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Commercial

The Value of Financial Transparency for Funders

Security for costs is still a contentious issue in the Litigation Finance community. An English Court of Appeal ruling was clear in its message that third-party litigation funders should be ready to provide evidence of their ability to cover an adverse costs order. Omni Bridgeway details that in Rowe & Ors v. Ingenious Media Holdings, defendants asked for security for costs from the litigation funder. The claimants, in turn, asked for a cross-undertaking to cover the cost of providing that security. Lord Justice Popplewell determined that while any funder should be properly capitalized to meet an adverse costs order, a properly run funder should almost never be required to put up security for costs. Popplewell’s observations should be welcomed by most funders. He explains that sophisticated claimants should already know to avoid funders who could, potentially, be required to put up security for costs. Generally, this only happens if the funder is undercapitalized, lacks transparency in financial matters, or fails to prove an ability to cover adverse costs. It could be argued that financial transparency is more important than ever for funders, as competition for cases grows. Multiple new entities are entering the legal funding landscape, owing to the potential for large awards and lack of correlation with the larger market. Publicly available financial statements can go a long way toward establishing funders as competent, honest, and well-collateralized, thus negating the need for a securities order. While regulation impacting funders varies depending on the jurisdiction, groups like the ALF and ILFA have worked diligently to develop ethical guidelines for the industry. While these are not legally binding, they do formalize what third-party funders and their clients deem to be the most important principles of their work. This includes being able to demonstrate an ability to meet all commitments involved in funding cases.
Commercial

Burford Numbers Show Best Year Ever for Recoveries

A report released by Burford Capital this week reveals that the funder has had its best year ever for recoveries. At the same time, profits shrank from the previous year. Burford suggests that the pandemic didn’t have the detrimental impact on business that was originally suspected. Bloomberg Law details that Burford’s largest case, revolving around an oil company in Argentina, has stalled. New business, the funders say, comes from striking deals directly with companies. This differs from the thinking during the earliest days of Litigation Finance when partnerships with Big Law were considered the path to growth for funders. David Perla, Burford’s co-COO, explains that 2020 numbers are strong—especially when factoring in the Petersen/Argentina case bringing in nothing. Perla affirms that the numbers are evidence that Burford knows how to choose winning cases. The Petersen investment has, in the past, returned nearly $250 million for Burford, though its claims are listed at $773 million. Similar cases yielded $425 million last year for the world's largest funder. Perla is also unconcerned by the reintroduction of a disclosure law. The bill, which failed to gain support previously, would mandate disclosure of third-party funders in any multi-jurisdictional litigation, or any federal class action.
Commercial

South African Third Party Funding is Still Largely Unregulated. What’s Next?

Compared to the rest of the continent, South African laws regarding third party litigation funding are advanced. Compared to the rest of the developed world, however, the country is lagging behind. Legislation is minimal, and court decisions are decided on the basis of precedent rather than law. Could that be changing? Pinsent Masons details that a 2004 Supreme Court of Appeals case went a long way toward developing law on TPF in South Africa. The decision acknowledged that funding is sometimes necessary to gain access to justice. It also held that third party funders should never be allowed to abuse the legal process by funding frivolous, retaliatory, or abusive claims. Clear, unambiguous contracts are an essential component of what’s expected from South African funders. A 2020 case in the High Court laid the groundwork for what constitutes a fair and reasonable TPF arrangement. These included:
  • Funders may not interfere with lawyers or their duties to their clients.
  • Clients (not funders) must control litigation decisions.
  • The agreement is necessary to provide meaningful access to justice.
  • Funders may not be overcompensated for assumed risk.
  • TPFs should protect the interests of clients.
Courts also considered how and when funders should be allowed to terminate a funding agreement. It was determined that funders could lawfully end an agreement—but that the choice to do so shouldn’t be made without input from the client’s legal team. Clients need not disclose to courts that their case is being funded by third party funding. But, if there’s an accusation of unfair treatment, courts may require that the funding agreement be made available for scrutiny. Communications between clients and funders are still privileged. Finally, the court determined that a third party funder could be held liable for costs. This is particularly true if they become co-litigants.
The LFJ Podcast
Hosted By Elena Rey |
In this episode, Elena Rey of Brown Rudnick discusses her effort to introduce model documentation to the litigation funding industry. Elena explains the motivations behind model documentation, what the specific benefits are, how it will impact the industry going forward, and she elaborates on Brown Rudnick's formation of the Litigation Funding Working Group, which brings together litigation funders, insurers, legal experts and others to help formulate model documentation for use in the UK, EU and elsewhere. [podcast_episode episode="7620" content="title,player,details"]
Commercial

Podcast: Akiva Katz & Bow Street

Bow Street has a unique take on Litigation Finance. Instead of funding cases from the outset, Bow Street finds and buys litigation assets in cases where guilt has already been adjudicated. That means the main focus is on the damages. As reported in Livemarkets, Akiva Katz and Howard Shainker created a hedge fund poised to earn in any economic environment by combining a research-driven approach with an eye for impactful events. The goal is to earn returns between 25% and 40% annually. Below are some highlights from the podcast interview:  AK: It’s tough to find in today’s market opportunities that others have not found before you. Where are those inefficiencies? One is inactive engagement. It’s actually in getting your hands dirty—which isn’t that scalable. That’s why we only do three to five investments a year. Another is complexity. Investors swim to what is simple. Complexity scares folks. To the extent that people in my seat are willing to dig in—there’s real reward there. The litigation claims business basically met those two criteria. AK: The litigation market in the US is tepid, low level in terms of reward. To the best of our understanding, the European markets were dominated by lawyers. That means lots of guys running around making the ambulance chaser proposition. We take 20% of the upside and bear the cost of taking your case. That always seemed wrong to us as investors, since we’re in the business of pricing risk. Our view was, we could increase our exposure by coming in with a balance sheet. That would be appealing to clients at the other end who don’t want to be involved in a year’s long protracted legal process. DC: What makes a better claim versus a claim that’s less attractive? AK: The single most important differentiating factor that we exercise has everything to do with attention to detail and documentation. The single place we take risks is on documentation. We’re not going to lose a case, because there’s been a guilty plea. But there’s risk if we don’t submit our entire documentation package and the court finds a technicality on which to award the case to the defendant. That risk is amplified by the fact that we pay full price for claims. We are cash out of pocket the day the claim comes to court. DC: Can you talk about insurance underpinning the capital? I can’t understand how that works. AK: It’s important to remember that it works as a function of the asset value. The way it works is like any other insurance policy. We’re taking out a nine-year policy  to cover all our capital. No matter what judgment comes down, that insurance company covers the value of our claims and cost. So why don’t we do that always? We can’t, or we would. That option being available to us is a function of the value we created. All that insurance policy tells you is that we’ve created something that’s worth multiples of what we’ve paid for it.
Commercial

Therium Funds COVID-Related Claim Against Insurers

Therium, a global leader in Litigation Finance, is funding a legal action against insurers who failed to honor business interruption policies. The funding arrangement means that businesses may join the claim at no upfront cost. London Loves Business details that Provenio Litigation has filed the class action on behalf of policyholders seeking claims for COVID-related business interruption. While insurers asserted that business interruption policies didn’t apply to global occurrences, the UK Supreme Court disagreed. In January 2021, the court came down on the side of policyholders. Mark Goodwin of Provenio Litigation affirmed that the Supreme Court decision provides the necessary clarity to right the wrongs perpetrated by insurers.
Commercial

Woodford Investors Launch Legal Action to Recover Losses

Claims of direct losses and loss of opportunity are some of the accusations being levied regarding the collapse of the Woodford Equity Income Fund. The claim, led by RGL Management group, is against Link Fund Solutions as well as Hargreaves Lansdown Asset Management.

Daily Business Group details that there are several rival claims addressing losses linked to the failure of WEIF. If successful, RGL will get 25% of any award given. In other pending claims, Harcus Parker is taking 42% and Leigh Day is taking 30%.

Link Fund Solutions was the authorized corporate director of WEIF. According to RGL, this obligated Link to ensure that the fund complied with what investors had been told. Link was also responsible to ensure appropriate liquidity and diversity in the fund. RGL’s claims state that Link failed to manage and administer the fund appropriately. LBAs have been sent to Link and Hargreaves Lansdown—formally beginning the legal process.

Estimates suggest that at least 300,000 investors have been impacted by the collapse of WEIF. Anyone who invested in the fund can register their interest with RGL regardless of the investment amount. Because the case is using third-party litigation funding as well as ATE insurance, there is no fee required for claimants to participate unless and until the case is successful.

Commercial

Indonesian Farmers Win Montara Oil Spill Class Action

At last, at least 15,000 seaweed farmers in Indonesia will be compensated by the oil company responsible for one of Australia’s largest oil spills. West Timor farmers were devastated by the spill, which covered more than 240 kilometers of seaweed crops nearly 12 years ago. Harbour provided third-party funding for the action. The Sydney Morning Herald reports that the court ruled that the rig, PTTEP Australasia, failed to properly seal the well, creating a high risk of a blowout. Shortly after the spill, seaweed crops died. Justice David Yates stated that the courts could not ignore the obvious. Daniel Sanda, the lead plaintiff, has been a seaweed farmer for over 20 years. After traveling to Australia to testify, he explained that he had earned a comfortable living before the spill. After the spill, the seaweed turned white and then died—along with many fish. To date, his business has not fully recovered. PTTEP was ordered to pay Sanda for his losses for five years following the spill. If every farmer who joined the class action is eligible for remuneration, damages to the oil company could be in the millions. The case, backed by Harbour, is the first funded class action for cross-border pollution involving an Australian company with foreign claimants. Richard Ryan, principal lawyer, has stated that he is very proud of the win. Meanwhile, PTTEP maintains that the spill should not have caused enough concentrations to kill plants, and is considering its options for appeal.
Commercial

Founder of Homebuyers Fightback Starts CrowdJustice Fundraiser

A CrowdJustice appeal has been launched to cover legal fees, as homeowner John Gaskell seeks justice for a home beset by problems. While Gaskill points to issues involving heating and insulation, plumbing, and disability access compliance, the developer describes these issues as ‘cosmetic.’ Cambridge Independent explains that a report by HouseScan supports Gaskell’s claims that the home fell well short of existing regulations. Since September 2019, Gaskill has been at odds with the developer. What could have been addressed in weeks has now been a headache for the new homeowners for over 18 months. CrowdJustice is similar to other fundraising, sites except that, unlike IndieGoGo or GoFundMe, CrowdJustice focuses on funding legal expenses. Unlike third-party litigation funders, supporting an appeal on CrowdJustice does not net any reward for those who help fund claims. Gaskell is clear in saying that this case and his work with Homebuyers Fightback is not just about his specific situation. Indeed, there’s a public interest in addressing systemic failures of quality control in new home construction. Defending all home buyers from unscrupulous business practices and those who would evade liability is essential to ensure consumer confidence. Several MPs have backed Gaskell’s efforts to bring accountability to the industry and develop a home buyer’s charter.