business cycle or economic environment. Kerberos’ investment team is comprised of senior members from both the legal and private credit industries, including former principals of the world’s leading law firms and multi-billion dollar private credit funds. In 2020, the independent, London-based Private Debt Investor magazine named Kerberos Capital Management one of its Top 3 Global Newcomers in the private debt fund category. Kerberos manages both separate accounts and pooled vehicles for institutional and high net worth investors worldwide.
Commercial

The Increasing Complexity of Litigation Funding

As new jurisdictions discover the benefits of third-party legal funding, access to justice is increasing around the globe. As predicted, Litigation Finance is gaining acceptance among Big Law firms, corporates, and the public at large.

Bloomberg Law details that the 2021 Litigation Finance Survey shows that the industry has weathered the pandemic—and may even have been strengthened by it. At least 56% of litigation funders said that business increased during COVID. Even more—59%--claim they have even more business now than before the pandemic.

While litigation funding has been around since the last economic downturn, it has only begun gaining real traction in the last few years. More than two-thirds of funders who have researched or used third-party funding are more likely to approach funders now than they were even five years ago. Almost a quarter (23%) are more likely to seek out funding than they were last year.

In early 2021, Willkie Farr & Gallagher was the first major law firm to announce a partnership with a prominent funder—Longford Capital. These kinds of deals are likely to ripple through the industry, as many more large-scale agreements are forged.

As the industry grows, so does the roster of active participants. In addition to more traditional funding entities, multi-strategy investors find themselves entering the funding space with increasing frequency. Even insurers are getting in on the action—offering judgment preservation insurance.

As the industry grows, so do calls for increased regulation. We’ve seen corporates and governments on the receiving end of class action cases speak out against funding, calling it opportunistic or bad for the economy, as insurance rates rise and nuclear payouts occur. Disclosure continues to be a divisive issue as well. As funders look to invest in law firms, potential conflicts draw attention from lawmakers, yet courts and bar associations have thus far been leaning toward loosening regulations.

Only time will tell how these various issues will shake out. For now, funders, lawyers and investors in the space must navigate these various complexities with an understanding that things may change drastically from one moment to the next.

Commercial Regulatory Issues

New Zealand Law Commission Reviews Litigation Funding Regulations

At present, the New Zealand Law Commission is reviewing regulations regarding class action regimes and litigation funding. The expectation is that a new round of regulations could be introduced to the minister of justice by summer of next year. Lexology explains that there is no class action regime, nor are there rules specific to litigation funding in New Zealand. The High Court Rules govern class actions—which has proven incomplete to effectively regulate a complex process like third-party funding. Until recently, New Zealand had no cause to consider how, or even if, the civil justice system should take steps to accommodate litigation funding or encourage class actions. Because legislation is lacking, funders and courts have had to rely on other factors when making decisions on class actions or third-party funding agreements. This lack of regulation results in inconsistent rulings on vital issues, including:
  • Various aspects of disclosure
  • Securities for costs
  • Opt-in vs opt-out in class actions
  • General legal costs
Officially, New Zealand has not abolished champerty laws as much of the world has. This means the very legality of third-party funding is still being litigated on a case-by-case basis. As the official report is being developed, the Law Commission has released a basic report affirming the following:
  • Litigation funding is a net gain for increased access to justice.
  • Third-party funding should be permitted under the right circumstances.
  • There are specific concerns regarding funding that should be addressed.
  • A statutory class action regime should exist in New Zealand.
A widely publicized case involving Harditex building materials ended when funding was withdrawn mid-case after a ruling that hurt the plaintiff. This left claimants in a lurch after waiting 6 years for the case to reach the trial phase. Ultimately, the Law Commission has a duty to recommend regulations that work for funders, as well as claimants, in order to continue increasing access to justice. Final recommendations from the commission are expected in May of next year.
Case Developments Commercial

Binance Freezes Customer Withdrawals of Crypto Assets

Referencing a “large backlog,” Binance has put a temporary hold on customer withdrawals of crypto assets. The number one cryptocurrency exchange tweeted the announcement earlier this week. Crypto Briefing details that Binance resumed allowing withdrawals within minutes of the hold. Later that day though, withdrawals were again withheld. Meanwhile, other major crypto exchanges, like Coinbase, are still functioning normally. This is not the first time Binance has experienced overloads, and unintentionally shut customers out. The same thing happened in May of this year, leaving users without access to their accounts as prices fell dramatically. Liti Capital is now suing Binance on behalf of traders impacted in that shutdown. No word yet from Liti on whether this latest outage will factor into their claim against Binance, or whether the funder will launch an entirely new claim altogether.
Commercial Regulatory Issues

Litigation Finance Catches on in Canada

Like many places in the world, Canada’s cost of litigation can be prohibitively high. Even meritorious claims may not be worth what it costs to pursue them—leaving good people victimized and the unscrupulous free from dissent. Enter third-party litigation funding. That’s when everything changes for Canadians seeking justice. MONDAQ explains that Canadians are beginning to see that help from litigation funders can go a long way to bridging the gap between those who can afford proper legal representation, and those who need assistance. In addition to helping individual plaintiffs or group claimants, litigation funding in Canada is also a tool used by savvy GC’s to limit legal spending and even monetize existing litigation assets. Canadian common law prevented the practice of third-party legal funding, believing it would enable meritless cases. Recently though, courts came to understand that justice is better served when more people have access to the legal system, and to good legal counsel. Court approval is not required for a funding agreement in either private commercial arbitration or litigation. In fact, third-party funding is business-as-usual in these types of cases. Litigation funding is also used to enforce judgments or to monetize claims without adding to legal budgets. Insolvency is another area where legal funding is making a difference. The Bluberi case affirmed that the CCAA does allow for monetizing assets to provide interim financing when needed. In a case involving Crystallex International, courts determined that arbitration financing was permissible—even necessary to successfully restructure an outstanding debt. As legal funding becomes the norm in Canada, knowledge of funders and funding agreements is more vital than ever. Knowing how to select and approach an experienced legal funder can make or break a case—especially one against a well-monied corporation or government. Indeed, funding should be considered by every commercial litigator.
Commercial

A Looming Potential Risk of ESG Investment

Bloomberg predicts that by 2025, nearly a third of assets under management will consist of ESG investments. Representing advances and social justice in environmental, social, and governmental systems, sustainable investments sound like a great idea for all concerned. But are they? Dentons suggests that wrapping up investments in festive ESG packaging may have the opposite of its intended impact. The FCA penned an open letter earlier this year on the topic, expressing concern over purported ESG investments that have little to no relevant impact on ESG causes. ESG credentials are one way investors decide where to put their money. If investors are told they’re making sound investments that advance ESG goals, they may have a legitimate grievance if this turns out not to be the case. One may ask—what if the investor makes money? Surely, investors wouldn’t bring a suit over a profitable investment? In truth, making money would not negate a claim of fraud if the ESG claims made were knowingly false or intentionally misleading. At the same time, if the value of the investment has increased, it might make more sense for investors to simply sell rather than go through the time and expense of filing a legal case. Recent developments in the LitFin space may increase the risk of investor lawsuits regarding ESG claims. The opt-out class action model in use in places like England and Wales makes cases about investment disclosures potentially lucrative. Such cases may make use of the ‘same interest’ requirement, if the same platform and information were used in the transactions. Even without a financial loss, investors may experience distress at having invested in something that was not presented properly. Such damages are rare in civil cases, but ESG investing is a growing topic that may lead to new thinking about how distress should be compensated.
Commercial Regulatory Issues

Judge Considers Acceptability of ATE Insurance as Security for Costs

After-the-event insurance is a common means of covering costs by both defendants and plaintiffs in litigation or arbitration cases. Often, such insurance can also be used as security for the defendant’s costs. Recently though, Deputy Master Nurse found in Addlesee and Ors v Dentons Europe LLP that not all ATE policies are suitable as providing security for costs. Stewarts Law explains that in this instance, there was a strong likelihood that the policy in question could not wholly be used as security for costs, and that only half of the policy value could be used as such. This decision necessitated that the litigation funder provide an additional GBP 1.3-1.6 million in security in case insurers determined that the claims were exaggerated—and therefore not pay the full amount. The scuffle over costs was one of many in a class action over a gold dust investment scheme advanced by the now-defunct Anubus Holdings Limited. The defendant, a legal advisor for Anubus, facilitated the scheme and endorsed it to investors. Claimants are funded by Managed Legal Solutions Limited, with an agreement for an undisclosed portion of any award. As is now common among defendants in class actions, Dentons applied for securities for costs against the funders because they aren’t able to order security against individual claimants in a class action. All this back and forth typically results in higher legal fees and costs passed down to claimants. A similar case previously ruled that ATE insurance could represent 66% of security for costs, rather than the 50% suggested in this case. This seems to hinge on contract language, specifically the word “exaggerated,” which is vague at best and arbitrary at worst. Suffice to say that going forward, the language used in ATE insurance policies will be more important than ever.
Case Developments Commercial

Insurance Comparison Site Facing Antitrust Complaint

More than 20 million potential claimants believe they overpaid on their homeowner’s insurance because of overt bias on a price comparison website. Augusta Ventures is backing the claim for an undisclosed percentage of any potential award. Law 360 explains that Home Insurance Consumer Action, the group formed to advance the claim, asserts that the website abused the “most favored nation” clause. These made expansion and challenges by competitors more difficult and restricted 30+ insurers from offering lower prices elsewhere. Kate Wellington, director of Home Insurance Consumer Action, affirms that such sites play a vital role in helping consumers make informed decisions. This site allegedly did the opposite, and rightfully should refund their customers. According to the claim, plaintiffs are owed damages regardless of where they purchased their insurance. Again we see the value in litigation funding helping homeowners who could otherwise never hope to seek compensation from Comparethemarket.com individually. The site has already been fined $24 million, but has stated its intention to appeal.