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Regulatory Issues

Insight on the Development of Litigation Funding in Ontario

Canada has joined the US, UK, EU, Singapore, and Australia (and now many others) in having fully embraced third-party legal funding. Courts are seeing the value in the practice and are ruling accordingly. Combined with the increase in contingency fee arrangements—Canadian plaintiffs are seeing access to justice increase. Woodsford Litigation Funding explains that legal funding began with a desire to help plaintiffs have their day in court—especially against a rich defendant, corporation, or even a government. Since then, the scope and benefits of litigation funding have adapted to the needs of the market. Now, third-party funding is used by CFOs and GCs to manage legal expenses and share risk with other parties. In single plaintiff and class action cases, funding often leads to more equitable settlements, due to a variety of factors, including the added legal expertise and the capability of rejecting lowball offers thanks to a lack of financial constraints. The Ontario Trial Lawyers’ Association recently developed best practices standards for lawyers and funders. These are similar to the codes of conduct used by the Association of Litigation Funders. In January 2020, a Quebec Court of Appeal decision requiring a litigation funding agreement be given to creditors as ‘a plan of arrangement' was overturned. An earlier order by the supervising judge was reinstated. Thus, third-party funding used as interim financing should be determined on a case-by-case basis. Judges may permit third-party funds as interim financing when it is in the interests of justice to do so. Third-party funding for class actions has been approved several times—including David v Loblaw, where courts allowed the use of funding under the following conditions:
  • Plaintiffs, not funders, direct litigation decisions
  • Funder is able to cover an adverse cost order
  • Courts must approve if funder backs out of the case
  • Plaintiffs are given independent legal counsel on the funding agreement terms
Ontario residents now have more options with which to pursue meritorious claims.
Regulatory Issues

ILFA Comments on UNCITRAL Working Group TPF Reform Proposals

The International Legal Finance Association (ILFA), founded in 2020, is a global association of third-party legal funders committed to self-regulation and promoting high industry standards. The ILFA has provided commentary on the proposed new regulation, as well as context around the concerns purportedly being addressed. The ILFA explains that in developing new proposals, the Working Group did not liaise effectively with ILFA members or the funding market as a whole. Also, the proposals appear to stem from a biased narrative emanating from academic (rather than hands-on) experience, deliberately casting doubt on the legitimacy of the funding industry. There’s also a rather stunning lack of supporting data. The proposals were ostensibly made to address some rather spurious concerns, according to ILFA. Among these are:
  • That funding increases the total number of frivolous claims
  • That funding leads to more investor-state arbitration claims
  • Funding increases the number of cases in which states are unable to recover costs.
Granted, these would be legitimate concerns, if indeed there was evidence that supported them. By the Secretariat’s own admission—there is no data supporting the existence of these concerns. ILFA is made up of the 14 largest third-party funders in the world. Therefore, it makes sense to consult with industry professionals when suggesting new legislation that impacts the work they do. After a lengthy explanation of the wrongheadedness of the Working Group’s findings, ILFA reiterated its commitment to working with UNCITRAL’s Working Group to assuage its concerns by providing additional data. ILFA remains confident that the Working Group’s concerns about the industry can be addressed in a manner that does not impede access to justice.
Case Developments

Motion to Disclose Legal Funding Agreement Denied in Boeing Action

A motion to compel disclosure of a funding agreement was denied in a recent case accusing Southwest Airlines and Boeing of collusion to cover fatal aircraft defects. Damonie Earl et al v Boeing revolves around allegations that Southwest and Boeing colluded to mislead ticket buyers about 737 Max Jets—which were defective. Southeast Texas Record details that defendants asked to see all third-party legal funding agreements for all firms representing plaintiffs in this RICO case. Plaintiffs filed an opposition to the motion, claiming that the request is ‘grasping at straws’ with no legitimate basis for concern. Still, there may be concern over the relationship between Pierce Bainbridge and its fraught relationship with Virage Capital. None of the other legal firms involved in the Boeing action have funding agreements in place. The motion was denied on August 2nd by US District Judge Amos Mazzant—who said the information requested was now moot since the attorney in question has withdrawn from the case.
Case Developments

Claims of Investment Losses Spark Investigation

Leading litigation funder Omni Bridgeway is currently investigating claims made by CMC Markets’ Crude Oil West Texas Intermediate Cash product. Investors are encouraged to register their interest in a potential class action relating to investment losses and damages. This is not book building, but rather a gauge of interest in the matter. Omni Bridgeway details that CMC Markets created a network to allow investors to speculate on the price of oil. The volatility in crude markets caused by COVID led to a sharp drop in crude oil prices. This caused CMC Markets to alter the URI for West Texas crude oil. These changes included automatic close-out positions, depending on price, and preventing investors from opening new positions in the CFD. Investors were understandably upset at these changes, and now claim they were misled, and that changing the URI was unfair. CMC Markets offered this product to customers in Australia, New Zealand, the US, UK, the EU, and Singapore. Now many are saying they suffered losses and damage. Those WTI Cash product investors registering interest should be aware that doing so is not an invitation to participate in a case. Offers for participation will come in the form of a Product Disclosure Statement.
Regulatory Issues

Should Legal Funders Be Required to See Cases to Completion?

Claimants were shocked and upset recently when a settlement ended a class action lawsuit against James Hardie—leaving potential claimants without any compensation. One such claimant, Leslie Wheatley, stated that she and other claimants believed they had a strong case. Allegedly defective cladding systems caused their homes to leak, necessitating significant and expensive repairs. Stuff NZ reports that claimants believe that they were wronged by Harbour Litigation Funding, which pulled its funding from the case near the halfway point of the 15-week trial. Wheatley explains that the homeowners then had no choice but to accept the settlement, which means the case ended without any award to claimants. Wheatley alleges that Harbour’s decision was fatal to the case, as there was no way homeowners could have raised the money needed to keep it going. The class-action case endured years of research and preparation before the trial, including expert witnesses. Wheatley claims that this should have given funders adequate time and information to properly vet the case. Once the case began, she said, funders have an obligation to see it through to the end. Despite Wheatley's objections, no law mandates that funders continue funding a case to completion. In most jurisdictions and according to the ILFA, third-party funders are not permitted to influence decision-making in the cases they fund. How then, can a funder be expected to maintain a case to completion, if that funder believes the claimant and/or their legal team isn't pursuing the most effective legal strategy? Other funders are speaking out on this issue. Phil Newland, co-director of LPF, stated that it would harm access to justice to prevent funders from pulling out of un-winnable cases. Requiring funders to stay with a losing case could upend access to funding in the long run.  It's likely this heated debate will continue for some time.
Case Developments

Class Action Against Mayne Pharma

In 2016, anti-trust proceedings were filed against Mayne Pharma, asserting that it conspired with other defendants to artificially inflate generic pharmaceutical prices and restrain trade. This led to a 10% price drop over several days of trading. Phi Finney McDonald explains that Mayne neglected to inform investors that it was in violation of the Sherman Antitrust Act. Now, a shareholder class action is underway, with funding provided by Vannin Capital. The suit alleges that shareholders endured losses and damages as a result of Mayne’s failure to disclose relevant facts. Current and former shareholders who purchased Mayne shares between November 2014 and December 2016 are invited to register interest in the case.
Case Developments

Lloyds of London Class Action Seeks Additional Claimants

Attorneys for a class-action case filed against Lloyds of London are asking other affected businesses to join the action. The focus of the case involves business interruption insurance, and whether or not COVID-related closures should be covered. Jeweller Magazine reports that noted Australian funder Omni Bridgeway is financing the action. This means that there is no upfront cost to impacted parties who wish to sign on as potential claimants. Cody Opal Australia, the parent company of the National Opal Collection, has joined the action. Cody Opal’s claim on the policy was rejected in May of last year despite business losses of more than $3 million. The sticking point here is whether the losses happened because of events taking place within 20km of the business premises, rather than because of the pandemic on the whole.   A town hall-style webinar will be held on August 18th. Interested parties may access the meeting via the attorney’s website: Gordon Legal. One partner at Gordon Legal, Andrew Grech, stated that the insurers have wrongly denied claims, failing to support jewelry and gem merchants when they were at their most vulnerable. Representatives for Gordon Legal advise policyholders to start the normal claim process and seek out their own legal advice. Business owners are welcome to submit their policies to determine eligibility for the class action.
Case Developments

Of Course You Should Always Read the NDA Before Signing!

Sometimes an NDA feels so basic there doesn’t seem to be a need to read it. At the same time, not reading something before you sign is folly—unless you’re talking about iTunes terms and conditions. In a recent case, Harcus Sinclair LLP v Your Lawyers Ltd, a partner in a law firm admitted to not reading the NDA before signing. Not surprisingly, the judges were not amused. This oversight caused pointedly negative consequences for the law firm and the litigation funder. Omni Bridgeway details that the dispute in question involves Volkswagen and the company's emissions defeat device. Your Lawyers was one firm that focused on consumer claims against the German automaker, with an eye toward seeking a Group Litigation Order to pursue a collective action. Your Lawyers teamed up with Harcus Sinclair (a more experienced firm) to seek out funding and insurance. In April of 2016, Your Lawyers sent Harcus Sinclair a largely standard NDA. It contained a provision stating that Harcus Sinclair would not accept instructions for, or act on behalf of, another claimant group without permission from Your Lawyers. This provision would ostensibly last for six years. Essentially, Your Lawyers gave Harcus Sinclair work product, and wanted to ensure that they would not be excluded from the case, should Harcus Sinclair choose to move forward alone. Partnering with a more experienced firm would likely make the case more attractive to funders—but opened up Your Lawyers to risks they wanted to protect themselves against. By October 2016, Your Lawyers' fears became reality, when Harcus Sinclair began their own book building before seeking a GLO of their own. The dispute between the firms ultimately found its way to the Supreme Court. It determined that Your Lawyers should be protected by the NDA, though Harcus Sinclair could have attempted to argue that restraining them from the case could negatively impact claimants. In the end, Harcus Sinclair could not represent clients, and therefore not obtain third-party funding.
Fundraising

AxiaFunder Boasts 100% Success Rate on Completed Cases

Since January of 2019, UK-based AxiaFunder has secured nearly GBP 2 million in funds from investors. So far, the litigation funding platform has funded 13 cases, netting an impressive average investor return of 55%. Hedge Week reports that AxiaFunder has eight active cases at present, including its first international case in Barcelona. Other active cases include a shareholder action and a group claim against two retail banks. Co-founder and CEO Cormac Leech explains that one of the main attractions of litigation funding is its lack of correlation to larger economic conditions. Litigation is simply not impacted by outside economic growth the way that traditional investments are. AxiaFunder also uses ATE insurance to cover adverse costs where applicable. Funded attorneys often are paid in part by conditional fee agreements.