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Commercial

Legal Funding Trends: Mergers, Specialization, Evolution

It’s been fascinating to watch the progression of litigation funding happening around the world. Territories each develop their own regulations based on specific goals, when welcoming the practice. Some are positioning themselves as litigation destinations, while others seek ways for the practice to benefit citizens with the greatest need. Legal Futures details in a guest post from Asertis Chief Executive Ian Madej, that we can expect to see more new entrants into the litigation funding market. Notably, Madej suspects that many of these startups will be unprepared for the harsh realities of the market. A recent case involving British sub-postmasters demonstrated the value of litigation funding to the entire world. The quintessential funded case helped people of average means gain justice when a huge and well-monied entity wronged them. The sub-postmasters lacked the financial means to seek the justice they deserved, and funding worked exactly as intended. Funding startups are popping up with increasing frequency, possibly believing it will be easy to generate big returns early on. In most jurisdictions, barriers to enter the funding space are limited. But success in litigation funding requires the infrastructure to conduct due diligence—including input from litigators, financial professionals, investigators, and experts in a variety of industries. In all likelihood, many of these upstart funders will wash out of the industry due to being inexperienced, over-leveraged, or lacking in a clear investment strategy. Meanwhile, existing funders are adapting to the changing realities of their industry. Some are developing niche practices with specialized staff in order to focus on specific industries. No doubt, this will continue.
Commercial

Demand for Litigation Finance Rises in India

Thanks to the global financial upheaval caused by the COVID pandemic, companies around the world fear a financial shortfall. Litigation funding is one way that corporates alleviate financial pressure. The Leaflet explains that litigation funding provides a level playing field in legal conflicts where one party has far more resources than the other. Without it, plaintiffs may be forced to accept a lowball settlement rather than hold out for a more appropriate award. Legal funding isn’t just a net gain for plaintiffs lacking in financial resources. Before a funder agrees to take on a case, due diligence is applied. No funder wants to back a losing case or even a frivolous one. Funders will vet cases on their merits, risks, complexities, and the defendant’s ability to pay, before deciding whether or not to fund. Currently, India lacks a legislative regime for third-party legal funding. The nation does not allow contingency fee arrangements between lawyers and clients either—which amplifies the need for funding. In 2018, the Indian Supreme Court approved legal funding in Bar Council of India vs AK Balaji. Several states including Gujarat, Karnataka, and Madhya Pradesh, have amended existing rules to clarify the exact circumstances required for funder involvement in a legal matter. A 2017 committee report affirmed the importance of, and need for, litigation funding—particularly in helping India become a preferred jurisdiction for arbitration. This committee examined steps taken in more arbitration-friendly territories like France, Singapore, and Hong Kong. These all include the existence of well-established legislative structures that are welcoming to third-party funders. What’s needed here is for India to focus on domestic markets, which until now has not been emphasized. Aside from a single active funding entity, India is without a formal regulatory structure to govern the practice. Establishing that will likely increase confidence in the Indian legal system around the globe.
The LFJ Podcast
Hosted By Robert Hanna |
In this episode, we sat down with Robert Hanna, co-founder of Augusta Ventures, the largest litigation funder in the UK by case volume. Robert discussed Augusta's recent GBP 250 million fundraise, including how the company plans to invest its capital, how he envisions the global market for litigation funding will evolve post-COVID, and what the large funding round says about the viability of the litigation funding industry. [podcast_episode episode="8266" content="title,player,details"]
Commercial

Have Two Recent Rulings Killed the Whistleblower Funding Model?

Two recent court rulings are being touted as a death knell for a controversial litigation funding model involving whistleblowers. The Justice Department has never downplayed its opposition to investors profiting from government lawsuits. Whether the practice is an innovation in identifying wrongdoing while profiting financially, or heretical to the idea of whistleblower protections—it does seem that the involvement of litigation funders in whistleblower cases may be on its way out.

Reuters details that the cases in question, one involving Bayer and Eli Lilly, the other against biopharma giant UCB, are significant on several levels. The Bayer/Lilly claim, led by subsidiaries of NHAG, was ultimately dismissed. NHAG is a group of ‘professional whistleblowers’ that the Justice Department described as essentially a shell company existing as a profit center on behalf of investors. Mere weeks later, another NHAG subsidiary requested a review of a dismissed case against UCB.

John Mininno, NHAG founder and plaintiff’s lawyer, explained how he used public data to find and investigate fraud. He would then file suits under the False Claims Act on behalf of the government—collecting whistleblower bounties. These can be as much as 25% of the total settlement.

This seems reasonable on its face, as fraudsters would be punished and investors would profit. As a result, several contingency-fee law firms took on cases based on this business model. Even more incredible is that this model didn’t require government backing to file cases. Qui tam relators are used and may pursue a claim even if the DOJ declined to prosecute. Ultimately though, the DOJ didn’t just decline to support cases—it actively petitioned courts to dismiss them.

Some say that Mininno’s scheme is now facing a reckoning. At the same time, it’s unlikely that litigation funders will completely stop funding whistleblowers. However, according to a newly adopted DOJ policy, funding for whistleblower cases necessitates full disclosure.

Commercial

London Legal System Attracts Super-Rich from Russia and Kazakhstan

The legal services industry in the UK is one of the largest on Earth. One side effect is that commercial courts are often used in cases involving no British citizens. The super-rich are largely coming from the Soviet Union. Some may be avoiding taxes or political persecution, while others have kept their ties to the Kremlin. The Bureau of Investigative Journalism reports that a spike in cases from parties outside the UK is not necessarily a negative. In fact, it sends a message that English courts are fair and equitable, which many do not claim about Russian courts. Kompromat—embarrassing or scandalous information intended to destroy credibility—can be used in Russian civil cases. Now there’s talk of this concept finding its way into British courts. In order for the UK to continue its role as a leading jurisdiction for foreign cases, the legal system there must get its house in order. UK courts have a reputation for granting global asset freezing orders in some instances—often referred to as a ‘nuclear option.’ Michael Redman of Burford Capital states that courts might have been better off not granting worldwide freezing orders. British courts weathered the difficulties of Brexit, but may not overcome the impression that they’re allowing undemocratic systems to infiltrate their jurisdiction. Boris Johnson has proclaimed a push toward a ‘global Britain’ that maintains good standing in the global theatre. A successful legal services industry aligns with the economic strength of Britain, leading to a safer and more prosperous UK. Yet, Johnson is said to have delayed the release of a parliamentary report on Russia’s impact on the legal system. Legal services professionals agree that London must take care not to lower its integrity in the interests of attracting foreign litigants.
Commercial

Insurers Launch Class Action Against Claimants—Yes, Really!

When we think of a class action, we think of ordinary citizens seeking compensation for wrongdoing by a large, often commercial or governmental entity—usually with the support of third-party funders. So what led to a group of insurers filing suit against the owners of a cargo vessel? Mills Oakley details that the APL England, a cargo ship traveling from China to Australia, lost valuable goods after encountering rough waters. More than 80 containers were lost or damaged. After a failed attempt at negotiation, the insurers who covered the cargo filed suit against the owners and charterers of the APL England. Thus far, it’s practically unheard of for insurers to become plaintiffs in such a case. Courts were unsure how to proceed in this largely unprecedented situation that requires keeping policyholders informed and protected. Perhaps even more striking is that litigation funding, a common feature in modern class actions, is not being utilized in this action. No doubt, this case will be watched closely by insurers, policyholders, and those in shipping and logistics. While it’s possible that insurers will not be compensated for their losses, it’s equally possible that this case will set a stunning precedent for insurers when an untoward incident triggers a claim.
Commercial

UK Funder Fenchurch Legal Joins Mintos

Investment specialist Mintos is joining forces with UK litigation funder Fenchurch Legal. This is expected to create new opportunities for investors, particularly those looking to enter the legal funding arena. Mintos explains that Fenchurch Legal offers a unique product that emphasizes aiding ordinary consumers as opposed to the massive corporates many funders focus on. Fenchurch’s main clients are firms that take on cases such as pension mis-selling, personal injury, and housing disrepair claims. By focusing on smaller, socially relevant claims, more cases can be funded—diversifying risk. Fenchurch launched in 2020 with a deliberate focus on ‘After the Event’ claims. All Fenchurch disbursements are backed by an ATE policy. It fills a gap in the addressable market for small-ticket cases in the UK, where the legal funding market has more than doubled over the last three years—even before COVID changed the legal landscape. The cases that Fenchurch funds result in one of two outcomes: Winning claims see the loan repaid by the defendant, while losing claims are covered by ATE insurance. This creates an extremely attractive opportunity for funders and those who invest in them. The funding market is expected to continue its growth, particularly in the UK and US. In fact, the market is predicted to reach EU 18.3 billion by 2027. Managing Director of Fenchurch, Louisa Klouda, expressed delight at joining the Mintos platform. She is confident that the venture will help Fenchurch achieve its goal of becoming the leading expert in third-party funding in the UK.
Commercial

ASIC Addresses Concerns of Third-Party Legal Funders

A new consultation paper from ASIC details multiple areas likely to change in response to concerns from the litigation funding industry. Does this indicate a relaxation of governmental attempts to hobble the legal funding industry? Investor Daily explains that while a requirement for litigation funders to hold an AFSL became law in 2020, not all provisions were upheld immediately. This relief is scheduled to expire in April of next year. A total of 31 recommendations have been made, including relief from equal treatment duty in MIS distributions, and from requiring disclosure in some commercial cases. The government has expressed that it will consult on the new recommendations this year. The expectation from ASIC is that their paper will establish definitions for oft-used terms within MIS regulations.
Commercial

Insurers Remain Wary of Third-Party Litigation Funding

Litigation funders and insurers may never see eye to eye. After all, third-party litigation funders make it their business to hold insurers accountable—literally. By funding cases for average citizens against corporations, legal funding helps average citizens who would not otherwise have their day in court. Business Insurance explains that insurers insist that funding leads to larger claims and higher premiums. Funders, some say, are often allowed to fund cases surreptitiously, leading to potentials for conflicts of interest. Funding is similar to contingency fee arrangements, with one distinct difference. Plaintiffs don’t pay if a case loses in either situation, but if a case is successful, funders are repaid and given a share of the recovery. Funding is helpful to plaintiffs, and also to law firms who may be unable to take on meritorious cases due to lack of available resources. Third-party funding is gaining popularity around the world, and many insurers are not pleased. One director at AM Best explains that funding drives the size of awards and settlements, creating an untenable situation for insurers and those seeking new policies. If funders have direct control over the cases they fund, this problem can become exponentially worse. Laura Lazarczyk, EVP at Zurich North America, refers to ‘abusive practices’ by funders, including funding frivolous litigation. To avoid conflicts of interest, some US courts now require third-party funding to always be disclosed. Efforts to expand this requirement nationwide have not picked up much traction. Funders claim that funding is not relevant in all cases, and no jurisdiction openly permits funders to retain control over decision-making in the cases they fund.