Deminor has published a pair of articles into specific aspects of legal funding. The first, authored by senior legal counsel Patrick Rode, explores the topic of ‘AI in Litigation Funding in the Context of the EU AI Act’. The second, written by investment associate Aliki Halcoussi, covers ‘The Economics of Litigation Funding: Assessing the Financial Viability of Legal Dispute Investments’.

Rode’s article first examined the potential use cases for AI in litigation funding, including case evaluation and risk assessment, predictive analytics, automation of decision-making, and due diligence. Then, Rode provided an overview of the impact of the European Union’s AI Act which came into force this month, looking at the regulatory requirements that will be imposed on the use of AI systems.

Finally, Rode offered four potential strategies for funders to take a pro-active and strategic approach to dealing with comprehensive legislation, which included investing in compliance infrastructure, collaborating with leading AI experts, prioritising ethical AI systems development, and engaging in active discussions with EU regulators.

Halcoussi’s insights piece provided an overview of the ‘thorough and complex process’ through which funders are able to assess the viability of investing in individual claims or portfolios of cases. Halcoussi explained that funders like Deminor begin with rigorous data collection that can then be used to form a financial framework which can be used to ‘accurately calculate the relevant exogenous factors that might affect the recovery amount.’

The funder’s financial modeling also incorporates an analysis of the potential range of costs involved in that specific case, balancing it against legal budgets and the expected duration of the legal proceedings. In order to ensure that these investments are profitable for the funder, the level of risk must be balanced against the potential size of the recovered proceeds to calculate the funder’s required return.

Rode’s article can be read here. Halcouissi’s article can be read here.

An announcement from HFW revealed that the law firm has made two hires in its corporate restructuring, insolvency and commercial litigation practice, with the appointment of partners Paul Buitendag and Rena Solomonidis in the firm’s Melbourne office. Both partners have joined HFW from Johnson Winter Slattery, bringing combined expertise in complex commercial disputes as well as experience in working with litigation funders.

Gavin Vallely, managing partner at HFW Australia, described Buitendag as “one of Australia’s preeminent insolvency and commercial litigation practitioners” and highlighted his renown for “litigation funding in Australia, including the introduction of ATE insurance as an alternative form of security for costs in litigation funding agreements.” Vallely praised Solomonidis as “a leading practitioner in commercial litigation, corporate insolvency and restructuring, as well as in prosecuting and defending class actions”, and noted that the pair “have worked with funders in the USA, UK and Australia in significant disputes.”

Buitendag highlighted HFW’s work in London as “an important centre not only for litigation funders, but also for brokers and insurers who are developing innovative, insurance-backed litigation funding products.” Whilst Solomonidis praised HFW’s “international reach”, which would be able to “support our practice at a time of increasing insolvency activity in Australia that regularly involves assets, investors and alternative lenders in offshore locations.”

Whilst third-party funding is less commonly seen within the various European Union jurisdictions, a landmark case in Germany that dates back to a 2010 takeover of Postbank has finally achieved a settlement according to the litigation funder that provided the financial backing for the claim.

An announcement from German litigation funder FORIS AG revealed that a settlement has been reached in the legal proceedings brought against Deutsche Bank related to the bank’s takeover of Postbank in 2010. FORIS had financed two claims that represented a total of 19 Postbank shareholders, and following the agreement with Deutsche Bank, all that remains is for the plaintiffs to decide whether or not to accept the settlement.

The claims which were first brought in 2017 focused on allegations that Postbank shareholders had been underpaid for their shares, when they were forced to accept 25 euros per share. The settlement provides for each shareholder in the claims to receive an additional payment of 31 euros per Postbank share they held at the time of the takeover, with the total value of the dispute estimated at around 4.5 million euros.

Dr. Anke Warlich, senior legal counsel at FORIS, said that the funder was pleased with Deutsche Bank’s willingness to settle and that there was already a high approval rate for the settlement amongst the shareholders whose claims FORIS has financed. Warlich emphasised that without third-party litigation funding, the risk and costs involved in pursuing such a claim would have meant that the injured parties would not have been able to take on these legal proceedings.

The plaintiffs in the claims were represented by the law firms AWARR.legal/Schirp &Partner and Nieding & Barth.

When it comes to ensuring that litigation is effective in providing full access to justice for individuals, a key factor in class actions is often whether these claims are brought on an opt-in or opt-out basis. In the latest example of this important distinction being at stake, a New Zealand court has ruled that a large class action against two of the largest banks will be allowed to proceed as an opt-out claim.

Reporting by RNZ covers the news that a class action being brought against ANZ and ASB banks has been approved to be brought on an opt-out basis by the New Zealand Court of Appeal. The class action was first filed in 2021 over allegations that the banks breached their disclosure obligations under section 22 of the CCCFA, and failed to sufficiently refund customers’ interest payments and fees that the banks were not entitled to charge. The Court of Appeal’s decision to approve the opt-out proceedings means that the class action could end up representing up to 100,000 customers.

Scott Russell, managing director of Russell Legal and lawyer for the claimants, said that the ruling “not only removes a significant barrier for consumers who might have been unaware they had a right to participate, it means if we are successful, ANZ and ASB will be held liable for every eligible customer that was allegedly impacted when the banks breached New Zealand consumer protection laws.” The class action covers those who were customers of ASB Bank between 6 June 2015 and 18 June 2019, as well as ANZ Bank customers between 6 June 2015 - 28 May 2016, for loans entered into post 6 June 2015.

Whilst the latest article makes no mention of third-party funding, when the class action was filed in 2021, it was reported that the legal proceedings were being jointly funded by CASL and LPF. On the Banking Class Action website, both CASL and LPF are still listed as the funders for the class action.

ANZ provided the following statement in response to the ruling:

"The recent Court of Appeal hearing rejected the plaintiffs claim for a wider ANZ class and confirmed the High Court decision that the banking class action currently before the courts only includes ANZ customers who entered into a loan from 6 June 2015 and also received a loan variation letter that was affected by the calculator issue (i.e. received a letter containing incorrect information between 6 June 2015 and 28 May 2016).

"We have relevant records for customers who might be part of the class, which we will retain. There is no need to contact the bank at this stage. The Court will consider as part of the proceedings how and when to notify customers who are part of the class and who may have a claim."

Disclosure of litigation funding agreements has been one of the most contentious issues in recent years, particularly in the state of Delaware, where certain judges have focused on in questions of transparency. However, a class action in the state has produced one of the most interesting rulings of the year, as the court ordered the full disclosure of the funding agreement and suggested that the litigation funder may also be a competitor of the defendant.

An article in Reuters examines a case in the Court of Chancery for the State of Delaware, in which Vice Chancellor Nathan Cook ruled that plaintiffs in a class action must share their litigation funding agreement with the defendants. The class action at stake is a 2018 case brought against insurer Genworth Financial over allegations of fraudulent transfers that stripped assets from its long term care subsidiary, resulting in the company being unable to pay future claims and commissions to policyholders and insurance brokers. The August 21 ruling granted the defendants’ motion to compel the production of both the litigation funding agreement and the unredacted fee agreements.

Cook explained his ruling in part by emphasising that both the nature of class action lawsuits and the specific context of this case, “give rise to several unique concerns, including the potential for class counsel to face conflicts of interest and for the third-party funders to exercise improper control over the litigation”. Cook also highlighted that the language used in the funding agreement appeared to acknowledge that “the arrangement set forth within, will be disclosed in some fashion during litigation.”

Cook went on to refute the arguments made by the plaintiff’s lawyers that the funding agreement contained privileged or confidential information, stating: “I am confident that, in compelling production of the Funding Agreement, I am not requiring Plaintiffs to disclose meaningful opinion work product.” Referencing existing case law set down in the cases of Carlyle and Charge Injection, Cook concluded that “contrary to Plaintiffs’ assertion, it is not “well established” that, under Delaware law, “litigation funding agreements . . . are not discoverable.”” 

One of the most interesting elements of Cook’s ruling was that he appeared to infer that the nature of the unnamed litigation funder had raised concerns. Cook noted that the funders behind the Genworth class action “do not seem to be entities ordinarily involved in litigation funding”, going on to state that “they appear to be competitors financing litigation against a market peer.”