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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.
Commercial Regulatory Issues

 New ATE Premium Privacy Precedent 

Precedent has been set by Kent v. Apple. on the merits of ATE premium privacy. The court ruled that Apple is not privy to ATE policy details, in that it may afford the company an unfair advantage to dispute the claim.  Mishcon.com further dissects the relevance to ATE Premium disclosure in a new profile on courtroom strategic sensitivity. Competition Appeal Tribunal rules normally make determinations to authorize funding agreement details. In most cases, the details of the funding agreements are made available to all parties involved, under scope of common disclosure.   However, in this instance, Kent redacted her funding budget’s ATE premium details. Apple petitioned the court with objection to the redactions. As the tribunal weighed the argument, it debated if the information Apple sought was necessary. In this instance, the court found that the ATE premium details were not privileged, but were strategically relevant to the case and henceforth not privy to Apple under competitive fairness.   The landmark decision is welcomed as fundamental precedent in litigation finance proceedings. Similarly, the notion of “strategic sensitivity” may hail additional rulings in the future.
Commercial Fundraising

Jack Dorsey to Launch Bitcoin Defense Fund 

Jack Dorsey, founder and CEO of Block, Inc. (formerly, Square) announced plans to launch a Bitcoin legal defense fund. The proceeds from the fund will be used to support legal actions for open source developers in the cryptocurrency and blockchain communities.  ZDNet.com explains that the Bitcoin community is facing various challenges via litigation. Dorsey’s new Bitcoin Defense fund would help ease pressures on open-source developers as they defend and/or pursue various cryptocurrency and blockchain litigation instances. Dorsey is labeling the fund as a coordinated and formalized facility for the cause.  The fund aims to help pay for developer legal bills in retaining quality attorneys. Dorsey alludes to advantages from litigation funding scenarios in developing strategies to protect cryptocurrency and blockchain developers from legal attacks. Furthermore, Dorsey is positioning the fund to be a free and open option for developers to engage, if they wish.   The fund will look to engage volunteer and part time legal leadership to operate. Dorsey plans to share more about the Bitcoin Legal Defense Fund’s future in the coming weeks and months.
Commercial Deals

 AxiaFunder Closes First Limited Partnership 

AxiaFunder, the UK-based crowdfunding platform for litigation finance, announced a closing of its first $300,000 limited partnership case. AxiaFunder plans to have the details live on its platform over the next few weeks.  P2Pfinance.co.uk reports that AxiFunder’s first case is said to be a shareholder dispute over unfair prejudice. Forecasted returns on the dispute are expected to be 3.7 times that of the funded investment.  Last month, AxiaFunder revealed its plan for a limited partnership organization to support crowdfunding in litigation finance. According to AxiaFunder, the limited partnership design is extremely tax efficient and will boost litigation investors' overall returns.  
Commercial Deals

$58M+ Owed to Litigation Finance Backer 

New allegations are emerging that Affiniti Finance lent thousands of law firms millions of dollars, only to leave its financier empty handed. Now in administration, Affiniti’s creditors have concluded the firm cannot keep it’s doors open while operating an orderly run off.  LelgalFutures.co.uk reports that Affiniti engaged Consumer Credit Act contracts to disburse monies associated with personal injury and claims related to mis-selling. Now, many of the aforementioned agreements are under investigation by auditors. Apparently, a series of events transpired resulting in Affiniti defaulting on its obligations to longtime financier, Fortress Capital. Affiniti’s dependency on Fortress was crucial, so when the hedge fund decided to cease funding, Affinity lost its ability to operate. Now auditors are left to sift through Affinity's loan book to understand the firm’s financial position.  As recently as 2020, Affiniti announced plans to raise a $500M capital raise with plans to invest in as many as 5,000 new claims. However, it seems those plans were a pipe dream, at best.
Commercial Legal Innovation

A Stock Market for Litigation Finance 

A litigation finance stock market? That is what one new New York startup called Ryval is looking to launch. The idea is to let everyday citizens bet on litigation claims.  Faisal.nyc reports that Ryval plans to issue tokens so that users can invest in individual litigation claims, much like the stock market. The platform is being depicted as similar to GoFundMe and other crowdfunding platforms. The idea is that empowering justice through tokenization is a worthwhile cause.  What is interesting about Ryval is the proposal that tokens may be bought and sold during a litigation lifecycle. No word on how and if the litigation tokens will increase or decrease in price during the span of a successful or unsuccessful litigation.  With innovation, naturally comes criticism. The notion that Ryval is going to “democratize the court system” is irking some. Some are labeling Ryval as a betting market, rather than a justice facilitator. Others note that the general public is not privileged enough to access detailed discovery information to make mindful decisions on a case’s lifecycle.
Announcements Consumer

Golden Pear Funding Closes $55.0 Million Corporate Note Financing

Golden Pear Funding (Golden Pear), a national leader in pre-settlement legal funding, announced the closing of a $55.0 million investment-grade rated, Senior Secured Corporate Note financing. The transaction was assigned a BBB rating by a nationally recognized statistical ratings organization. Proceeds will be used by the company to restructure existing debt and support additional growth of the business. Since inception, Golden Pear has funded over $735 million in aggregate to more than 62,000 clients nationwide. "This transaction gives Golden Pear the financial flexibility to continue building the best independent, specialty finance platform serving the consumer litigation marketplace," stated Gary Amos, Chief Executive Officer of Golden Pear. "It was made possible by the strong performance of our business, driven by industry-leading innovation, our team, and the products we deliver with a continued focus on service for attorneys, providers, and their clients." Daniel Amsellem, Chief Financial Officer of Golden Pear, added, "Our capital strategy continues to be an important point of competitive differentiation for Golden Pear. We are pleased that this transaction has reduced our cost of capital and attracted a diversified group of institutional capital partners to the company." Brean Capital, LLC served as the company's exclusive financial advisor and sole placement agent in connection with the transaction. About Golden Pear Funding  Founded in 2008, Golden Pear is one of the largest specialty finance companies in the United States funding legal matters and purchasing medical receivables from physicians and medical centers. The company empowers its clients to navigate the legal system and provides them with financial solutions that work. Golden Pear is backed by a partnership of several private equity firms that allow for the stability and continued institutional growth of the firm. For additional information about the company, visit https://goldenpearfunding.com.
Consumer

Post-Pandemic Predictions Include Extended Case Durations

Law firms that rely on contingency fee structures will soon feel the impact of the pandemic, if they haven’t already. Many contingency fee law firms experienced an immediate slowdown in cases once stay-at-home orders and mass business closures went into effect. While many firms used settlement income from previous years, those funds are likely nearly depleted by this time. Above the Law explains that personal injury cases and workers comp cases have dramatically slowed, impacting law firms' bottom lines. Meanwhile, court closures and excessive delays led to an increase in case durations—delaying payouts for law firms as well as third-party litigation funders. This can leave funders with a dearth of working capital, and could increase the chances of an adverse occurrence like bankruptcy, or the case going over its allotted budget. Even worse, some opportunists took advantage of slow courts and a long wait for jury trials by pushing through low-ball settlements for litigants already suffering from the pandemic. In nearly every state, trial delays, shutdowns, or extensions abounded, and delays continue even as venues are cautiously reopening. It’s predicted that consolidation is on the horizon for many contingency fee firms. Firms that aren’t already on track with sustainable growth initiatives are likely looking at consolidation or being acquired by a larger firm. The question then becomes: Buy or be bought? Firms that have financed cases instead of bearing the full cost may now be in a position to acquire. The continued effect of the pandemic on law firms can lead to an inability to secure competitive interest rates—owing to cases staying on balance sheets for longer than anticipated. This is good news for litigation funders though, as it means more firms in need of funding.
Case Developments Commercial

Flight 752 Victims’ Families Awarded $107M by Ontario Court

Nearly two years after 176 people died when Ukraine International Airlines Flight 752 was shot down, families of six victims have received a $107 million award in civil court. The decision included $100 million in punitive damages that will be split among the families, plus $1 million for specific losses, and another $6 million for pain and suffering. CBC details that the Flight 752 disaster was part of a deliberate terrorist act. Lawyer Mark Arnold explains that the team plans to seize Iranian assets in Canada and elsewhere to ensure that the award is paid. Canada is currently joining forces with multiple countries also seeking reparations from Iran for citizens lost on the flight. Iran has stated that its government will not engage in negotiations, prompting a statement by the countries promising to consider more aggressive actions against Iran. Unsurprisingly, Iran’s foreign ministry asserted that the courts lacked evidence, calling the Ontario ruling “shameful.” Because this was a civil case, not criminal, plaintiffs were not required to prove their case beyond a reasonable doubt. Iran has spoken out against Canadian class actions relating to Flight 752, saying any relevant litigation should take place in Iran. A news conference is expected this week.