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Commercial Regulatory Issues

Are Group Costs Orders Becoming the New Norm?

A recent Victorian Supreme Court decision represents the first Australian ruling for an application seeking a group costs order. The case, Fox v Westpac Banking Corporation, Crawford v Australia, and New Zealand Banking Group Limited, relied on the provision of “the Act” which permits solicitors to be paid with a percentage of a court-ordered settlement or award. Lexology explains that the group costs order application was adjourned, rather than dismissed. This means the plaintiffs could reapply at a later time. Plaintiffs sought group costs plus 25% of an award or settlement be paid to the plaintiffs' legal team. Concerns over ‘flex commission’ arrangements arose in the case with regard to consumers purchasing cars. Because of this, plaintiffs alleged that car dealers had the power to set their own interest rates. Plaintiffs argued that these undisclosed arrangements (there was no legal requirement for disclosure) encouraged dealers to set higher interest rates than those of traditional bank loans. The Court ultimately determined that there are multiple factors to consider when deciding the necessity of a group costs order. In this instance, the plaintiffs did not establish that a group costs order was an improvement over the funding agreement already in place. The best interests of the group members is the standard by which the courts determine group costs orders. This case punctuates the importance of plaintiffs taking the time to closely vet funding agreements and assess whether class members would be better off with a group costs order. The issue of group costs orders isn’t going away. Relevant legislation is almost certainly on the horizon and will present new challenges to plaintiffs and the funders that support them.
Commercial

Money&Co Losses Deemed “Excellent Result”

Despite a loss of GBP 200,000, Money&Co chief executive Nicola Horlick is still hopeful. She remains confident that the firm will turn a profit by March of next year. Peer2Peer Finance News explains that the firm anticipates a “substantial expansion” of the lending book, according to Horlick. The company’s 2021 assets were GBP 777,767 compared to GBP 73,448 in 2020. Money&Co offers secured loans for legal finance and music rights.
Commercial Regulatory Issues

Calls for Europe to Regulate LF Marketplace

With the exponential rise in funded claims across Europe, calls for further regulation abound. Similar to what we’re seeing in the US and Australia, many on the continent want to see added transparency and regulatory control in the nascent industry.  The Parliament Magazine’s Axel Voss argues preserving the purity of justice is key to avoiding the limbo of a profit-focused legal system. The LF industry is generally an unregulated sphere across Europe, which prompts Voss to warn that a lack of transparency and regulation standards could fuel abuse across the industry. The funding industry’s prized pitch is offering litigation access to those normally unable to afford justice. However, oftentimes, successful funders target top dollar cases, and pass over smaller, less profitable ones. With the global LF scene staking $45b-$90b a year currently, Voss urges the European justice system to act on “common sense regulation and transparency.”  While some consider tackling regulation a radical venture, Voss hints at proposed standards which he claims are common sense. A study of over 5,000 respondents spanning Poland, Spain, France and Germany found that 83% of Europeans want LF regulatory standards in place. Similarly, only 31% embraced the idea of the LF marketplace being self-regulated.  Voss notes that LF revenues will likely increase exponentially year-over-year and that it is “crystal clear” Europe should innovate in cultivating common standards, beyond today’s loose regulatory arbitrage wild west. Adding that the market sees some instances of 500% return on investments, claimants sometimes lose out on fair compensation, according to Voss.  Voss says it is now up to members of the European Parliament to work with the Commission to usher in a modern generation of regulatory standards.
Consumer

Advocate Capital Scores Top Texas LF Prize

Texas Lawyer Magazine crowned Advocate Capital one of the top three Consumer Litigation Funding Providers across two of Texas’s major metropolitan areas for 2021.    Texas Lawyer recognized Advocate Capital, Inc’s legal professionals, and showcased the firm’s products in the publication’s annual year-end edition. The Texas Magazine heralds Advocate’s standout attorneys, replete with the essentials they require to compete in today’s legal market. Advocate is planning for a successful 2022 as a leading plaintiff injury practice, with attorneys staffed across Texas and the United States.  
Commercial Legal Innovation Special Features

Key Takeaways from LFJ’s Podcast with Steve Shinn

On the latest episode of the LFJ Podcast, Steven Shinn, founder of FinLegal, described the solutions his platform provides for both funders and lawyers, and explains his company's points of differentiation with other third party platform providers.

Q: Why move into litigation funding and after-the-event insurance? Can you explain how FinLegal’s offerings are different than those of traditional funders?

A: Absolutely. I think one of the challenges is that the litigation funding market could grow a great deal. But there are challenges where lawyers don’t necessarily understand litigation funding, and there are a lot more funders that you can go to. So you want to help educate people who are new to litigation funding and ATE about how to access it and how it works.

There are more funders joining, which is increasing the number of claims that get funded. So whereas before you might have only had funders looking to deploy $5 million to a claim, you now find situations where there are funders who want to deploy as little as $100,000 or less. So there’s a much broader range of funders...and it’s hard to go to all of them individually and it’s hard to know who’s in the market.

We thought, let’s build a sticky platform which provides the law firm with visibility and control over those funding requests, and let’s give them an online process (to write the best possible funding request) in terms of how it’s positioned to the funders so that it does get funding. With lots of funders to navigate, let’s build a platform to help lawyers navigate them, help them understand it—and let’s help them put forward the request with the best possible positioning.

Q: You mentioned getting involved in group actions (the UK version of US-style class actions). What got you interested in that space particularly, and does your technology background in any way penetrate that space?

A: Definitely. It started out as me seeing the VW group claim, and also seeing cartel claims, price-fixing on football shirts, and things like this. With my technology background, I thought ‘Well, how are law firms doing this?’

I saw that they had a lot of off-line case management platforms, they use a lot of spreadsheets. You know these systems didn’t talk to each other. There’s a lot of manual effort and no mobile interfaces for claimants to interact with the law firm. So I thought, ‘We can build a platform that will enable that.’ Essentially, we’d be taking a completely fresh look at it. With a technology and software development background and a product development background. How do we build/provide something that enables lawyers to spend the least time possible working with each claim. We know that’s important to the economics of the claim—not having to spend a lot of manual effort on each claim.

So that’s what we produced, a solution that works on a management by exception basis, so essentially the claimant goes through an automated set of steps. And where they fall out of those steps or where they don’t meet certain criteria, only then do they need to get picked up by the law firm.

Q: I know you offer a claim automation solution, can you explain what this solution does?

A: The main benefit of the solution is that it increases the volume of clients. So what you tend to find, is if there’s a bad claimant experience, people fall out of the process. You’ve spent money on acquiring that claimant, you spend advertising pounds or dollars to get them into your funnel, to start working with them. But they become disenfranchised from your process, right? Or they don’t like getting a lot of phone calls, or they feel like the process is insecure and it happens via Email without clear instruction. So if you have a good online process, it increases the volume of clients. That’s the first thing.

And it reduces the amount of time spent per client also, because...the law firm is only working with clients who fall out of the automated process. It’s also plug-n-play, so if you want to start work on a new type of matter it might be that this week you’re building a book of emissions claimants, and the following week you want to launch a shareholder claim.

You can launch that from the platform in a matter of days and start book building. You’re not having to have lots of different contractors and different systems that you have to modify to start doing something new or different. You talk to us, we set it up for you, and then you manage it through an interface that you’re very familiar with.

Commercial

Social Inflation Meets Litigation Finance

Social inflation is a significant factor impacting the future of the litigation finance (LF) industry, detailed in a new report released by Swiss Re. With LF investment increasing to $17B in 2020, the market saw a 16% increase year over year, highlighting a greater need for transparency and disclosure standards across the industry.   The Insurer notes the global LF industry is forecasted to reach $30B+ by 2028, with the United States leading with over half of overall investment. LF investment is also allegedly contributing to social inflation across the industry, with the report estimating that 57 percent of LF investment is earmarked for legal expenses, compared to 45 percent, historically.  Regulatory arbitrage could be a significant factor for LF investors to consider over the next decade. Swiss Re highlights that LF regulation is emerging with no real common regulatory standard across the global marketplace. With this trend, transparency is a factor that claimants should consider, as LF investors may choose to operate under opaque regulatory circumstances.  Swiss Re suggests the LF industry adopt compulsory standards of disclosure of investment arrangements to all parties. These disclosures are a bid to usher in transparency and ensure overall consumer protection. Swiss Re forecasts a continued disparity between sophisticated LF investors assessing social inflation costs that will generally affect net proceeds to client plaintiffs. Finally, the report suggests that large corporations may seek investment in “legal expense insurance policies” that may serve as a buffer and/or alternative to the LF marketplace. 
Commercial Fundraising

Alt Investment Platform LegalPay Raises Funding

Venture capitalists and Amity Technology Incubator are leading the funding of LegalPay, an Indian investment platform democratizing investment in third-party legal funding and tangential services like insolvency financing. LegalPay specializes in legal financing products backed by assets. These investments have potentially lucrative IRRs, often as high as 30%. Economic Times details that New Delhi-based fintech invites investors at all levels. This includes family offices, retail investors, international funders, and others. Investment in this type of alternative asset class is an excellent means of diversifying a portfolio while instilling the benefits and discipline of long-term investing. This, aside from the obvious benefits of potentially high returns in an asset not connected to the global market. Founder and CEO Kundan Shahi explains that LegalPay opens LitFin investment to those who had been shut out of legal finance since its inception. Now, everyday investors have access to assets that were only available to the mega-rich--even as recently as last year. Among its other products, LegalPay offers short-term interim finance for distressed businesses. This is obviously an important service in the time of COVID when many businesses continue to struggle. LegalPay has also launched technology products to meet the needs of insolvency professionals including banks, resolution specialists, ARCs and other creditors. By offering an efficient and seamless process, more parties in need have access to help. Ultimately, LegalPay will enable customers to use AI and other tech to effectively invest in this alternative asset class.
Commercial Regulatory Issues

On ATE Insurance as Security for Costs

Article 6 of the European Convention on Human Rights states that every citizen has the right to unimpeded access to the courts. Citizens of modest means who cannot afford an attorney might say that principle falls short in practice. Legal Futures explains that the insurance market and third-party legal funding both have a crucial role to play in collective actions, and for individuals who cannot afford to pursue their claims. Yet, there’s an imbalance between access to justice and cost protection. This imbalance has led to claimants, particularly those in class actions, feeling frustrated. After-the-event insurance is typically used as protection against an adverse costs order, but can also be deployed for the defendant’s costs. But ATE may not always be enough to cover security for costs. So, who bears the financial risk when a David takes on a Goliath? Do the courts ultimately favor the clients with the biggest war chest? What happens when securities for costs are ordered against a third-party funder? In the so-called Ingenious litigation, a funded case with over 500 claimants sought to recover losses. Defendants filed for security against a litigation funder, requiring that Justice Nugee revisit specific legal points. He ultimately found that ATE policies, in this case, did not provide sufficient protection. Is the only option for claimants to purchase an anti-avoidance endorsement so that insurers cannot void or terminate a policy? Some say so, despite the significant financial outlay for such an endorsement. Such an expense would ultimately be counted against any future recovery.
Commercial Regulatory Issues

Calls from Reinsurers to Regulate US Litigation Funding Continues

In any discussion on rising insurance costs, fingers are sure to be pointed at Litigation Finance. LitFin is a $17+ billion industry, with more than half of assets being leveraged by US clients. Reinsurers have claimed that third-party legal funding is the catalyst for the increase in excessively large legal awards. Insurance Journal explains that litigation funding is being blamed for the increase in liability insurance premiums in a number of industries—including commercial auto, general liability, and medical malpractice. One might think the impetus would be on manufacturers and medical care providers to conduct themselves in a way that won’t attract lawsuits. The alternative is to complain about the rise in verdicts of over a million dollars—which is the path many have chosen. Still, the size of verdicts is growing. From 2010 to 2019, awards surpassing $1 million increased from 29% to 36%. During the same time frame, average awards for cases over $1 million rose from $8 million to more than $10 million. Is this just general inflation? Or is litigation funding really causing havoc among insurers and the insured? Michael McDonald of Morning Investments Consulting doesn’t agree that LitFin is the cause of high insurance prices. He explains that litigation funding makes it possible for meritorious cases to find their way to court, and this represents increased access to justice, rather than a cudgel with which to beat insurers. Indeed, insurers could benefit from some aspects of third-party legal funding, such as making their own investments or monetizing legal assets. So while funders are creating solutions that work for attorneys, clients, and investors, insurers and reinsurers are fighting for increased regulation. Is this out of an abundance of caution—or a desire to hobble a thriving industry that’s making life harder for those who aren’t meeting their obligations to customers?