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Commercial Legal Innovation

Litigation Insurance Trends and Product Innovation

The litigation finance space is evolving at break-neck speed with new, innovative products to meet marketplace demands. Development of a new market segment includes the emergence of litigation risk insurance, aimed at mitigating threats arising from acknowledged claims.  InsuranceJournal.com explains that with historic investment in world-wide litigation finance, litigation insurance products offer a dynamic set of tools to help offset high-stake, high-dollar litigation awards. Even more exciting, mergers, acquisitions and leveraged buyout scenarios are finding litigation risk insurance an attractive solution to material litigation liablities.   There are two emerging categories of litigation risk insurance:  
  • Adverse Judgment Insurance: Facilitating coverage in unexpected scenarios, this solution provides various coverage options to potential adverse judgment awards. Policyholders usually are defendants offering rider coverage to consider assignees associated risk.
  • Judgment Preservation Insurance: The journey of contentious litigation can award significant claim values that stand a chance of being overturned in appeal proceedings. Judgment preservation insurance offers claimants various facilities to protect awarded judgements in the event of lesser recovery. 
  Litigation risk policy coverage is bound much like traditional insurance coverage. Policyholders pay corresponding premiums to gain agreed upon indemnification. Bespoke policy scenarios are widely becoming a risk mitigation technique out of design. It will be interesting to see how the litigation insurance industry continues to evolve alongside that of litigation finance. 
Commercial Regulatory Issues

Corporations Act s596A Expanded by High Court of Australia

A recent decision by the High Court of Australia (HCA) expanded the scope of s596A of the Corporations Act 2001, regarding public examinations and who has standing to conduct them. In a majority decision, the HCA found that claims of corporate malfeasance reflect the public interest in enforcing laws and protecting creditors and investors. Omni Bridgeway, in its case study of Michael Thomas Walton & Anor v CAN 004 410 833 Lit, explains the various considerations of the court:
  • Because each case is unique, there’s no reason to create an exhaustive list of legitimate reasons to invoke s596A. Each case will be examined on its own merits and circumstances.
  • Amendments expand who may conduct public examinations, as well as expanding the underlying concerns and purpose of the same.
  • Rather than dismissing a summons for abuse of process, litigants would be better off ensuring the integrity of examinations by invoking control over which questions should be asked.
The case involves a potential class action by a shareholder group, a summons, and discovery of multiple documents—including Simon Gailbraith, former director of Arrium. Arrium tried to have the order set aside, claiming abuse of process. The court disagreed because:
  • Arrium did not suffer losses.
  • The class action claimants did not include all shareholders, therefore emphasizing the ‘private nature’ of the claim.
  • Shareholders failed to provide ASIC that recovery would include other potential claimants.
The Court of Appeal later determined that if the predominant purpose of the request was for a private claim, it was an abuse of process. How exactly is abuse of process defined?
  • Using courts for an illegitimate purpose.
  • Processes are used in a way that oppresses one party.
  • Violation of court integrity.
Ultimately, this decision is beneficial to legal funders as it expands the tools that can be used to pursue claims.
Case Developments Commercial

Liquidators Accuse Mainzeal Directors of Mishandling Crisis

A recent NZ court of appeal ruling found that the director of Mainzeal traded on his company, which was technically insolvent for nearly a decade—yet caused no material loss to creditors. Liquidators backed by LPF are appealing the ruling.  RNZ explains that the directors, which include former NZ prime minister Dame Jenny Shipley, argued through their lawyers that the lower court ruling was “profoundly wrong,” and that they continued running the company as usual—believing they could salvage it. The directors also asserted that its parent company, Richina, would pay back $44 million in loans to Mainzeal. When this was revealed to be untrue in 2013, Mainzeal was put into administration by its bankers. Despite this, the directors allowed trading and new contracts to be secured. This led liquidators to argue that the company had a “policy of insolvent trading,” putting creditors at profound risk.
Commercial

Augusta Ventures Lists Litigation Finance Benefits 

Augusta Ventures has been a pioneer in international litigation finance, putting to work over $770M of capital into litigation investment agreements since its founding in 2013, Augusta purports a pedigree of litigation finance innovation well into the future.  Augusta recently published a list of benefits of litigation investment scenarios for the savvy litigator. Below we provide you a synopsis of the findings:   
  • Litigation finance offers both attorneys and their clients access to greater liquidity. The utilization of litigation investment as a tool was born with the spirit of easing liquidity hurdles, while providing access to justice. 
  • Corporate profit and loss statements can be saddled with millions of dollars in legal expenses during multi-year litigation. With litigation agreements, profit and loss metrics are handled by the investor, not the firm under litigation. This can be of great benefit for many growing companies. 
  • Risk associated with litigation can be burdensome without keen organizational structures. Litigation funders normally make an investment accepting 100% of the risk associated with a claim. 
  • Claim experience is nice to have, as litigation investors’ entire operational success depends on the level of claim experience (aka claim wins) they have scored. 
  • The claim owner has the luxury of complete independence from a litigation investor’s meddling in the claim’s outcome, once a litigation agreement has been executed. 
Read Augusta’s complete article to learn more.
Case Developments Commercial

Amazon Web Services Denied Litigation Funding Agreement Disclosure 

Kove IO (KIO) is initiating a likely contentious patent infringement litigation against Amazon Web Services (AWS). KIO has sued AWS with a complaint that alleges abuse of patent infringement as a business model, with respect to KIO patents for large-scale cloud computing data storage technology. Meanwhile, KIO held various discussions with litigation funders. Even though KIO did not take litigation investment, AWS sought to require KIO to disclose litigation funder discussions as part of discovery proceedings.       Validity Finance recently published insights into the case discovery requests made by AWS, and how KIO responded. When KIO asked the judge for a protective order related to litigation investment, AWS petitioned the judge to deny the motion and demand KIO’s litigation investment disclosure(s).  KIO suggested that the litigation finance discussions were not materials that AWS should be privy to. AWS argued that the nature of KIO’s litigation finance discussions are of interest in determining the value of any potential AWS patent violations.      The theme of denying litigation funding agreements as part of discovery has been a hot topic of late, involving giants like Google, Apple, Facebook and now Amazon. With the deep pockets of publicly-traded companies, if a litigation funding agreement was required as part of discovery, it could be argued that the litigation budgets of these companies would be of interest as well. Discovery motions of this nature could be argued, given that they are fighting against the rule of international law and justice.  Meanwhile, it appears that such disclosures are not required on either side by the recent precedent.  
Case Developments Commercial

Follow-Up: When Clients Go Bankrupt, Who Pays? 

An update to a story LitigationFinanceJournal.com recently reported on: The case in the United Kingdom involving Cadney and their former client Peak Hotels & Resorts Limited has a new decision issued by the UK Supreme Court. 
  • The case involves Peak’s insolvency and inability to pay £4.7M in fees and outstanding costs. The UK Supreme Court justice presiding over the case stands to grapple with the thematic undertones of litigation finance, and whether a lien should be considered litigation funding or not. 
  • It appeared that the case may hinge on whether Cadney’s “deed” or “lien” against Peak is structured as a litigation finance agreement.
  • Cadney tried to argue that they did not forgo the right to payment when re-organizing terms and conditions and a new agreement. 
This week new details were presented by the liquidators in charge of Peak Hotels & Resorts Limited. The liquidation attorneys argued that Cadney’s intent was to end its lien against Peak’s assets through the creation of a new security (a litigation investment contract). The argument was furthered by asserting that if the lien was not expressly preserved in the new litigation agreement, then it is clear that the lien came to an end with the execution of the new agreement.  Ruling on the case is expected later this year, and we will continue to report updates on the story as they happen.
Case Developments Commercial

ATE Insurance in the Google and Apple Claims

The nature of litigation calls for achieving marginal gains in the courtroom that add up to victory. So, when Google and Apple both lost individual judgements for ‘unfair tactical advantages’ related to ATE premium disclosure, the global litigation finance community took notice.     LawGazette.co.uk recently published commentary by Tets Ishikawa who is managing director at the litigation funder, LionFish. Mr. Ishikawa noted that both Google and Apple have shareholders who will suffer losses from billion-dollar awards associated with the decision in each case. 
  • As such, Google and Apple aiming to leverage ATE premium disclosures from their opponents holds some logic. 
  • However, Mr. Ishikawa argues that what is good for the goose is good for the gander – in that whatever disclosures are required in a case, the other side (no matter claimant or defendant) should be held accountable for providing similar information. 
  • Mr. Ishikawa highlights the millions of dollars in legal fees both Google and Apple are spending to limit exposure for allegedly breaking international antitrust laws.
If, in a world where Google and Apple won judgments to receive ATE premium information, Ishikawa argues the claimants would have had rights to request similar information on Google and Apple litigation budgets. Circling back to marginal gains, Google and Apple can still seek to obtain ATE premium details via unofficial channels. If so, then hypothetically, the claimants stand to earn tactical advantages in exposing Google and Apple’s litigation investment in purposefully profiting off of ant-trust lawlessness.  
Commercial Legal Innovation

Reaching for Gender Equality in Big Law

On the occasion of International Women’s Day, some firms are looking again at what can be done to address the gender pay gap at major law firms. Of course, the push for racial, cultural, and gender equality and representation has existed for decades. Still, women represent just over 25% of partners at the top ten major law firms. Minorities make up nearly 11% of partners. Law.com details that despite a rising awareness of the importance for diversity, much more progress is needed. The legal field is known for its adaptability and creative problem-solving. Surely this spirit of innovation can be applied to closing the gender gap in Big Law. It makes sense to use a familiar legal team to fight a high-stakes legal battle, but doing so is more likely to maintain, or even increase, the gender gap. Tools exist to make choosing a more equitable and diverse legal team. Burford Capital’s Equity Project presents a $100 million fund of capital that can be used to hire racially diverse and female-led legal teams. Origination credit is another area that can leave minority lawyers running to catch up. Compensation and promotions at big legal firms often come down to billable hours and origination credit. Many GCs maintain the understanding that the partner they work with gets the origination credit. Logical, but not necessarily true. If GCs simply asked about origination credits, that could make a profound difference. Affinity bias is the term for historically privileged groups and their tendency to gravitate toward up-and-comers with similar backgrounds to themselves. A 2021 McKinsey Women in the Workplace report states that only about 10% of white mentors take on female proteges of color. Law firms are likely to take client concerns seriously. Taking time to discuss diversity with the legal team of your choosing is an important way to help close the gender gap in the legal field.
Commercial

Survey Tracks the Evolution of Litigation Finance

The popularity of third-party legal funding has increased exponentially in recent years. A new survey from Above the Law underscores this rapid growth.  Above the Law uses annual surveys to track the use and effectiveness of litigation funding. In the last survey, nearly ¾ of lawyers said that Litigation Finance is even more relevant to their practice. Now more than ever, clients, lawyers, in-house counsel, and other legal pros are open to using third-party funding for legal matters. Practicing litigators and in-house counsel are invited to take part in this year’s survey, the sixth for Above the Law.