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Regulatory Issues

Court Grants Funder Permission to Use Documents Produced for Examination

An important precedent was set recently, involving a decision in LCM Operations Pty Ltd in the matter of 316 Group Pty Ltd (in liquidation) 2021, and the use of documents produced in an examination. What exactly happened? MONDAQ details that a liquidator sold claims to a legal funder in August of 2019—selling for $10,000 and a 15% share of any recovery. After approval, the funder became an eligible applicant and filed to gain access to documents produced during investigations of the debt. Funders required these documents in order to adequately pursue the debt. One debtor, Rabah Enterprises, who owed more than $14 million, asserted that the Harman obligation precluded the funders from using the documents. The court was charged with examining whether the funder required leave to use the documents—and if so—whether such leave should be granted. Justice Steward determined that liquidators are not exempt from Harman. As such, they may not use documents produced for another purpose for their own collateral or ulterior motive. At the same time, the use of the documents, in this case, does not constitute collateral or ulterior purpose and may be used in the pursuit of assets in the liquidation. Funders being eligible applicants, in this case, were granted permission to use the documents in question for the purpose of securing assets. Ultimately, Rabah was ordered to pay costs, and the funders got the ruling they desired. This case sets a clear precedent for insolvency professionals and funders who could find themselves facing a Harman motion.
Commercial

Litigation Funding Sees Increased Use Among Divorcees

We tend to think of legal funding as a tool used by the ‘Davids’ in a David v Goliath matchup. Increasingly, however, litigation funding is being used in divorce cases. IFA Magazine explains that typically, the lower-income partner (often, but not always, the wife) enters a funding agreement wherein legal fees and living expenses are covered until a fair and equitable settlement can be reached. The amount of funding deployed can range from GBP 50,000 to more than 3 million pounds. Funding can allow spouses to retain a better lawyer, and to avoid a low settlement because they’re cut off from bank accounts and in need of income to live. Once a settlement is completed, funders are repaid at an agreed-upon rate according to the funding arrangement. Legal funding is an excellent solution for less-wealthy divorcees when traditional lenders are unavailable. The recent Akhmedov divorce has demonstrated the value of divorce funding as an attractive asset for investors.
Regulatory Issues

Is Third-Party Funding Too Secretive?

It’s no secret that litigation funding has its share of detractors. Some are still suspicious of the increasingly regulated practice, despite evidence that it’s a net gain for clients, legal teams, investors, and those who have been harmed by a well-monied entity. Transport Topics News asserts that funding is “mostly” done in secret. In reality, disclosure requirements are becoming increasingly common for funders. Accusations that investors are turning courts into profit centers are exaggerated to say the least. According to the American Property Casualty Insurance Association, the US funding market has more than $13 billion in capital currently deployed. While some call this cause for concern, others refer to the success of legal funding as a sign that the practice is useful, welcome, and increasing in acceptance. Calls for transparency in litigation funding are increasing. Federal courts in New Jersey now require disclosure of third-party funders, along with a summary of the funder’s interests in the case. Other stated concerns regarding third-party funding include the worry that funders will exercise undue control over decision-making. While that is possible, professional funding organizations are adamant that funders should not seek to control strategy or settlement decisions in the cases they fund. Similarly, it’s been suggested that lawyers, when paid by funders, could place the interests of funders ahead of those of clients. To put it another way, funders might be blamed for the actions of unscrupulous attorneys. According to the ABA Best Practices for Third-Party Litigation Funding, the industry remains largely self-regulated—which is often presented as inherently suspicious. This creates legal uncertainty and a lack of uniformity between jurisdictions. Nationwide laws governing the practice might be a good idea—provided the new legislation is written with input from professional organizations with deep knowledge of how funding works.
Commercial

Cormac Leech on Litigation Funding as an Investment

AxiaFunder is a new and innovative investment platform that focuses on litigation funding as an asset class. Founded by Cormac Leech, the UK startup caters to sophisticated investors. UK Investor Magazine explains that as an asset class, the main strength of litigation funding is its lack of correlation to the larger market. For the most part, the need for litigation is not dependent on any specific economic conditions. The following are some key takeaways from the podcast episode with Leech:   Q: Are there [investment] solutions for people who are looking into funding? CL: Absolutely, there are. Litigation funding is a relatively new asset class. As an industry it’s really only been active in the UK for around 15 years or so. It’s certainly grown strongly over the last five or ten years. Most of the providers of litigation funding are operating on a traditional model where they have a permanent pool of capital...they’re really only catering to private equity firms, which means lots of sophisticated investors cannot get access to the asset class. Q: How are cases vetted?  CL: So far, we’ve funded 12 cases based on having looked at over 300 cases. We have a very high rejection rate in terms of the number of cases we accept.  We talk through the process of how we vet cases. The first thing we look at are the legal merits of the case. The way we think about legal merits—there are two parts: we want to make sure that the claimants have the high moral ground. It has to be a case where you look at the story of the case, the claimants and the defendants, and there’s a clear indication that the defendants treated the claimants badly. You know it when you see it. The second question is to make sure the legal technical merits stack up. Other aspects include whether the defendant has money, and the ability and willingness to pay if there’s a settlement or judgement. There’s no sense winning the case if the defendant doesn’t have any money. We also look at the case economics to make sure that the value of the claim is big enough compared to what it’s going to cost to litigate. There needs to be a solution for adverse costs risk.  Q: Litigation funding is classed as an alternative asset class. One of the attractions typically is the low correlation with traditional assets such as stocks and bonds. How is that seen in the real world? CL: It’s interesting in terms of investor’s perceptions. It’s a very unusual period right now because equities have had a very strong run recently, and residential properties have had a strong run. Virtually every asset class has been increasing in value. Forward looking investors will probably realize that there’s limited upside for equities, and arguably limited upsides for property, at least on a real, inflation-adjusted basis. These asset classes have already had a tremendous run. I think smarter investors will be looking around for alternatives. It does make sense for investors to make some allocation into litigation funding—2% up to 5% of their portfolio. It is non-correlated, and the returns are very substantial.
Regulatory Issues

Woodsford Praises Singapore’s Expansion of Funding Laws

Singapore’s Ministry of Law announced last month an extension to its existing framework of laws impacting litigation funding. The extended framework will expand the types of proceedings that may utilize third-party funding. Woodsford Litigation Funding explains that domestic arbitration and related mediation are included in the expansion. This comes after a ministry report detailing that funders, litigators, and businesses alike have all responded positively to the increased use of litigation funding. Charlie Morris, Woodsford's CIO, has stated that the warm reception that litigation funding has received is to be expected. Woodsford remains committed to deploying capital in Singapore.
Announcements Consumer

Legal-Bay Lawsuit Funding Announces Increased Funding for Personal Injury Cases

Legal-Bay, The Pre Settlement Funding Company, announced today that they are preparing their underwriters for an increase in personal injury applications over the coming months. The first half of 2021 saw an unprecedented number of claims filed, and now that summer is well underway with crowds of people getting out and about, they expect to see even more. Legal-Bay is expanding their personal injury settlement loan department in order to accommodate plaintiffs who would rather opt for presettlement funding rather than wait out the endless months until their case can see the inside of a courtroom. Legal-Bay is one of the best lawsuit loan funding companies in the industry, and they offer a lightning-fast approval process; most clients can expect to receive cash in hand within 48-hours of submitting their case documents. Chris Janish, CEO, commented, "We are bracing for a brisk summer funding season based on people needing money to live normally again. And unfortunately, with more summer activities taking place more accidents are happening.  Our sales and underwriting teams are prepared for any clients who need fast funding." If you are involved in an active personal injury lawsuit and need an immediate cash advance against an impending lawsuit settlement, please visit Legal-Bay HERE or call toll-free at 877.571.0405. Legal-Bay remains vigilant in assisting their clients with personal injury claims. Anyone that has an existing lawsuit and needs cash now can apply for loan settlement funding to help get through their financial crises. Legal-Bay funds all types of personal injury loans for lawsuits including slips and falls, car or boat accidents, work-related injuries, medical malpractice, premise liability, and more. Legal-Bay's pre settlement funding programs are designed to provide immediate cash in advance of a plaintiff's anticipated monetary award. The non-recourse law suit loans—sometimes referred to as loans for lawsuit or loans on settlement—are risk-free, as the money doesn't need to be repaid should the recipient lose their case. Therefore, the lawsuit loans aren't really loans, but rather cash advances. To apply for a loan on lawsuit right now, please visit the company's website HERE or call toll-free at: 877.571.0405 where agents are standing by.
Case Developments

Omni Bridgeway Funds Two Class Actions on Combustible Cladding

It’s estimated that a class action in Australia may assist developers with their restoration and replacement costs. This case is expected to be the largest in the nation in 2021, as it involves more than 3400 apartment buildings now deemed unsafe. The Urban Developer explains that noted funder Omni Bridgeway is funding two class actions related to cladding. The issue itself—that the cladding was combustible--was discovered after fires in the Lacrosse building in Melbourne and at Grenfell Tower in London. Fatalities occurred, and the fires led to a rise in property insurance rates. In some cases, insurance has become elusive, if not impossible to get. Omni Bridgeway is funding all costs to run the two class actions, as well as covering exposure to costs. This non-recourse agreement means that claimants may participate in the action without paying a fee. The funder is also investigating multiple cladding manufacturers to determine if more are deemed to be combustible. Among those impacted are thousands of residents whose apartments are no longer habitable. Willoughby City Council has also joined a class action over a non-story performing arts hub that was declared unfit for purpose. While the opt-out deadline has passed, the open class action structure means anyone who qualifies can benefit from the action. The Alucobond cladding case may be worth several billion. The lead claimant here is listed as Shore Dolls Point building, located in Sydney. But the action will not be limited to Alucobond cladding or Vitrabond cladding—though the first class action is against Halifax Vogel Group and 3A Composites—both manufacturers of Alucobond. The second case is against manufacturers of Vitrabond products, Fairview Architectural. The compensation being sought is to cover cladding replacement and the associated costs. Losses may include improving fire safety protocols, covering the rise in premiums, and recouping the loss of property values.
Commercial

Insurers Shift Blame for Rate Hikes to Litigation Funders

Complaints against third-party litigation funding tend to focus on a few oft-repeated points. Increased litigation, class actions in particular, ostensibly cause insurance rates to rise. Funders aren’t always required to disclose their funding agreements, ostensibly hiding a potential conflict of interest. Finally, funders are blamed for a supposed increase in frivolous actions—even though no funder wants to take on a case without merit. Business Insurance details that what often gets left out of these conversations is the risk funders are taking. If a case is unsuccessful, the non-recourse nature of funding agreements means that funders lose their entire investment—often a significant loss. It’s this risk that mandates what are viewed as high percentages for funders. Insurers in particular are unhappy with the funding industry. This is understandable, given that funders have supported many actions that held insurers accountable. One representative from Zurich North America refers to ‘abusive practices’ by litigation funders as leading to hardships for insurers. One partner with Woodruff Sawyer & Co lamented that there’s no need for new ways to sue people. Surely, policyholders whose coverage is in question would disagree. Is it correct to call third-party funding an industry with ‘no regulation and no requirements for transparency,’ as Page Faulk of the US Chamber of Commerce's Institute for Legal Reform does? Not exactly. While regulations for funders vary from one jurisdiction to the next, legislation and precedent are developing further with every new case. Eric Blinderman of Therium Capital Management explains that legal funding eliminates ‘David v Goliath’ cases where small plaintiffs get pushed into lowball settlements, or drag cases on for untenable lengths. Litigation funding is a tool for the little guy—so it’s no surprise that the big guys don’t like it.
Legal Innovation

Addleshaw Goddard Expands to Meet Litigation Funding Demand

The firm of Addleshaw Goddard has long been a proponent of third-party litigation finance, having used it to support clients in an array of diverse jurisdictions. Now they are launching a tailored set of solutions for clients, encompassing third-party funding, damage-based agreements, conditional fee agreements, and after the event insurance. Addleshaw Goddard explains that this expansion promises to be of specific interests to:
  • Those seeking to share risk when filing or defending a claim
  • Parties seeking impartial advice and guidance on funding options
  • Firms new to funding that need to better understand available options
  • Funders looking to develop new ways to structure funding agreements
Consulting with funding experts should be an essential part of due diligence on both sides of a litigation conflict, as it combines expertise from finance, litigation, commercial business, and funding. Mark Molyneux, Head of Litigation, states that this fully rounded approach is exactly what’s most needed in the market. Addleshaw joins a growing list of law firms that are expanding into the lucrative litigation funding market.