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Commercial Regulatory Issues

New Possibilities in Litigation Funding

As the Litigation Finance industry grows, attorneys, insurers, corporates, and even small businesses are seeing the benefits of non-recourse third-party funding. As regulation adapts to these new realities, new opportunities are arising. Bloomberg News reports that one main driver of litigation funding growth is the search for non-correlated assets with the potential for high returns. Consumers are fueling the advancement of funding with claims portfolios, individually financed cases, class actions, and corporates reorienting legal departments as profit centers by monetizing existing legal assets. At its finest, litigation funding is a win-win proposition. Claimants receive the funding they need and could not otherwise afford. Law firms can reduce risk and add to operating budgets—allowing them to take on more contingency and even pro-bono work. Meanwhile, investors receive the large returns needed to encourage further investment, helping even more people who need assistance funding litigation. Debate about the transparency and discoverability of litigation funding agreements will continue. Courts have already explored what happens when lawyers advise clients to use legal funders, but no cross-jurisdictional consensus has been reached. So too are issues of privilege, as vetting by potential funders necessitates access to information typically held between lawyers and clients. So far, courts seem ambivalent on the common interest privilege. As more players enter the Litigation Finance space, we can expect more access to funding, a wider range of funding solutions for clients to choose from, and investment opportunities for smaller investors. As legal funding evolves, law firms are likely to rethink compensation models for partners and associates alike—especially when adopting flexible payments structures combining contingency and hourly billed models. As some jurisdictions relax restrictions on non-lawyer ownership of firms, compensation and bonus structures are likely to evolve further. Courts, financial specialists, and bar associations will have to rise to the challenges that the expansion and maturity of Litigation Finance will bring.
Consumer

Novitas Loans Announces Cessation of New Client Acceptance

Despite an announcement that assets reached more than GBP 200 million in 2019, Novitas Loans recently announced that it will stop funding new customers. The statement affirmed that the company will continue to manage current cases. Applications for extension funding will also be considered. Law Gazette reports that Novitas’ owner, Close Brothers, stated that the current profile of the company was not in line with the long-term strategy or tolerance for risk. For the fiscal year ending July 2020, Novitas’ assets were up more than 50%, though profit before taxation decreased to GBP 10.3 million. Director dividends were up from 6.1 million to 8.3 million. Still, COVID negatively impacted Novitas’ profitability, though Novitas did appear to have adequate resources for the next fiscal year. In July of this year, Novitas was ordered to end a funding agreement with a client, and required to cap her liability at under GBP 2,000. This was after the Financial Ombudsman Service found that the client was duped over a GBP 45,000 loan. Novitas was also impacted by three collapsed loan facilities that together owe Novitas nearly GBP 2 million.
The LFJ Podcast
Hosted By Steven Shinn |
In this episode, we sat down with Steven Shinn, Founder and CEO of FinLegal. FinLegal offers a third-party tech solution to litigation funders, law firms, and others in the Legal Services market. Steven discussed his company's points of differentiation, how his technology background supported FinLegal's launch, and what the future looks like for FinLegal and the Legal Tech space in general. [podcast_episode episode="9028" content="title,player,details"]
Commercial Resources

Webinar on Increasing the Value of Insurance Claims with LitFin

A free online webinar will cover the fine points of utilizing Litigation Finance to unlock the value of insurance claims. It is possible for insurers and policyholders to make use of non-recourse funding when pursuing matters of bad faith, reinsurance, coverage issues, subrogation, and more. Chambers and Partners details that the upcoming webinar will offer insight on these issues from leading litigation funders and lawyers with experience working with funders. Topics include:
  • Funding reinsurance and insurer subrogation claims.
  • Funding policyholder claims and using bad faith claims to resolve third-party actions.
  • Explanation of how non-recourse finance is secured by potential litigation awards or settlements.
The panel of speakers is scheduled to include:
  • Linda Kornfeld, Partner Insurance Recovery-Blank Rome. A prominent insurance recovery lawyer in predominantly high-stakes litigation. Her specialties include risk mitigation and maximizing recoveries.
  • Gavin Beardsell, Investment Manager and Head of New Zealand – Omni Bridgeway. Based in the Sydney office, Beardsell’s experience in managing insurance matters spans over 25 years.
  • Maurice Thompson, Senior Equity Partner – Clyde & Co. Thompson has nearly three decades of experience advising clients in the natural energy industry, and founded the Global Drones Group.
  • Simon Christian, Editor – Chambers and Partners. Editor of the High Net Worth Guide, Christian has an LLB from University College London and studied for the BPTC at City Law School.
Commercial Regulatory Issues

New Jersey Disclosure Rule Puts Undue Burden on Litigants

Much has been made of the US District Court of New Jersey’s Local Rule 7.1.1, which requires disclosure of any non-recourse legal funding used to support a case. Some have suggested that this “harmless” rule will encourage transparency and increased oversight. But does it? Law 360 explains that the rule necessitates burdensome filings requiring tens of thousands of attorney work hours—leading to increased expenses for clients. At what point should we ask what purpose this serves, and whether or not it’s worth the extra resources. After all, it can be argued that transparency is a vague, even arbitrary goal. Why should legal funders and their clients be subjected to it, given all the good that funding does? Commercial litigation funding works to ensure that litigation focuses on merits rather than legal games meant to frustrate parties with fewer resources. Funded plaintiffs cannot be pushed into lowball settlements or stalled until they run out of money. This, of course, leads to increased fairness—which should be everyone’s goal. This is emphasized by the fact that funders only take on cases with merit. A solid claim backed up by compelling evidence and a clear illustration of damages is what funders are looking for. The cacophony of accusations of ‘frivolous litigation’ simply cannot be supported by evidence. Confidentiality is an essential part of any case. Any legal professional should view intrusions of confidential information with suspicion. Protecting attorney-client privilege is a vital part of that relationship. It’s worth noting that other legal services are exempt from mandatory disclosure, such as consultants or strategists. Perhaps the most sinister part of Rule 7.1.1 is how easily it could be weaponized against clients who use legal funding. Defendants concerned about a losing case, or frustrated with untenable settlement offers, could make spurious demands for funding agreements, even when no suggestion of impropriety is present.
Commercial

Australian Funding Partners Declares Bankruptcy

Once hailed as the team behind the Banksia class action, Australian Funding Partners has gone into administration. In October, Supreme Court judge John Dixon found that the litigation funder and five lawyers involved in the case had committed fraud, and made dishonorable attempts to charge unnaturally high legal fees to Banksia claimants. Lawyers Weekly details that in 2018, AFPL reached a settlement with Banksia Securities over an investor loss of AU $660 million in 2012. Later, a class action participant challenged the nearly $5 million in legal fees and a further $12 million+ in funder commissions. The Victorian Court of Appeal did not approve them. As a result of the actions of AFPL and the attorneys involved, Norman O’Bryan and Michael Symons were ordered removed from the roll. Prosecutions may soon follow for the pair.
Commercial Deals

What Makes a Case Attractive to a Litigation Funder?

As Litigation Finance grows in popularity and sophistication, not everyone is on board just yet. In fact, some clients and even their legal teams aren’t sure how to attract the interest of an experienced litigation funder. As the practice grows in use, understanding it becomes even more important. Lesa Online explains that there are some things funders look for when vetting any potential funding opportunity. This generally begins with an NDA followed by a thorough vetting. This due diligence may include looking into the viability of case theory, the defendant’s ability to make good on an award or settlement, and the evidence itself. Time, cost, and expenses are all considered, including the possibility of security for costs. How is this broken down?
  • Merits. The case should have a very high probability of success based on applicable law and existing evidence.
  • Damages. A sound theory of damages must be present and is typically valued using the most conservative estimates.
  • Budget. How much will the case cost? A viable case must have a solid ratio between what will be spent vs a potential reward.
  • Ability to pay. Regardless of merits or proven damages, if the defendant cannot reasonably pay the award, funders will not be interested. 
  • Adverse costs. Cost exposure is an essential aspect to consider when vetting any case for funding. Insurance is often applicable here as well.
Commercial Resources

The 2021 Litigation Finance Survey Findings

In September, Bloomberg Law surveyed 38 litigation finance providers, 37 lawyers, and 75 legal professionals in the UK, US, and Australia on their interest in and use of Litigation Finance. This survey provides a stirring look at developments and attitudes within the industry. As Bloomberg Law explains, the main area of concern for funders and attorneys is the question of who maintains control over the litigation. Current and pending legislation tends to guarantee that clients retain the right to decision-making even in funded cases. Meanwhile, it appears that ethical implications are of far greater importance to lawyers—with 55% listing it as a concern, compared to just 14% of funders. Matters of return waterfall provisions (based on a multiple of invested capital) and attorney returns subordinated to return of funder capital were of high importance to both funders and lawyers. Factoring duration risk in calculations of proceeds distribution is also important to lawyers and funders—though funders find it a more crucial issue. Funders also focus on the right to withhold funding. When lawyers are considering entering a funding agreement, they tend to look at the factors in this order.
  1. Financial terms
  2. Reputation of the funder
  3. Track record of the funder
  4. Type and quality of in-house legal consultancy
Commercial litigation remains the most popular area of practice for funder/attorney agreements. This is followed by international litigation, antitrust matters, international arbitration, insolvency, patent law, environmental actions, copyright/trademark cases, insurance issues, and product liability. General industry views are largely positive toward funding, though there are some specific areas of concern. At least 39% of funders and 56% of lawyers do not feel that Litigation Finance is transparent as an industry. In more positive news, more than ¾ of lawyers and 97% of funders do not agree with the oft-repeated accusation that legal funding enables frivolous filings and cases without merit clogging court dockets. Still, lawyers were largely neutral on the positive ethical reputation enjoyed by funders. Most interestingly, about half of lawyers and nearly 4/5 of funders disagree with mandatory disclosure of legal funding agreements. In the end, we see that lawyers are 69% more likely to seek out litigation funding compared to five years ago. That’s solid news for this industry that continues to grow and adapt to meet the changing needs of lawyers and clients.
Case Developments Commercial

Woodsford Funds Govia Thameslink Railway Action

A legal claim that could be worth as much as GBP 100 million has Govia Thameslink Railway concerned. It alleges that one of the most active commuter railways in Britain has been routinely overcharging as many as 3.2 million passengers. The claim, filed late last month, is funded by Woodsford. Woodsford Litigation Funding explains that the case addresses a lack of access to ‘boundary fares’ in which commuters with a London Travelcard are entitled to discounted fares from the boundary zones covered by cards to their destination. A similar case, also funded by Woodsford, involves a claim seeking up to GBP 93 million against two unconnected rail operators. Govia Thameslink Railway is accused of not making boundary fares available to riders, nor informing passengers that they were an option. Since November 2015, it’s estimated that 240 million trips could have been more affordable thanks to boundary fares—had commuters been aware of them. This constitutes a breach of UK competition rules, plus an abuse of market powers. To be eligible for inclusion in the class action, claimants must meet specific criteria:
  • Must have owned a Travelcard after 10/2015.
  • Must have also purchased at least one rail fare from a station within a zone covered by the Travelcard.
  • Must have purchased a rail fare to a location outside the zone of the Travelcard.
Potential claimants aren’t required to bring individual claims, nor is there a fee to participate in the action. Funding from Woodsford makes it possible for claimants to sign on at no initial cost to them.