Opponents of Consumer Legal Funding have been working overtime to classify the product as a loan within the confines of State Legislators. So why does this matter? The classification of Consumer Legal Funding as a loan is more than mere semantics. Consumer Legal Funding is the purchase of an asset; that being a portion of the proceeds of the consumer’s legal claim. This form of investment allows the consumer to access much needed support in order to obtain the financial assistance they need while their claim is making its way through the system. In her publication “Harmonizing Third-Party Litigation Funding Regulations,” Professor Victoria Shannon Sahani clarified why Consumer Legal Funding is not a loan:

• First, there is no absolute obligation for the funded client to repay the litigation funder. If the client is the claimant, the client must only repay the funder if the client wins the case. If the client is the defendant, the premium payments end as soon as the case settles, and if the defendant loses, the funder will not receive a success fee or bonus.
• Second, litigation funding is non-recourse, meaning that if the client loses the case, the funder cannot pursue the client’s other assets unrelated to the litigation to gain satisfaction.
• Third, the funder is taking on more risk than a traditional collateral-based lender; therefore, the funder is seeking a much higher rate of return than a traditional lender. This is not a unique concept. For example, an unsecured credit card typically carries more risk than a secured loan, so regulations tolerate much higher interest rates on unsecured credit cards than allowed even on subprime mortgages, which are backed by collateral. Similarly, as mentioned above, funders structure their agreements to avoid classification as loans in order to avoid the caps that usury laws place on interest rates for mortgages and credit cards.
• Fourth, distancing funding even further from a loan, funders are taking on even more risk than unsecured credit cards because the credit card agreement is a bilateral transaction, while funding is a multilateral transaction.

Shahani is explaining that Consumer Legal Funding does not contain any of the characteristics of a loan, as illustrated in the chart below:

Characteristics	Loan	Consumer Legal Funding
Personal repayment obligation	YES	NO
Monthly or periodic payments	YES	NO
Risk of collection, garnishment, bankruptcy.	YES	NO

What is interesting to note is that no state where the legislature has carefully examined the product has classified it as a loan. In fact, states has gone so far as to declare that Consumer Legal Funding is unequivocally not a loan. Take Indiana for example: Recently, a statute was passed regulating the industry which specifically states: “Notwithstanding section 202(i) of this chapter and section 502(6) of this chapter, a CPAP[1] transaction is not a consumer loan.”  The statute further articulates: “This article may not be construed to cause any CPAP transaction that complies with this article to be considered a loan or to be otherwise subject to any other provisions of Indiana law governing loans.” The Nebraska state legislature has declared: “Nonrecourse civil litigation funding means a transaction in which a civil litigation funding company purchases and a consumer assigns the contingent right to receive an amount of the potential proceeds of the consumer’s legal claim to the civil litigation funding company out of the proceeds of any realized settlement, judgement, award, or verdict the consumer may receive in the legal claim.” In Vermont: “Consumer litigation funding means a nonrecourse transaction in which a company purchases and a consumer assigns to the company a contingent right to receive an amount of the potential net proceeds of a settlement or judgement obtained from the consumer’s legal claim. “ In other words, Consumer Legal Funding is specifically classified as a purchase, not a loan. And it’s not just the state legislatures that have weighed in on this, the courts have as well. On June 27th 2017, the Georgia Court of Appeals stated: “Unlike loans, the funding agreements do not always require repayment. Any repayment, under the funding agreement is contingent upon the direction and time frame of the Plaintiffs’ personal injury litigation, which may be resolved through a myriad of possible outcomes, such as settlement, dismissal, summary judgment, or trial.” Even dating back to 2005, when the New York Attorney General’s office came to an agreement with the industry, it stated in its press release: “The cash advances provided by these firms are not considered “loans” under New York State law because there is no absolute obligation by a consumer to repay them.” So this leads me back to my opening question: Why does it matter? Classification matters because once you mischaracterize the product by calling it a loan, you limit consumers’ availability to access it by subjecting Consumer Legal Funding to state laws that regulate loans. According to CNBC, 78% of Americans are living paycheck to paycheck. When their income stream is interrupted (typically due to an accident), they desperately need some economic assistance to help them through the lengthy and extensive process of filing their legal claim. So we ask State Legislators, when you are deciding how best to regulate this important financial product, to do what is best for your constituents by providing them access to economic assistance during their time of need, and ensuring that they are fully informed as to the terms and conditions of the transaction by having their attorney review it with them in order to confirm that it is properly classified as a purchase. Blanket statements labelling Consumer Legal Funding as loans only serve to hurt those in need of its assistance. Eric Schuller President Alliance for Responsible Consumer Legal Funding [1] CPAP Civil Proceeding Advance Payment

Quite understandably, the idea of ‘funding lawsuits’ doesn’t sit well with a lot of people. The notion that a plaintiff might sell a stake in their lawsuit to a third party (thereby transforming the lawsuit into an investable asset) just feels… a bit icky. But the truth is, once people look beyond the ‘ick factor,’ they’re often surprised to learn that not only are their concerns unfounded, but that litigation finance actually benefits individuals and small businesses who are most in need. In fact, one might easily argue that litigation finance helps remove a good portion of the ‘ick’ from our current legal system. To find out how, let’s take a closer look at what exactly litigation finance is, who uses it, and how it benefits claimants, lawyers, and investors alike. What is Litigation Finance? At its most basic level, litigation finance (also called litigation funding) is when a third party provides capital to a plaintiff (or sometimes even a defendant) in return for a portion of any financial recovery from the underlying lawsuit. The capital provided by monetizing a legal claim is often directly applied to the costs of litigation, including attorneys’ fees, investigative fees, expert witness fees and court expenses. A litigation finance transaction is not classified as a loan because it is non-recourse; meaning that if you lose the case, you owe your litigation funder nothing. The funder only receives a payout if the case is won, or if a settlement is reached. Who Uses Litigation Finance? While presumably for those who can’t afford the cost of litigation, the truth is that everyone and anyone can benefit from litigation finance. Individuals, class action and mass tort claimants, Fortune-500 companies, universities and businesses of all sizes have taken advantage of the capital security that litigation finance offers. Now you may be asking yourself, why would a Fortune-500 company seek financing for a lawsuit? Surely they can afford the costs of litigation, so why take money upfront in exchange for giving away a (potentially large) cut on the back-end? The answer lies in a little-known accounting loophole that affects the balance sheets of publicly traded companies. You see, any time a company undergoes litigation – and companies are always undergoing litigation (According to Norton Rose Fulbright, 90% of U.S. corporations are engaged litigation at any one time) – the expenses of the litigation need to be deducted from the company’s balance sheet. And since B2B litigation moves about as fast as a snail through molasses, those expenses can quickly add up, meaning companies could see millions of dollars in ‘lost capital’ from their balance sheets over the course of several years. And if there’s one thing investors on Wall Street don’t like, it’s lost capital. Sure, you can try to explain that your case is a guaranteed win, or that you’ll settle any day now and see all of your money back plus a hefty payout… but good luck convincing Analysts on the Street to look beyond the numbers. And the worst part is, even if you do win your case or reach a settlement, Wall Street accepts the eventual payout for exactly what it is – a one-time transaction. Which means Analysts discount its significance when assessing your stock valuation going forward. In short, litigation is a lose-lose for a publicly traded firm. You lose the capital from your balance sheet while the litigation is pending, and even if you win the case, you still lose the opportunity to impress your Stock Market Overlords. It therefore makes sense for publicly traded firms – even cash-rich, Fortune-500 ones – to outsource the costs of their litigation. That way, no capital gets lost on the balance sheet while the litigation is pending. Sure, you don’t get as much payout on the back-end, but you’re also protecting yourself in case of a loss (remember, if you lose the case, you owe the litigation finance company nothing). So in terms of mitigating downside risk, litigation finance can work wonders, even for the big boys. Some Additional Benefits of Litigation Finance Balance sheet trickery isn’t the only benefit that litigation finance affords. Check out this laundry list of positives that litigation finance brings to the table: 

• Helps David Fight Goliath – Hey, even David needed a slingshot, right? Without it, David would likely have been pummeled by the massive Goliath. And that’s exactly what large companies try to do to smaller firms who sue them – pummel the little guys into the ground with motion after motion and delay after delay, forcing legal costs through the roof. Litigation finance provides the Davids of the world with a slingshot: Bring on those endless discovery motions, Goliath, I’m not the one footing my legal bill, haha!
• Reduces the Risk of a Premature Settlement – No more acquiescing to low-ball offers. Litigation finance provides users with a crucial advantage when entering any litigation: Time. With time on your side, you can scoff at those low-ball settlement offers, and negotiate a much more equitable payout.
• Unlocks Working Capital Liquidity – What you don’t spend on legal bills, you can now spend on something else (like champagne, for when you make out with a much higher settlement than you would have thanks to your litigation funding agreement!). Or you could go the mainstream route and spend that working capital on employee salaries or marketing for your business. Either way, it’s money you don’t have to spend on lawyers.
• Affords Access to Top Legal Talent – Litigation finance affords access to capital that claimants might otherwise miss out on, which means they can suddenly afford top legal talent. And much like in the world of sports, when it comes to negotiating a hefty settlement, top talent can make all the difference.

Okay, so we know why claimants utilize litigation finance. But what benefit is there for lawyers? Well, plenty as it turns out-- Why Lawyers Use Litigation Finance

• Can Accept Cases from Plaintiffs Who Otherwise Couldn’t Afford the Fees – Much like access to proper medicine, access to justice costs money. And sadly, the legal system is not something most folks can afford. Lawyers love litigation finance because they no longer have to turn away strong cases simply because the claimant can’t afford their fee. Now there’s a means for claimants to seek justice without paying the legal fees. A win-win across the board.
• Enables Flexible Payment Arrangements for Prospective Clients – Sometimes litigation funders don’t just fund a specific case, they fund an entire portfolio of cases. In fact, this practice – known as portfolio financing – is growing more and more common. The result is that lawyers can offer flexible payment arrangements to prospective clients, given the assurance that their costs are already covered by a third party. Yet another means of enticing prospective claimants who might otherwise be scared off by the potential for a massive legal bill.
• Covers Litigation Expenses – This is a big one. If you’re going to bat against the big boys, you’ll need to bring in the experts. And expertise costs money. With litigation funding, you will likely be able to afford all the expertise you’ll ever need. Of course, it depends on the funding arrangement, but remember – the funders want to win the case as well, so they’re typically more than happy to pony up for expert witnesses and investigative costs.
• Helps Achieve Meritorious Recoveries – Basically, litigation finance means that lawyers are likely to see a higher payout when all is said and done. Their costs are covered, and their client is less likely to settle early for a low-ball offer. That makes for one happy legal team.

And guess what? Claimants and lawyers aren’t the only ones who are going gaga over litigation finance. Investors such as hedge funds, private equity funds, pension funds, endowments and family offices are increasingly turning to litigation finance for a litany of reasons. Why Invest in Litigation Finance?

• The Asset Class is Uncorrelated to Traditional Capital Markets – That’s a ‘financey’ way of saying that investors in litigation finance are looking to diversify their portfolios by investing in a product whose performance isn’t tied to the Stock or Bond Markets. Regardless of how the economy is doing – whether we’re in a bull or bear market, an inflation or recession – there’s always going to be legal claims; someone will always be suing someone else. And the outcome of those claims has nothing to do with how the markets are fairing. So if you’re an investor in those legal claims, you’re not sitting on pins and needles waiting to hear if the Fed will raise interest rates. All of that stock and bond stuff is irrelevant when it comes to litigation finance.
• Outsized Historical Returns – Litigation finance is considered an ‘alternative asset,’ meaning it’s a niche financial product that isn’t classified as a mainstream investment. While such investments typically average higher returns due to their outsized risk portfolios, litigation finance returns are hovering around astronomical. A 2016 quantitative study performed by Professor Michael McDonald on industry ROI showed an average annual return of 36%. Hey, it’s no Bitcoin, but litigation finance is certainly crushing the stock market, and easily topping other alternative asset investments such as agriculture funds and asset-leasing.
• Decent Time to Liquidity – ‘Time to Liquidity’ simply means how long it takes to get your invested capital (plus the returns on your invested capital) back. Real estate, for example, can have a fairly long time to liquidity, since it often takes several years to get your money back (unless you're one of the stars of ‘House Flippers’). The median time to liquidity for litigation finance is hovering around 24 months, which is moderate compared to other alternative assets such as Venture Capital and other forms of Private Equity.

So those are the reasons why everyone loves litigation finance. Except not everyone does love litigation finance— The U.S. Chamber of Commerce, for one, is pushing for increased industry regulation, as are several other lobbying organizations across the country. Which begs the question, why all the haters? Arguments Against Litigation Finance, and Counter-Arguments Against Those Arguments Argument #1: Litigation Finance Increases Frivolous Lawsuits – This argument is pretty straightforward. With more claimants being able to sue, the likelihood is that we’ll also see an increase in frivolous lawsuits. Hey, if I’m not paying my own legal fees, what’s to stop me from claiming you stole my computer and suing for theft? Except, you know, for the fact that I’m typing this very sentence on my computer… but that’s for a jury to decide! Counter-Argument Against That Argument – As we just said, the above argument is very straightforward. In fact, it’s too straightforward. The argument fails to reason that no funder worth their paycheck would ever finance a case they felt was frivolous. Remember, these are non-recourse investments; if the case is lost, the funder recoups absolutely nothing. So why on earth would a funder invest money in my ludicrous claim that you stole my computer? In fact, funders are more likely to be even stricter with the merits of a case than a typical lawyer, since they’re approaching each case from the perspective of an investor. Many funders even turn down meritorious cases, simply because they can’t make the numbers work. So the idea that they would start funding frivolous cases is a bit… well… frivolous. Argument #2: If Third Parties Fund Lawsuits, They Will Influence the Outcomes – Hey, if I’m investing in your lawsuit, you can bet your bottom dollar I’m going to be standing over your shoulder, critiquing every move you make, acting like the worst backseat driver on Planet Earth (we all know that guy). And that presents a thorny ethical issue: No one should control the decisions of a case except the claimant and the legal team, especially not some outside party whose only concern is making a payday on its investment. What could anyone possibly have to say to counter that? Counter-Argument Against That Argument – All of that is 100% true. We don’t want third parties to influence lawsuits. That would be unethical, and would present a dangerous slippery-slope. Perhaps that’s why all litigation funders remain PASSIVE INVESTORS. Yes, that’s right – part of the rules of being a litigation funder is that you cannot make decisions on the part of the claimant or legal team. A litigation finance company has zero legal input into the case (unless the claimant wants to ask their opinion, in which case they’re allowed to give it). Otherwise, funders just sit there – like a quiet introvert on a long car ride through a gorgeous mountain terrain – and wait for an outcome. Heck it’s even written into their contracts… they are expressly forbidden from making legal decisions unless the claimant asks them for advice. So nice try, haters— Argument #3: Litigation Finance Increases Trial Times – When a claimant has access to funding, they’re less likely to settle, which means longer trial times. Ugh! Counter-Argument Against That Argument – Ummm… what exactly is the problem here? You’re telling me that claimants should be forced to settle early because of time constraints? Sorry, but if I deserve a hefty payout, I kind of couldn’t care less that our justice system’s biological clock is ticking. Regardless, there is little (read: zero) evidence that litigation finance increases the time to settlement. In fact, the practice may even streamline cases and decrease the time to settlement by limiting the delay tactics that are so often utilized to bleed claimants dry. Argument #4: Litigation Finance Means More Lawsuits Overall – Our court system is already clogged, adding litigation finance would be like flushing cement down the toilet… Counter-Argument Against That Argument – This one is technically true, in that litigation finance is likely to increase the volume of claims. As claimants have access to financing, they are more likely to bring lawsuits forward (again, those lawsuits will likely be meritorious, but they’ll still be taking up valuable legal real estate nonetheless). The thing is… is really that so terrible? I mean, isn’t that the point of having a justice system in the first place; that anyone who’s legitimately wronged should have the ability to bring their case and receive justice? In fact, I’d argue that more legal claims are actually a good thing. Sure, it might mean clogging up our courts a bit in the short run, but if companies and individuals begin to fear the repercussions of litigation finance – that is to say, that they might be sued for malfeasance and won’t be able to drag the case out and force a lowball offer – maybe, just maybe, they’ll be less likely to commit the malfeasance in the first place. And wouldn’t that be the best result of all? Conclusion Ready for a tough pill to swallow? We don’t all have the same access to the legal system. Those with money have more access than those without. Litigation finance allows claimants without money to have the kind of access to justice that those with money currently enjoy. Obviously, that threatens some (like the moneyed folks who won’t be able to bully their way through the system anymore), but for the rest of us, litigation finance should be celebrated as a means of achieving equality of opportunity when it comes to preserving our legal rights. It will likely take some time, but eventually the idea of financing a lawsuit will be as common as financing a car (which ironically won’t be so common, since in the future we’ll be all be driven around by half-chimpanzee/half-robot cyborgs). Also in the future, our legal cases will be handled speedily and cost-free by some omnipotent, AI version of Judge Judy. But until that glorious day, let’s all appreciate litigation finance for exactly what it is: a way to make the justice system just a little more accessible.

By Mauritius Nagelmueller This article aims to provide an overview of the most significant recent developments in the litigation finance industry. Part 2 of this 2-part series discusses the rapid growth of litigation finance across the globe, as well as its multi-dimensional expansion into diverse markets. If you’d like to reference Part 1 of this series, you can find it here. Growth The most significant overall trend in litigation finance is simply put: growth – a vibrant and ongoing increase in the use and acceptance of the industry. Litigation finance has emerged from a promising niche into a mainstream alternative asset class. The use has multiplied in the recent years, and among many other characteristic features, investors are attracted by the chance to diversify their portfolios with uncorrelated assets. The demand in the legal world is still much higher than the supply of litigation finance – an indicator that normally only the best cases are receiving financing. By now, the business spans the financing of both plaintiffs and defendants, single cases and portfolios, at practically every stage of the dispute, for example also at the enforcement phase. As litigation finance has become a multi-billion-dollar business, surveys and reports by universities and journals, as well as financing providers point to its continued growth, with no signs of stopping any time soon. While detailed data grows increasingly available, it is hard for reporters or councils to keep pace with the industry, which continues to evolve before initial research can proffer valid conclusions. While this powerful forward movement promotes access to justice in the eyes of many, the impact on the civil justice system concerns others. Calls for more rules and regulation regarding inter alia, disclosure and conflicts of interest remain loud. Whichever side one chooses, the market for this service is growing, the demand enormous, and high-quality cases tend to find high-quality finance providers. Expansion For all the reasons stated above, as well as in the Part 1 of this series, 2017 has been the year of expansion for litigation finance firms. New offices in multiple jurisdictions, new funds that are larger or have innovative structures, and broader services providing the full spectrum of finance and risk management related to legal disputes. A wave of new office launches took place in multiple directions internationally. Litigation finance firms from the U.K. entered the U.S. market, and are eager to establish their business in New York City, Washington D.C., Philadelphia, California, and a number of other locales across the U.S. Strategic recruiting, e.g. of former U.S. judges and biglaw partners, builds strong teams in a constantly growing environment, and makes a career in litigation finance a more and more attractive option. Following the developments in Asia described previously, litigation finance firms have opened their first offices in Singapore. The market is also growing in Canada, where local courts have increasingly embraced litigation finance for the past 15 years. International litigation finance and insurance firms seem attracted, and have ventured into Canada this year. And funds are growing bigger accordingly. The largest players have billions of dollars committed to the legal market, able to invest hundreds of millions in a short period of time. The biggest single litigation investment fund in North America has been raised this year, at $500 million. An increase in size is not the only development, however, since crowdfunding and innovative online platforms play a progressively important role, opening the market to an even broader range of participants. Litigation finance has never been one-dimensional, but has included tailored financing concepts and related services like asset tracing for some time. The progress of portfolio financing shapes the market thoroughly. More recently, the range of available insurance options has developed in the U.S., bringing a new variety of sophisticated services, such as contingency fee insurance and attorney fee insurance solutions which can offer a cheaper hedge compared to financing. All in all, it will be fascinating to watch how things play out in the years ahead. Whatever the outcome, 2017 will certainly be remembered as a transformative year for the nascent industry of litigation finance.   Mauritius Nagelmueller has been involved in the litigation finance industry for more than 10 years. This 2-part article is for general information purposes only and does not purport to represent legal advice. The views and opinions expressed are those of the author and do not necessarily reflect the position of his employer. No reader should act or refrain from acting on the basis of any information related to this 2-part article without seeking the appropriate advice from a lawyer licensed in the recipient’s jurisdiction.

By Mauritius Nagelmueller This article aims to provide an overview of the most significant recent developments in the litigation finance industry. Part 1 of this 2-part series discusses the shifting policies in regard to litigation finance in both the U.S. and across the globe, as well as the potential for technological innovation to disrupt the industry in the near future. Change of Policy A change of policy, including new rules regarding litigation finance, can be witnessed across several jurisdictions globally. In the U.S., the legality and enforceability of litigation finance agreements still varies from state to state. Many of the fundamental differences stem from the doctrines of maintenance and champerty, and each states’ respective interpretations of those doctrines. A number of states, including New York, Florida, Texas, Ohio, Maine and Nebraska, are mostly viewed as litigation finance-friendly. In states that are less attractive for - or even hostile to - financing, such as Alabama, Colorado, Kentucky, Pennsylvania, Minnesota and others, choice-of-law and forum selection clauses can sometimes be a lifesaver for a strong case in need of financing. While great uncertainty remains in many states across the country (especially in regard to the legality of specific forms and details of litigation finance agreements), we can identify the overall trend towards permission of litigation finance across the land. To name two examples, the New York legislature introduced a safe harbor provision[1] in 2004, excluding third party investments in litigation from the champerty prohibition, where a sophisticated investor puts in at least $500,000. To “enhance New York’s leadership as the center of commercial litigation”[2], the provision has been strongly endorsed by New York courts in recent years. Additionally, Ohio installed some regulation of litigation finance through Ohio Rev. Code Ann. § 1349.55, thereby overruling a former Ohio Supreme Court decision[3] voiding a litigation finance agreement. The phenomenon of legislative actively smoothing the way for litigation finance is happening on an international scale. In Persona Digital Telephony[4], the Irish Supreme Court affirmed in May 2017 that maintenance and champerty remain a bar to litigation finance. The rule against maintenance and champerty is still in force in Ireland, as per the court, and it is up to the government to amend it through legislation. No one has been prosecuted for these offences in Ireland in more than 100 years, and, according to The Sunday Times, a new Contempt of Court Bill, which was published by a government TD in July 2017, would repeal the ancient laws. And the developments in Hong Kong and Singapore will likely have an enormous impact on the dispute finance industry. Singapore allowed third party funding in international arbitration in early 2017, Hong Kong followed suit only a few months later. In Singapore[5], financing agreements in relation to international arbitration and related court or mediation proceedings are now enforceable. The new law in Hong Kong[6] provides that maintenance and champerty do not apply to third party funding in domestic and international arbitration and mediation. Both jurisdictions add a certain amount of regulation to their new rules, mostly covering conflict of interest and disclosure requirements. Singapore permits only professional funders with a paid-up share capital of not less than SGD 5 million. While the new legislation does not include state court procedures, the covered alternative dispute resolution procedures will serve as a “testbed,” according to Singapore’s Senior Minister of State for Law. Leading litigation finance firms opened new offices in Singapore immediately after their longstanding lobbying efforts in the region turned out to be successful. The first financing of a Singaporean arbitration was announced in late June 2017. The business promises to flourish, especially when first disputes will arise from China’s multi-trillion(!) One Belt One Road trade and infrastructure initiative. The demand for litigation finance is strong in the global market, and financing providers are aggressive in seizing new opportunities. Numerous jurisdictions feel an urge to become, or remain, a prime venue for dispute resolution in various areas of the law, and legislators are amending their legal frameworks accordingly. Litigation finance will carve its way into more and more jurisdictions, embraced by venues which consider this industry vital to their position as prime dispute resolution centers. However, others remain critical of litigation finance and its impact on the civil justice system. Various business groups have proposed to amend Federal Rule of Civil Procedure 26, and the Judicial Conference Advisory Committee on Rules of Civil Procedure might discuss a disclosure requirement for litigation finance in a subcommittee. Technology Finance, law, and technology are becoming an interdependent complex, and it is advisable to look over the rim of one’s own tea cup to take advantage of these sectors combined. Crowdfunding brings a new twist to litigation finance, artificial intelligence and big data will become vital for sourcing and analyzing cases, and online platforms are growing into a powerful fundraising tool. In legal crowdfunding, individuals can launch online campaigns to seek funding for legal cases. While this might not be the first choice for plaintiffs in large scale commercial cases, it is particularly interesting for cases in the areas of human rights, criminal justice, or environmental cases. Supporters can be reached with the help of dedicated firms, or also via large social networks. Some have called attention to associated ethical risks, and caution lawyers to use such new tools in light of the long-established rules of professional responsibility. Online litigation finance platforms also exist for accredited investors who want to invest in specific cases or portfolios. Investors can sign up, access anonymized information about cases, contribute to the financing, and receive a share of the profit. Before the cases are accepted onto the platform, they must first pass the due diligence of lawyers, and in some cases sophisticated software tools. Such tools increasingly utilize artificial intelligence and big data, both for analyzing and sourcing cases, which is another major evolution in the litigation finance market. Algorithms will more and more help to predict the probabilities of case outcomes, in order to minimize uncertainty. Technological innovation combined with human experience and judgment will ultimately enhance the industry’s ability to spread its wings to as yet untapped markets. Adopting quantitative methods of older industries and absorbing the best possible use of data analytics should play an important role in the future of litigation finance. The largest legal databases are boosting their data analytics components, and while it seems unlikely today that the sophisticated expertise of lawyers can ever be replaced by a software, these tools have the potential to make the work of humans much easier and more effective. If rightly used, they can be a game changer. Artificial intelligence and algorithms are on everyone’s lips, but only a few pioneers have started to take advantage of the new opportunities technology brings to the litigation finance table. Perhaps even further down the road we might see the broader use of case prediction and attorney referral bots, as well as the use of cryptocurrency. Blockchain technology, the enforceability of so-called smart contracts, as well as the use of cryptocurrency (which could serve some interests in litigation finance since privacy can be upheld, but also arouse further criticism for lack of transparency and regulation) are still up in the air, but certainly worth keeping an eye on. Stay tuned for Part 2 of this 2-part series, which will discuss the rapid growth of litigation finance markets across the globe, as well as its multi-dimensional expansion into diverse markets.   Mauritius Nagelmueller has been involved in the litigation finance industry for more than 10 years. This 2-part article is for general information purposes only and does not purport to represent legal advice. The views and opinions expressed are those of the author and do not necessarily reflect the position of his employer. No reader should act or refrain from acting on the basis of any information related to this 2-part article without seeking the appropriate advice from a lawyer licensed in the recipient’s jurisdiction. [1] Judiciary Law § 489 (2). [2] Justinian Capital SPC v. WestLB AG, No. 155 (N.Y. Super. Ct. 2016). In Echeverria v. Estate of Lindner, No. 018666/2002 (N.Y. Super. Ct. 2005) the Supreme Court of the State of New York already clarified in 2005 that the champerty statute is not violated in the first place, if the assignment of a portion of a lawsuit’s recovery is not for the “primary purpose and intent” of bringing a suit on that assignment. [3] Rancman v. Interim Settlement Funding Corp., 99 Ohio St.3d 121, 2003-Ohio-2721. [4] Persona Digital Telephony Ltd and another v. The Minister for Public Enterprise and others, [2017] IESC 27. [5] Singapore Civil Law (Amendment) Act 2017; Civil Law (Third Party Funding) Regulations 2017; new rules in Singapore’s Legal Profession Act and Legal Profession (Professional Conduct) Rules. [6] Hong Kong Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016.

Guest Post by Mauritius Nagelmueller, who has been involved in the litigation finance industry for more than 10 years. Access to justice remains one of the prevailing issues within the WTO Dispute Settlement Body (DSB), especially for developing countries. To enforce the promise of a fairer trading system, developing country participation in the DSB must be improved, given that relationships between WTO members are predicated on power dynamics, rather than adherence to the rule of law. Third party funding has provided access to justice for claimants with meritorious claims, but with limited financial capacity in the private sector, as well as in investor-state disputes. The industry is also capable of leveling the playing field in the DSB, as it can be utilized by developing countries to finance a WTO dispute. An expansion of the current third party funding business model to include financing sovereigns in WTO disputes would create a win-win situation, by allowing developing countries to bring claims which they otherwise could not afford, and by granting third party funders the opportunity to adopt a more neutral stance towards sovereigns by providing their services in support, rather than in mere contention (as is the case today). And demand is significant, given that most obstacles to developing country participation in the DSB are related to costs, such as high-priced experts that must be brought on to account for a lack of expertise, the fear of economic pressure from the opposing state, and the lengthy proceedings which often place a strain on a developing country’s resources (member states estimate a time frame of 15 months from the request for consultations to the report of the Appellate Body. A period of at least 6 to 14 months should be added to this, as a reasonable period for the implementation of recommendations. Although this time frame is short in comparison to other international procedures, the financial hardship for developing countries can be fatal). The costs of initiating a dispute of medium complexity in the WTO are in the region of $500,000, however legal fees can sometimes exceed $10,000,000. In many cases, developing countries are forced to rely on the financial support of local industries affected by the dispute. This begs the question, why hasn’t there been an influx of third party funders into WTO dispute resolution? There are two chief concerns which seem to keep funders shying away. The first involves the typical remedies in WTO disputes, which regularly circumvent a direct financial compensation that the funder could benefit from. Still, complainants seek monetary benefits, be it through concessions (the losing country compensates the winning country with additional concessions equal to the original breach), or retaliation (the winning country withdraws concessions in that amount). A simple solution to this issue is for the winning party to provide a share of those benefits to the funder. One possibility is to assess the level of harm caused by the illegal measure challenged in the dispute, and accept that as a basis for the compensation of the funder. If the WTO Panel decisions are implemented, and the disputed measures that were found to be inconsistent with the WTO are withdrawn, a certain value of trade is not affected by those measures anymore and can be realized again. Affected industries, or the affected country, can set aside part of the gain to compensate the funder. In the case of compensation or the suspension of concessions, the complainant gains from increased tariff revenue, and is able to compensate the financing entity from a portion of the same. In any event, financial benefits of a winning party can be measured, and any compensation for the funder will represent only a minor percentage of the gained value of trade. The second main concern surrounds the area of enforceability, and whether WTO mechanisms would allow financing agreements. But those would have to be enforced in local courts, and the WTO DSB technically cannot rule on non-WTO agreement issues. However, there are provisions that allow the DSB to engage in arbitration if the parties both agree. A practical solution would therefore be to include an arbitration or dispute settlement provision in the financing agreement that operates outside of the DSB. Based on the aforementioned demand, as well as the practical solutions which can mitigate possible concerns, it is clear that external funding of WTO disputes can provide a flexible, independent and powerful alternative for developing countries to increase access to justice, as well as for developed countries to “outsource the risk” of a WTO dispute. It’s only a matter of time before third party funding makes its way into the WTO. ** A version of this article first appeared in International Economic Law and Policy Blog