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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.
Case Developments Commercial

New Zealand Weather Tightness Case Settles for NZ $1.25 Million

This week, James Hardie Industries announced a settlement in a weather tightness class action heard in Auckland High Court—in the middle of a trial expected to last 17 weeks. James Hardie, a global producer of fiber cement and fiber gypsum, will receive NZ $1.25 million as part of the settlement. Yahoo! Finance details that Harbour Litigation Funding will pay James Hardie’s award, and neither party will make an admission of liability. This represents a final settlement for the ‘White litigation’ regarding Harditex cladding. However, two more claims remain—the Cridge litigation and the Waitakere litigation. Country Manager John Arneil stated that the outcome of the White litigation supports the stance that the allegations were lacking in merit. A ruling in the Cridge litigation is expected sometime this month. An Auckland High Court is not expected to hear the Waitakere litigation until the summer of 2023.
Commercial

Omni Bridgeway Celebrates 35th Anniversary

Leading litigation funder Omni Bridgeway is currently observing multiple significant milestones, including the 35th anniversary of its founding. In addition, 2021 represents 20 years since it was first listed on the Australian Stock Exchange, and the opening of its German arm. Omni Bridgeway explains that 2021 is also the ten-year anniversary of its US launch, and the 5th anniversary of its offices in Canada and Asia. These advancements have significantly raised the company’s global standing while allowing Omni Bridgeway to serve an ever-larger client base. One area of development for Omni Bridgeway over the last two decades is asset tracing. This vital discipline was developed at the company, then called Omni Whittington, by banker Raymond van Hulst and insolvency lawyer Wieger Wielinga. Integrated, state-of-the-art intelligence-gathering and asset-tracing are essential facets of the enforcement of judgments and awards. From these meager beginnings, Omni Bridgeway has since built a team of experienced in-house asset tracers who work in tandem with a global network. The German arm of Omni Bridgeway began as a subsidiary of a legal insurer. Initially, this arm focused on small and mid-sized cases for business and individual needs. Twenty years on, Omni Bridgeway focuses on high-value cases, including collective action and legal funding for corporate clients. The US expansion of Omni Bridgeway began in 2011. Formerly Bentham IMF, its first American office is located in New York City. This arm began funding mid-size single case investments along with commercial litigation. Success in these areas allowed for the expansion into portfolio funding—perhaps heralding an industry-wide rise in portfolio funding. Omni Bridgeway’s expansion into Canada saw its Toronto office open in 2016. It has experienced similar growth to what’s been happening in the United States. Litigation Finance has changed a lot in the past three and a half decades. Omni Bridgeway has remained at the forefront of innovation and tha adoption of products to meet client needs.
Regulatory Issues

Outside Ownership of Law Firms—A Growing Controversy

One Florida committee has suggested changes to its policies on law firm ownership. So far, lawyers are sharply divided. While the Florida committee does acknowledge that many lawyers are resisting reforms in this area, that hasn’t dissuaded them from pursuing it. Law.com explains that one proposed change could permit non-lawyers to own a non-majority share of law firms. This follows a precedent in the state of Utah known as the ‘regulatory sandbox.’ Those who are in it may take advantage of the new rules. This differs from what’s currently happening with regard to non-lawyer ownership rules in neighboring Arizona. That state abolished prohibitions on outside ownership of law firms at the beginning of this year. Essentially, the proposed regulations would allow passive investors more opportunities to hold a stake in law firms. One notable change is that it would allow for fee-sharing, which is currently prohibited. The Florida committee suggests that this new scheme be implemented for three years, one year longer than Utah’s sandbox—which has since been extended to seven years. According to a survey from earlier this year, more than half of respondents (53%) didn’t agree that allowing for fee-sharing among non-lawyers was a good idea. Even more (83%) opposed passive ownership of firms. Why would an outside organization introduce regulations governing law firms that lawyers overwhelmingly oppose? The Florida committee claims that objections are based on unfounded fears. Understandable, but is that really a good enough reason to maintain an unworkable status quo? These recommendations have now been received by the Florida Supreme Court, which has not yet announced how it will proceed. Word is that the Florida committee will spend the next few months developing the program, despite the strong objections.
Regulatory Issues

Woodsford ‘Respectfully Disagrees’ with UNCITRAL Working Group

Litigation Finance powerhouse Woodsford has submitted its response to the Secretariat’s initial draft on the regulation of third-party funding. The proposed reforms include addressing concerns about conflicts of interest, security for costs, or that funders may exert undue influence over decision making or cost-related decisions about the cases they fund. Woodsford Litigation Funding states that it ‘respectfully disagrees’ with the conclusions of the Working Group. The question of whether further regulation is needed has been asked in various jurisdictions around the world. Singapore and Hong Kong legalized litigation funding for various types of proceedings in 2017. In the UK, third-party funding is on the rise—yet the government has not deemed it necessary to introduce new regulations governing the practice. In comparison to other financial industries, litigation funding has seen precious few disputes between funders and those funded. Why then, should resources be used to regulate an industry that shows no need for increased regulation? The Working Group seems to have succumbed to the oft-repeated claim that litigation funding leads to frivolous lawsuits. Of course, this argument does not hold up to logic, since no funder wants to risk money on a meritless claim. Overwhelmingly, legal funding is provided on a non-recourse basis—which means a loss in court implies a total loss of the funder’s investment. Woodsford also takes exception to Draft Provision 3, which requires claimants to affirm that they could not pursue their case without funding. This requirement leaves many questions open to interpretation, and makes no mention of portfolio cases or the myriad ways corporates leverage funding to pursue litigation. Essentially, such a regulation serves no real purpose, is likely to be unevenly applied and interpreted, and adds time and cost to court proceedings. Ultimately, the ILFA and ALF are in a better position to evaluate the ethics of legal funding, and to suggest regulation as needed.