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Commercial

Shariah Compliance in Litigation Finance

The use of third-party legal funding is gaining acceptance around the world. In the Middle East, both civil and Shariah jurisdictions exist. This implies various concerns in regard to ensuring that legal funding is Shariah-compliant. Omni Bridgeway explains that transferring legal risk in a Shariah-compliant manner is something participants and the institutions that serve them will need to be aware of when investing in this region of the world. So, what are the essential principles of sharia-compliant finance? Islamic Business Transactions must meet these conditions:
  • The transaction cannot involve charging or paying interest.
  • A valid contract must contain an offer, an acceptance of that offer, a record of the parties involved, and the stated purpose of the contract.
  • ‘Uncertain’ transactions must be avoided—which can include allegations of fraud.
  • The matter at hand must be lawful in accordance with Islamic law.
Because litigation funding is a net gain for the communities it serves, the Shariah law “Maslahah” can apply to its use. This law determines whether or not something is permissible based on whether it is beneficial to the Muslim community. Of course, Shariah Law prohibits gambling—which it defines as the gaining of wealth by chance or financial gain without effort that comes at the cost of another. This facet of Shariah impacts how funding agreements can be worded to keep them compliant. This can involve two structure types for agreements:
  1. Mudarabah, in which capital is provided, and then a strategy is developed for its recovery.
  2. Musharakah is similar, but involves both parties making an investment in the outcome.
By taking these structures into account, and carefully wording a funding agreement to avoid violating any of the aforementioned conditions, litigation funding can become Shariah compliant.
Commercial

Kenneth A Brause Becomes New CFO at Burford Capital

Kenneth A Brause, a 35-year veteran of the financial services industry, has been appointed the new CFO of Burford Capital. He’ll be fulfilling his duties in the New York office after a three-month period where the current CFO, Jim Killman, will aid in the transition. Monitor Daily details that Brause emerged as the best candidate after a months-long search to replace Killman. Brause’s previous experience includes executive positions at CIT Group, OnDeck Capital, American General, Bankers Trust, and Bank of New York. Christopher Bogart, CEO of Burford Capital, expressed confidence in the hiring choice. He stated that Burford is sure to benefit from Brause’s wealth of expertise.
Commercial

Wivenhoe Dam Class Action Impacts Omni Bridgeway Stock Price

Speculation is rampant that a recent 5.6% drop in Omni Bridgeway stock was precipitated by a partial settlement in the Wivenhoe class action. The funded case, which involved over 6,500 claimants, sought damages of roughly $880 million. Defendants included the Queensland government, and two state-owned companies: Seqwater, and Sunwater. The Motley Fool explains that the announced settlement represents half of the case. State of Queensland and Sunwater have settled, while Seqwater has not. That portion of the case is expected to go to court later this month. New South Wales supreme court approved the settlement, which is now unconditional. While appeals could still be made, a spokesperson for Omni Bridgeway stated that this was unlikely. As the funding provider for the class action, Omni Bridgeway will receive $30 million from the settlement. Depending on what happens with the other half of the case, Omni Bridgeway’s share may change. The funder remains optimistic that the case will come to a favorable conclusion. Shares of the ASX-listed company are down roughly 20% on the year.
Commercial

Key Takeaways from The LFJ Podcast with Ben Moss, Portfolio Advisor at Orchard Group

The latest episode of the LFJ Podcast features Ben Moss, Litigation Finance Portfolio Advisor at Orchard Group. Ben discussed the benefits of Orchard's asset manager model, how Orchard is approaching the market, the types of claims it is looking to fund, and outlined his predictions for the industry as the global legal landscape emerges from COVID-induced lockdowns.  Below are some key takeaways from the episode, which can be found in its entirety here.  LFJ: Let’s start by discussing Orchard’s foray into Litigation Funding. When did Orchard first enter this space? Why don’t you tell us what the investment strategy is, and how that strategy has evolved over time? BM: Sure. Orchard was founded back in 2005, and has a presence not only in the UK but also across North America and Singapore, and currently has assets under management of around six and a half billion US dollars. Since its inception, the business has consistently demonstrated very strong performance across its multiple funds. And that meant it really was an attractive platform from which to launch a dedicated Litigation Finance strategy as part of its existing specialty lending business. It did that in late 2015. Since then, we’ve invested in more than 100 opportunities across the UK, the US, mainland Europe, and Australia.  Our approach is really very finance-led. These are financial products to us at the end of the day, but of course this approach is then coupled with legal analysis and deal structuring expertise. What we’re committed to at Orchard, is we want to build a portfolio that is diverse, that’s granular but also that is grounded in these financially driven insights into the investment selection and the overall portfolio design. We also believe that funding these mid-market-sized claims ensures quite a highly diversified portfolio of assets. Because it consists of a large number of separate claims.  LFJ: Broadly speaking about the industry itself, this is a very crowded space right now...how is Orchard positioning itself within that market? What is the differentiation strategy?  BM: Good question. It’s definitely getting more crowded. One way of looking at it is to say that growth increases competition, innovation, they’re all linked. So new entrants don’t necessarily concern us. Actually we would say they’re symptomatic of an attractive industry and perhaps one that’s yet to reach its peak.  In any event, we hope that we are uniquely positioned in the market as a multi-strategy asset manager with its own dedicated and well-established Litigation Finance team. If I can just highlight a few elements of our offering that I think are relevant:
  • Firstly, one big differentiator is that we can point to our existing and very positive track record. Our experience in the market over the last five years or so has allowed us to establish a reputation in providing innovative financing solutions to claimants, to law firms, and also to develop very strong origination networks.
  • We lead with the finance-forward approach that I’ve spoken about in my response to the first questions. And that’s perhaps different to the strategists on the dedicated pure play litigation funders, founded by litigators rather than finance professionals. I have a financial background myself which postdates my initial legal practice.
  • We also have access to top-tier financial instruction expertise at Orchard as part of the wider business. If you combine that mindset with the legal expertise of our team, we think we can bring an unparalleled mix of both the financial and legal expertise to each case that we consider for investment.
  • Finally, repeat business is important to us. It represents roughly 70% of our claim origination. It’s so important to us to focus on these strong, sustainable, and collaborative relationships with law firm partners and also with our co-funders.
LFJ: The previous guest on our podcast, Elana Rey of Brown Rudnick, is working on standardizing documentation for litigation funding agreements for the UK and also the EU. So I want to get your take on this as a UK-based funder. What is the need for standardized documentation? How helpful will something like that be in optimizing the funding process and potentially bringing down costs as well? BM: I enjoyed listening to that episode. Of course I would absolutely support any move toward transparency to assist claimants in understanding the operation and the effect of the funding arrangement. I think Elena said that the model documents hadn’t yet been produced, that they were on call for Q2 this year. As Orchard is not part of the Working Group, I can’t comment on any working draft. But in our industry, the funding and security arrangement are typically concluded in advance of the claim, and in some cases they may not be referred to for four to five years afterward. In the most basic single case financing structure, there are already three counter-parties: funder, claimant, and lawyer. It’s just not helpful for anyone to be scrutinizing an opaque funding agreement years later. There’s plainly a requirement for clear drafting that insures that you capture the rights and obligations of each party clearly at the outset.
The LFJ Podcast
Hosted By Ben Moss |
In this episode, we speak to Ben Moss about Orchard Group's foray into litigation funding. We learn what benefits the asset manager model offers in the commercial litigation funding sphere, how Orchard is approaching the market, the types of claims it is looking to fund, and what Ben's predictions are for the industry as the global legal landscape emerges from COVID-induced lockdowns. [podcast_episode episode="7824" content="title,player,details"]
Commercial

Litigation Lending Funds Class Action for Stolen Generations Survivors

Survivors of the so-called “Stolen Generations” may finally see their day in court. Shine Lawyers are gearing up to file a class action against the Australian government. More than 800 claimants are asking to be compensated for the loss of culture and connection to their country, and for the trauma suffered.   ABC News Australia reports on the experiences of one artist, Healthy Alley, currently age 84. Alley details being taken hundreds of miles from her family when she was eight years old. She was then sent to a brutal school with frequent beatings and only one family visit per year. All these years later, the injustices still sting. The class action is being funded by Litigation Lending Services, a third-party legal funder that provides non-recourse funding for cases. While representatives for Shine Lawyers declined to specify the amount of compensation they’re asking for—they remain confident that a sizable payout is forthcoming. The case is expected to be filed in the New South Wales Supreme Court today. The Australian government has stated in the past that there’s no legal precedent requiring them to pay compensation to their victims. Still, Shine Lawyers is adamant that despite the expense and time involved, funders and barristers are all enthusiastically onboard. According to the funding agreement, Litigation Lending Services will take a 20% cut of any award that stems from the case.
Commercial

Westpac Life Insurance Class Action Reaches Settlement

A 2017 class-action lawsuit brought by Shine Lawyers against Westpac Group has settled. The case claimed that an estimated 80,000 customers were sold unnecessarily expensive insurance between 2011-2017. The action was funded by third-party legal funder JustKapital. Financial Standard explains that Shine alleged that the clients Westpac advised paid roughly 5-10% more than those who bought identical policies through independent financial advisers. The settlement, which still must gain federal court approval, is capped at AUD $30 million. Westpac settled the case without an admission of liability. Impacted parties are encouraged to opt-in to the action to receive compensation.
Commercial

Litigation Funding in UK Hits GBP 2 Billion

Since the 2016/17 financial year, the size of the Litigation Finance market has doubled—bringing total assets under management to a whopping GBP 2 billion. Why is that? Global Legal Post points out the obvious correlation between financial unrest and increased litigation. But there’s more. Investors are increasingly seeking out investments that are uncorrelated with global markets, owing to the continued uncertainty caused by COVID. Insolvencies, insurance cases, and IP disputes are all growing in number as businesses seek out ways to shore up balance sheets and weather the pandemic. As global markets become more friendly toward third-party legal funding, the practice shows no signs of slowing. New funds are popping up regularly—including a new fund from TheJudgeGroup and Thomas Miller Group—Erso Capital.
Commercial

Litigation Funding Proves its Value in UK Post Office Scandal

Those who remain skeptical of the benefits of Litigation Finance need look no further than the recent UK Post Office case. Last week, 30 criminal convictions were vacated in an action that would not have proceeded were it not for third-party legal funding. And make no mistake—that would have been a grave injustice. Financial Times details that decades of injustice befell sub-postmasters in the UK when errors in the Post Office IT system led to accusations of widespread misappropriation of funds and false accounting. Not surprisingly, this in turn, led to ruined lives and livelihoods. These sub-postmasters were clearly wronged but lacked the means to pursue a case. Paula Vennells, former post office chief executive, refused to consider that the Horizon accounting system was to blame, and fought fiercely to drag out litigation meant to clear the names of hundreds of wronged employees. Those employees eventually received help from Therium, a third-party legal funder. Therium funded the case on a non-recourse basis, which eventually resulted in a settlement of GBP 58 million. After costs and Therium taking their share, claimants will split the remaining GBP 12 million. It may seem like the funders get the lion’s share of the settlement. Consider though, that funders take the most financial risk. The non-recourse nature of funding necessitates a higher payout, because if the case had not resulted in a payout, Therium’s investment would be a total loss. What we see in this case are ordinary citizens wronged by a corrupt system, seeing their day in court, and being compensated—thanks to Litigation Finance.