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Commercial

Litigation Finance: Experiencing is Believing

Litigation Finance is increasing in use and acceptance as an innovative, ethical option when money is scarce. According to the 2020 Legal Finance Report, use of third-party litigation funding is up 105% since 2017. Burford Capital explains that as more firms and companies utilize litigation funding, the more folks are talking about the good it can do. In just a few short years, the practice has evolved from a niche option to a widely sought solution for a variety of common financial woes. One thing is certain: the need for education. While use of litigation funding is up, lawyers are increasingly admitting that they know very little about the practice. Third party funding isn’t just for class actions against deep-pockets. Modern benefits of legal finance include monetizing legal assets to offset the impact of the pandemic, or to fund a portfolio of cases without adding to balance sheets. Are legal professionals, as they claim, largely ignorant of all that litigation funding can do? Or do they recognize the need for education so they can make the most of this evolving option?
Commercial

Why CFOs Should Look to Legal Funding—Without Delay

In these trying and potentially volatile economic times, CFOs may have every reason to worry. They also have reason to innovate, adapt, and find creative solutions to maintaining balance sheets. Global Bank and Finance explains that with job losses hitting record highs (over 800,000 jobs lost during the pandemic), insolvencies and liquidations are also way up. Some suggest that nearly 2/3 of businesses are currently at risk of folding. Nearly 15% of UK businesses have suspended trading. Still, it doesn’t have to be that way for everyone. CFOs should be looking for assets that can be liquidated. Unrealized litigation, for example, can be monetized. Breach of contract, lack of payment, fraud—any viable claim can be turned into a liquid asset with help from funders. By covering the costs of bringing a vetted claim, funders create solutions that let litigation move forward without tying up capital. Successful cases make money for funders, while unsuccessfully funded cases do not impact the firm—because funding is provided on a non-recourse basis. While funders seek out meritorious cases with a good chance of recovery, the right commercial dispute can be worth millions. Savvy CFOs would do well to seek out potentially profitable claims that can be monetized. Economically tenuous times don’t impact Litigation Finance as one might expect, because this asset class is uncorrelated to the market. Currently, funders are well-monied and looking for cases to fund.
Commercial

Australian Joint Committee Seeks Further Regulation of Litigation Funders

Massive new oversight is needed to reign in the litigation funding industry—that’s the conclusion according to a report from the parliamentary joint committee on corporations and financial services. An array of recommendations has been suggested, though it did not include Frydenburg’s most severe requirements. Independent Financial Advisor details some of the recommendations suggested by the committee. These include the appointment of independent fee assessors to vet fees and agreements involving firms, funders, and class participants. Oversight is also recommended with regard to who may fund cases, and what percentages they will be allowed to take before a settlement can be accepted by the court. Essentially, the new regulations are meant to stem what the committee sees as excessive, unreasonable, or disproportionate fees to funders—often at the expense of those who were actually wronged. It’s also meant to reduce the desirability of Australia as a hot spot for international or cross-jurisdictional litigation. As of now, no regulator has taken legal action against a funder. But that may change if the committee gets its way and new regulations are adopted. Many believe there is a lack of symmetry that needs to be addressed in order to maintain public confidence in litigation funding.
Announcements Commercial

Odyssey Marine Exploration Prepared for Strong 2021 with Increased NAFTA Funding and 2020 Successes

Odyssey Marine Exploration, Inc. (NASDAQ:OMEX), a deep-ocean exploration pioneer engaged in the discovery, development and extraction of deep-ocean minerals, has secured up to an additional $10 million to support its pending North American Free Trade Agreement (NAFTA) claim against Mexico and provided an update on the successful execution of Odyssey’s 2020 business plan objectives.

The NAFTA claim relates to the unlawful denial of the environmental permit for subsidiary Exploraciones Oceanicas’ (ExO’s) offshore phosphate project. Odyssey’s existing litigation funder, Poplar Grove, LLC, has agreed to provide up to an additional $10 million to fully support the NAFTA claim under substantially the same terms as our prior agreement. Poplar Grove is managed by Drumcliffe LLC, a private investment management firm that oversees a high-value litigation funding portfolio representing more than $14 billion in claims.

“Drumcliffe’s sole focus is to finance and support the recovery of value for the victims of global fraud, corruption and wrongdoing. The strength of the First Memorial filed by Odyssey in this case reinforces our belief in a successful outcome and supports our decision to invest additional capital to fund the case through the hearing and anticipated award,” explained James C. Little, CEO of Drumcliffe.

“One of our key objectives for 2020 was advancing the realization of value from the significant investment we have made in our ExO Phosphate Project in Mexico,” stated Mark D. Gordon, Chairman and CEO of Odyssey. In September, we filed a strong and compelling First Memorial in the NAFTA case. It was the culmination of many months of work by our legal team at Cooley, supported by our internal project development and research team, to gather documentary evidence and 20 expert reports and witness statements that demonstrate the merits of the case, the strategic size and grade of the resource, the operational viability of the project, and the project’s value. We are extremely confident in our case and, with the addition of the expanded funding commitment from Poplar Grove, we are prepared to take the case through to its final conclusion to realize the more than $2 billion value of this asset.

“In addition to making substantial progress on the ExO Phosphate Project, the Odyssey team has continued to move the business forward by advancing the development and value of our diversified mineral project portfolio and positioning the company for significant successes in the coming 18 months. Our achievements, despite being in the middle of a once-in-a-century worldwide pandemic, are a tribute to our dedicated team of professionals who tirelessly work to live our core values and achieve the ambitious goals we set for ourselves. Investors’ confidence in our business plan and the progress we continue to demonstrate enabled us to achieve a major goal of securing multi-year operational funding,” added Gordon.

Realizing the Value from the ExO Project:

Odyssey’s most significant project is the ExO Phosphate Project in Mexico, which is one of the largest and highest quality phosphate sands deposits in the world. It is currently the subject of $2.36 billion claim against Mexico under NAFTA. In early September, Odyssey’s legal team filed the First Memorial in the case alleging that Mexico’s prior political administration wrongfully denied environmental approval of the ExO Phosphate Project in breach of NAFTA.

In 2012, ExO was granted a 50-year mining license by Mexico (extendable for another 50 years at ExO’s option) for the deposit that lies 25-40 km offshore in Baja California Sur. The company spent more than three years preparing an environmentally sustainable development plan with the assistance of experts in marine dredging and leading environmental scientists from around the world. Key features of the environmental plan included:

  • No chemicals would be used in the dredging process or released into the sea
  • A specialized return down pipe that exceeds international best practices to manage the return of dredged sands close to the seabed, limiting plume or impact to the water column and marine ecosystem (including primary production)
  • The seabed would be restored after dredging in such a way as to promote rapid regeneration of seabed organisms in dredged areas
  • Ecotoxicology tests demonstrated that the dredging and return of sediment to the seabed would not have toxic effects on organisms
  • Sound propagation studies concluded that noise levels generated during dredging would be similar to whale-watching vessels, merchant ships and fisherman’s ships that already regularly transit this area, proving the system is not a threat to marine mammals
  • Dredging limited to less than one square kilometer each year, which means the project would operate in only a tiny proportion of the concession area each year
  • Proven turtle protection measures were incorporated even though the deposit and the dredging activity are much deeper and colder than where turtles feed and live, making material harm to the species unfeasible
  • There will be no material impact on local fisheries as fishermen have historically avoided the water column directly above the deposit due to the naturally low occurrence of fish there
  • The project would not be visible from the shoreline and would not impact tourism or coastal activities
  • Precautionary mitigation measures were incorporated into the development plan in line with best-practice global operational standards
  • The technology proposed to recover the phosphate sands has been safely used in Mexican waters for over 20 years on more than 200 projects by ExO’s operating partner, illustrating the hypocrisy of the denial of the environmental permit for the project, especially when one considers that Mexico approved much higher impact dredging projects in areas that its own environmental agency deemed “environmentally sensitive areas” during this same time period.
Notwithstanding the factors stated above, the Mexican Ministry of the Environment and Natural Resources (SEMARNAT) unlawfully rejected the permission to move forward with the project, even after the Federal Court of Administrative Justice (TFJA) unanimously ruled that this rejection was unlawful and ordered SEMARNAT to re-take its decision in 2018. To date, SEMARNAT has not been able to present any proof that supports a legal basis for rejecting this project, and its actions have deprived the Mexican people from realizing the tremendous societal and economic benefits this project would deliver. ExO is once again challenging the unlawful decision of the Peña Nieto administration before the TFJA. The case is being heard before the same tribunal that previously ruled that Mexico acted unlawfully in their rejection of the environmental approval of the ExO Phosphate Project. In addition, Mexico is facing an arbitration before an international tribunal for breaching the investment protection provisions under NAFTA. ExO is seeking compensation of over $2 billion on the basis that SEMARNAT’s wrongful repeated denial of authorization has destroyed the value of its investment in the country and is in violation of the following provisions of NAFTA:
  • Article 1102. National Treatment.
  • Article 1105. Minimum Standard of Treatment; and
  • Article 1110. Expropriation and compensation.

The First Memorial in the NAFTA case was filed in September. It is supported by documentary evidence and 20 expert reports and witness statements.  In summary, this evidence includes:

  • MERITS:  Testimony from independent environmental experts that the environmental impact of ExO’s phosphate project is minimal and readily mitigated by the mitigation measures proposed by ExO.  Witnesses also testified that Mexico’s denial of environmental approval by the prior administration was politically motivated and not justified on environmental grounds, and that Mexico granted environmental permits to similar dredging projects in areas that are considered more environmentally sensitive than ExO’s project location.
  • RESOURCE:  An independent certified marine geologist testified as to the size and character of the resource.
  • OPERATIONAL VIABILITY:  Engineering experts testified that the project uses established dredging and processing technology, and the project’s anticipated CAPEX and OPEX was reasonable.
  • VALUE:  A Phosphate market analyst testified that the project’s projected CAPEX and OPEX would make the project one of the lowest cost phosphate rock resources in the world, and damages experts testified the project would be commercially viable and profitable.

This NAFTA arbitration is being administered by the International Centre for Settlement of Investment Disputes (ICSID) and it is expected that a redacted version of the First Memorial will be available to the public shortly. Once the Memorial is made available by ICSID, Odyssey will provide a link to the filing on its website, www.odysseymarine.com.

The NAFTA hearing is scheduled to take place in January 2022 unless settled earlier by the parties.

Increasing Portfolio Value

Odyssey increases the value of its mineral portfolio in multiple ways: adding new projects to the portfolio through development or acquisition, gaining or increasing equity ownership in mineral projects through investment or a leveraged contracting model, and by de-risking projects and moving them up the value curve toward full operating production.

During 2020, in addition to the ExO phosphate project, Odyssey worked on further developing the value of two highly prospective subsea mineral projects, CIC and Lihir Subsea Gold. The company is also actively developing new projects through its proprietary Global Prospectivity Program, with the goal of identifying new, highly valuable and societally significant subsea resources.

CIC: Odyssey is a member of the CIC Consortium, which is seeking an exploration license in an island nation’s Exclusive Economic Zone. The CIC Consortium was founded and is led by Odyssey co-founder and former CEO, Greg Stemm, and includes Royal Boskalis Westminster NV and Odyssey Marine Exploration.

Through a wholly owned subsidiary, Odyssey Marine Minerals, Odyssey has already acquired 15 million shares (representing approximately 12% of current outstanding shares of this project) through the provision of services related to resource assessment, project planning, research and project management, and Odyssey has an option to acquire an additional 5 million shares.

Lihir Subsea Gold: The project’s license area is adjacent to Lihir Island in Papua New Guinea where one of the world’s largest known terrestrial gold deposits is currently being mined and processed by Newcrest Mining. The license area includes at least five prospective exploration targets in two different mineralization types: seamount-related epithermal and modern placer gold. Odyssey owns approximately 80% of the Bismarck Mining Corporation, Ltd, the Papua New Guinea company that holds the exploration license.

While the COVID-19 pandemic delayed plans for additional offshore exploration work in 2020, presentations to the public were made in December 2020 in compliance with and in support of the regulatory process in PNG. Upon renewal of the exploration license, work will begin with the goal of conducting offshore validation work in 2021. “We are extremely excited to complete the exploration program to verify and quantify the mineralization of this potentially valuable resource and to fully understand the environmental setting in which it lies. We were on the cusp of executing this program in 2020 when the pandemic hit, making marine operations impossible to execute. The renewal will allow us to execute the same exploration program that was approved in the last license period,” said John Longley, President & COO of Odyssey.

About Odyssey Marine Exploration Odyssey Marine Exploration, Inc. (Nasdaq:OMEX) is engaged in deep-ocean exploration using innovative methods and state-of-the-art technology to provide access to critical resources worldwide. Our core focus is the discovery, development and extraction of deep-ocean minerals. Odyssey also provides marine services for private clients and governments. For additional details, please visit www.odysseymarine.com.

Forward Looking Information Odyssey Marine Exploration believes the information set forth in this Press Release may include "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Certain factors that could cause results to differ materially from those projected in the forward-looking statements are set forth in "Risk Factors" in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission on March 30, 2020. The financial and operating projections as well as estimates of mining assets are based solely on the assumptions developed by Odyssey that it believes are reasonable based upon information available to Odyssey as of the date of this release. All projections and estimates are subject to material uncertainties and should not be viewed as a prediction or an assurance of actual future performance. The validity and accuracy of Odyssey's projections will depend upon unpredictable future events, many of which are beyond Odyssey's control and, accordingly, no assurance can be given that Odyssey's assumptions will prove true or that its projected results will be achieved.

Cautionary Note to U.S. Investors The U.S. Securities and Exchange Commission (SEC) permits mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. We use certain terms in this press release, such as "measured", "indicated," "inferred" and "resources," which the SEC guidelines strictly prohibit us from including in our filings with the SEC. "Inferred mineral resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. U.S. investors are cautioned not to assume that part or all of the inferred mineral resource exists, or is economically or legally mineable, and are urged to consider closely the disclosures in our Form 10-K which may be secured from us or from the SEC's website at http://www.sec.gov/edgar.shtml.

Commercial

Omni Bridgeway’s Exceptional 200+% Return

Could anyone have predicted these insane Omni Bridgeway returns? Omni Bridgeway isn’t making a profit currently. For the previous five years, revenue has trended downward at a rate of more than 30% per year. Simply Wall St explains that revenue growth is expected when companies aren’t making a profit, but that hasn’t been the case here. Yet the share price has risen at a rate of around 25% per year over the last five years. Unexpected? For sure. Throughout 2020, insiders at Omni Bridgeway have been making significant purchases. Most analysts take that as a positive sign. Still, this doesn’t necessarily translate to high shareholder earnings. Looking at the TSR (total shareholder return) is a vital part of determining potential value. This figure looks at discounted capital, spin-offs, and dividends—presuming that dividends are reinvested. From 2015-2020, the TSR at Omni Bridgeway was a whopping 234%, even better than the 25% share price return. Still, Omni Bridgeway’s investors suffered a loss of nearly 8% this year, including dividends. Long-term shareholders did better, gaining more than 25% over the last five years. Obviously, market conditions can impact share price—but litigation funding is also largely uncorrelated with the market.
Commercial

Global Class Actions—Looking Ahead

A recent panel, the Global Legal Groups Class Action Symposium, looked at US and EU collective litigation, examining trends. Of particular interest are new global class action laws and how inter-jurisdictional issues will be handled in the future. ICIG details the various issues facing Litigation Finance today. Incentive payments to representatives in a class action can be a sticking point in some instances. Modest incentives may be permissible, but some firms believe they are best avoided. The United States is also experiencing the development of a new class of negotiations which may bring the US class action process closer to what’s happening in the EU and elsewhere. In the European Union, class actions are not considered to be a traditional part of the legal world. However, the new Collective Redress Directive may change that. Influenced by Australia and the US, the EU may be moving toward a more Americanized or pan-European style of collective bargaining. The Collective Redress Directive differs from US class action law in a few major respects. First, damages can be sought as well as injunctions, and only a qualified entity can bring a claim. Litigation funding is permitted under the new law, but must be completely transparent. Disclosure requirements in general will be more stringent, and cases may be thrown out of court during the early stages. Market sophistication and a willingness to litigate in other jurisdictions has fueled the globalization of class action markets. Boundaries are being tested and test cases abound. Litigation funding increases access to justice across the board, leading to more (and often larger) cases that spur a desire for increased regulation. Trends in collective action litigation include environmental and social issues, and those related to governance. The growth of class actions on the global stage is bound to continue, which is great news for third-party litigation funding.
Announcements Commercial

International Legal Finance Association Statement On Australian Parliamentary Committee Inquiry On Litigation Funding

Today, the International Legal Finance Association (ILFA) — the global voice of the commercial legal finance industry — issued a statement in response to Australia's Parliamentary Joint Committee on Corporations and Financial Services Inquiry on Litigation Funding and the Regulation of the Class Action Industry. The Committee issued its findings and recommendations to the full Parliament today. "Australia's current balanced approach between securities law, class action procedure, and legal funding provides a model for the world, and reinforces its strong position as a destination for global investment. However, today's report attempts simultaneously to water down Australia's securities law, and to apply new regulatory burdens to class action procedures and legal funding. The Committee's recommendations would place undue burdens on shareholders seeking access to justice by driving up compliance costs and increasing the cost of capital. There is no evidence, in Australia or elsewhere, that class actions or litigation funding needs the kind of intrusive regulation proposed by the Committee. It appears that the Committee has relied on dubious claims from those opposed to these free market activities in proposing these regulations. It is, of course, for each jurisdiction to determine the rigor of its own regulatory regimes.  But jurisdictions that impose onerous barriers on the enforcement of shareholders' rights risk seeing global capital flow elsewhere, impacting the level and vitality of commercial activity. The deliberations of the Committee and its recommendations have been infected by an entirely false premise that "exploding" numbers of shareholder class actions have caused "skyrocketing" D&O insurance premiums which threaten the future of ASX companies. Misconceptions about legal finance have been deliberately advanced by a small group of vocal opponents. These falsehoods threaten to upset the balance between law, procedure, and the funding of these fundamental market activities by those pursuing justice in the legal system and undermine regulatory review processes that should be grounded in facts, not hyperbole. The legal finance community operates responsibly and within well-established best practice frameworks, including those required for ILFA membership. ILFA is committed to playing an active and constructive role to promote transparency and confidence in the marketplace by striking an appropriate balance between protecting stakeholders and fostering growth and innovation." ILFA represents the industry's interests before governmental bodies, international organizations and professional associations and serves as a clearinghouse of relevant information, research and data about the uses and applications of commercial legal finance. Details of the false premise referred to above are to be found at paragraphs 17.12 to 17.24 inclusive and paragraph 17.119 of the Report by the Joint Committee. For additional information, including ILFA's industry best practices and member obligations, please visit www.ilfa.com
Commercial

Why Litigation Funding is Catching On

Nick Rowles-Davies doesn’t mind being called an “ambulance chaser.” Maybe that’s because after chasing down an ambulance, his Sydney-based Litigation Finance firm, LCM, helps the injured parties seek justice. That’s the nature of litigation funding, and it’s working for a lot of people. LCM explains that Litigation Finance involves buying claims for ongoing cases with the hope of making money from an eventual settlement or court award. That means it’s an excellent investment for anyone looking to steer clear of traditional markets. It’s also a life-changing tool for those who have been wronged by a large company or entity and don’t have the financial means to fight back. At its core, litigation funding works to increase access to justice for everyday people. The industry itself has grown by leaps and bounds in recent years—since the last global financial crisis to be exact. Tough economic times call for creative problem solving, and Litigation Finance fits the bill. In addition to funding large cases like class actions, third-party funding can be used to fund entire portfolios of cases, diversifying risk for investors. Or it can be applied to insolvency cases, so funders can reap a portion of whatever is collected. Litigation Finance attracts more sophisticated, high-end investors like institutional investors, sovereign wealth, and hedge funds among others. Funding cases requires extensive vetting, and many funders use complex algorithms and new tech to decide which cases to back. For success in litigation investing, due diligence is essential. The industry is global, with new markets opening up to the practice regularly. Around the world, funders like Burford Capital, LCM, Omni Bridgeway, and Therium Capital are leading an industry that shows no signs of slowing. Rowles-Davies believes that the current state of Litigation Finance has only just scratched the surface of what’s possible.
Commercial

Williamtown Class Action Members Compensated

An impressive $57 million settlement was distributed among members of the Williamtown Contamination Class Action earlier this week. This comes as part of a settlement from February of last year, in a case involving PFAS contamination of homes, farms, and other businesses. Omni Bridgeway, which funded the action, explains that their involvement in the case allowed class action members to fight for what they deserved—rather than merely asking to be treated fairly. The average award per household was about $100,000, with some affected parties receiving more or less depending on the actual damage suffered. Dentons, one of the largest law firms in the world, distributed the settlement after four years of intense litigation. Reporting from the Newcastle Herald is credited with raising awareness about the case. Justice Lee called the outcome ‘excellent,’ as it seems to fairly compensate those who were harmed by the contamination and its aftermath. Omni Bridgeway points to the case as an example of Litigation Finance working exactly as it should.