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Commercial

LCM’s Litigation Funding Agreement Upheld by Court of Appeal

The Court of Appeals recently upheld last year’s Supreme Court ruling regarding a litigation funding agreement in a case against the Gladstone Ports Corporation. That case is being funded by Litigation Capital Management. The SCQ ruling rebuffed allegations that litigation funding agreements may be unenforceable due to champerty restrictions, or because such agreements are contrary to existing public policy. Yesterday's appeals court ruling ensures that the judge’s order stands. LCM finance explains that the Supreme Court of Queensland held in their interlocutory decision that litigation funding agreements are not unenforceable. Champerty, a 13th-century law, forbids non-lawyers from purchasing an interest in a legal case. Modern third-party legal funding does not permit funders to hold sway over decisions in the cases they fund. LCM’s argument included the assertion that champerty is obsolete as a concept of law, and that the court should make that clear in its ruling. Much of Australia has already abolished champerty laws, but Queensland has yet to make it official. The plaintiff’s legal team advanced the idea that even if champerty was still the law, these laws don’t necessarily apply to whether or not a specific funding contract is enforceable. Modern courts, after all, can use their powers to prevent abuse of the legal process or to refuse to enforce any contract that goes against public policy. In order to reach his original decision, Justice Crow’s research led him to the underlying question: What specific malfeasance is meant to be avoided by disallowing the funding agreement? GCP asserted that the funding agreement gave funders LCM an improper amount of control over the case. Justice Crow did not agree. Ultimately, Justice Crow determined that funding agreements were not prejudicial, did not impede justice, and did not involve attempts at unlawful conduct. The upholding of this ruling is excellent news for litigation funders everywhere.
Commercial

Litigation funding in the UK Grows in Influence

Even as the industry grows and adapts to changing times, some folks still question the staying power of Litigation Finance. It’s here to stay. Third-party legal finance is well-funded, having raised over a billion dollars in 2020. This may be because of its attractiveness to savvy investors seeking opportunities that are not correlated with the market at large. The Lawyer reports that the sophistication with which funders now choose cases is growing and evolving. Complex algorithms, teams of experts, and other methods of case selection have driven litigation funding forward and gained the attention of hedge funds managers and venture capitalists. Overseas funders are buying shares of small legal firms, allowing them to take more and larger cases on contingency. Legal professionals are expecting to see more situations like Burford Capital’s recent buyout of Keller Lenkner London’s fund. Litigation funding as an investment is insulated from the market and can lead to much larger payouts than more traditional investments. At the same time, there is more risk due to the non-recourse nature of the funding contracts. An investor in funded cases may accept a low potential success rate because even if only one in four cases ends in a payout—that award may be so large it covers the rest of the investments that didn’t pay at all. Mass litigation, AKA class actions, are also becoming more common. Backed by funders hoping for large paydays, the move toward mass litigation is well-funded and likely to keep unscrupulous corporations on their toes. As this all happens, there are concerns about ‘dirty money’ infiltrating the global economy using London courts as a battleground. Given London’s long reputation for fair adjudication, this is concerning for many in the industry. Legal pros share ongoing concerns over the perception of leniency.
Commercial

Litigation Finance Continues to Expand its Reach

Litigation Finance has exploded since the pandemic spurred massive shutdowns and kickstarted a flurry of litigation. The practice of third parties funding meritorious legal action in exchange for a share of the award is expected to become better understood and more utilized in 2021. Bloomberg Law explains that while much of the rest of the world is taking steps to regulate litigation funding, the United States has eschewed regulation, for the most part. We’ve seen guides for best practices, but very little in the way of state or federal law impacting the practice. In fact, what little legislation there has been, has embraced litigation funding rather than inhibited it—like striking down antiquated champerty laws, for example. That said, the industry, on the whole, is moving toward transparency and disclosure at all steps of the process. The International Litigation Finance Association is a newly formed group of prominent litigation funders dedicated to ensuring that the industry is well-understood and that its goals are clear. The main purpose of litigation funding as a concept is to increase access to justice by removing financial barriers for plaintiffs. COVID has amped up this need even more—as business closures, contract breaches, and other factors leave citizens in financial peril. Law firms are also making use of the practice, using funds to cover litigation fees and costs, in order to free up capital for expansion. As third-party funding grows in acceptance, it also has become more diverse. Portfolio funding allows law firms to monetize existing cases, diversify risk, and add more certainty to cash management plans. About 75% of legal finance practitioners have seen an increase in requests for funding. Of those who applied for funding, 61% were able to gain funding for their cases.
Commercial

The State of the Litigation Finance Industry in 3Q20

Investor interest is high and funders are raising massive capital even amid the global COVID crisis. That’s a great sign for an industry that barely existed 15 years ago. The pandemic has brought with it massive shutdowns, layoffs, court delays, and lockdowns all over the world. Yet, litigation funding continues to prove its worth. LexShares details that in addition to changes brought about by COVID, other factors are helping the industry evolve. The elimination of Ethics Rule 5.4 in Arizona may lead to a formal rebuke of outdated champerty laws. It negates the idea that only lawyers should profit from the practice of law. The formation of the ILFA, a professional organization for the Litigation Finance industry, was welcomed by the legal world. Court closures were expected to reduce the need for third-party funding. But in fact, arbitration outside the courtroom has skyrocketed in popularity. This has led to remote arbitrations progressing even faster than normal. Clearly, arbitration will remain popular for the foreseeable future. One cannot deny the impact of an industry that has raised a billion dollars in capital in a single year. Some may believe this a singular occurrence, while savvy investors understand that the industry will continue to blossom, as the broader Legal Services market remains robust.  The emergence of publicly traded legal firms in the UK may herald similar arrangements on the US side of the pond. Should this happen, the use of third-party legal funding is expected to become even more prominent.
Commercial

Preparing for the Coming Litigation Wave

The rise in litigation owing to the COVID-19 pandemic cannot be overstated. A spike in claims relating to the virus, as well as renewed interest from litigation funders has led to widespread changes in the legal and business world. This trend follows a previous drop in litigation as courts scrambled to adapt to remote work, Zoom meetings, and other COVOD-related factors.

The Lawyer details that the trends seen in the industry today are similar to those of the 2008 financial crisis. Specifically, a rise in claims spurred by financial urgency. Cash poor businesses can use third-party funding to take cases off of balance sheets. Yet businesses are also wary of legal funding because it arms class action suits that can cost time and money.

Sean Upson, a partner at Stewarts, explains that budget planning has taken center stage at many companies—which to some means forgoing litigation regardless of its merits. But Upson suggests making litigation part of a company’s profit plan. Virtual trials can be less time-consuming in terms of staff hours and require no travel.

Some companies are reticent to utilize litigation funding. This is not, as one might think, related to a lack of control over the litigation. In fact, funders are not permitted to make decisions regarding litigation or potential settlements. Likely this is due to administrative requirements regarding disclosure and cooperation, PR, and other burdensome regulatory requirements.

Litigation funding is merely one of many tools that in-house legal teams can use to balance budgets—but it’s a solid option that all companies should consider.

Announcements Commercial

Dampier Gold Secures $730,000 in Litigation Funding; Shares Up 5%

Dampier Gold (ASX:DAU) secured A$1 million ($730,000) in funding for its legal proceedings against Vango Mining (ASX:VAN) in the Supreme Court. Auracle Group agreed to subscribe for an initial share placement of A$300,000 and provide a loan of up to a further A$700,000, subject to the approval by Dampier Gold shareholders, according to a Wednesday news release. The proceedings, which started May 26, included claims for Dampier Gold’s beneficial interest in the K2 gold project in Western Australia, a joint venture between the company and Vango Mining. If the dispute cannot be resolved through mediation, Dampier Gold said it will seek to have the proceedings listed for trial in 2021. Dampier Gold shares closed 5% higher Wednesday. Price (AUD): $0.07, Change: $0.00, Percent Change: +4.84%
The LFJ Podcast
Hosted By Cormac Leech |
Our guest today is Cormac Leech, founder of AxiaFunder. AxiaFunder is a UK-based funding platform that provides institutional and high net worth investors the opportunity to invest in commercial litigation claims. Cormac discusses his company's success thus far both in attracting investors and sourcing strong claims, how crowdfunding platforms should be considered in the context of FCA rulings and ALF guidelines, some disclosure concerns for litigation funders, and what AxiaFunder's priorities are going forward. [podcast_episode episode="6758" content="title,player,details"]
Commercial

Will Litigation Funding Regulations Make Legal Action Harder on Claimants?

The battle between regulating litigation funding and ensuring that those who need it are not deterred is ongoing. New rules adopted in Australia require litigation funders to obtain Australian Financial Services Licensing.   An article in the Australian Financial Review details that new regulations on the practice may make it more difficult for private citizens to pursue damages when they have a grievance. The Labor Party seeks to strike down the regulations, while Senator Perin Davey believes that the intention of the rules is honorable and should be preserved. Still another leader suggested that the license requirements could be waived if the funder commits to giving 70% of the award to class participants. The goal seems to be recognizing the value and necessity of litigation funding, while ensuring a fair outcome to litigants.
Commercial

Global Class Actions Meet Corporate Governance

The legal landscape is always changing, and watching for trends is vital for savvy firms and investors. Currently, a convergence of two forces is leading to widespread changes in the industry. First, class actions and other types of collective redress cases are increasing in popularity and validity. Also, corporations are becoming increasingly responsible toward communities, the environment, and stewardship of investor interests. Omni Bridgeway explains that around the world, standard principles are being informally adopted by multiple markets. Now that collective redress and class action suits are more viable than ever, there’s an expectation of a rise in claimants and new cases surrounding environmental and social issues—as well as cases relating to a business’ responsibility to investors. For a long time, the United States was a leader in class action filings. The rest of the world is catching up quickly though, owing in no small part to third-party legal funding. The European Union released a proposal detailing provisions encouraging consumers and investors to address unlawful deeds even in cross-border situations. The Netherlands Collective Damages Act came into law. It allows for surrogates to bring damages on behalf of wronged parties in international class actions. The new law also allows courts to award damages without requiring a settlement to be reached. This means that the looming threat of court-awarded damages can be the impetus to get parties to the bargaining table. Class action cases involving the environment, social issues, or governance can be well-served by litigation funding. International class actions can be costly and take years to conclude. An influx of non-recourse funding may be exactly what’s needed to bring a case to completion without adding financial strain. As the legal industry develops and adapts to changing circumstances, it’s clear that the role of litigation funding will continue to change with it.