A report by Queen Mary University of London and commissioned by the Legal Services Board, has provided new research into litigation funding in England and Wales. The research report was led by Prof. Rachael Mulheron KC (Hon), professor of tort law and civil justice at Queen May University includes an empirical and legal literature study of the topic, and included input from funders, insurers, law firms, brokers and advisors.

The report found that litigation funding ‘serves the public interest by funding litigation that would (and could) not otherwise be funded’, and ‘offers consumers a hitherto unobtainable route to access to justice where there are more widespread but lower levels of detriment.’ Following the publication of the report, the chairs of both the International Legal Finance Association (ILFA) and the Association of Litigation Funders (ALF) provided comments on the research. 

Neil Purslow, Chair of ILFA said: “We welcome the LSB’s findings that the litigation funding industry serves a public interest, and that although the industry is still nascent, it has become a key feature of legal services provision that supports the development and enforcement of the rule of law.  The report also clearly sets out how claimants would benefit if funding costs were recoverable from an unsuccessful defendant and we look forward to this becoming a key consideration in the upcoming CJC review.”

Susan Dunn, Chair of ALF said: “The Association of Litigation Funders has a strong and growing membership and our board will reflect on the findings contained in this important and thoughtful research, which recognises the utility of the ALF as a self-regulating body and the benefits of the code of conduct to claimants, law firms and funders.”The full report can be read here.

Although the wider public rarely if ever are aware of the details of legal funding deals, new reporting sheds some light on the largest litigation funding deal in the industry’s history, and demonstrates the impressive scale of financial returns’ that may be on offer to outside investors in law firms.

An article in the Australian Financial Review provides new insight into the financial success of Gramercy following its landmark $550 million funding deal with Pogust Goodhead, stating that the hedge fund expects to see around $135 million in profit a year from the deal. AFR’s reporting highlights that the loan has allowed the UK-based law firm to expand its global footprint to include operations in Australia, with the firm announcing its intention to pursue litigation against Australian corporations for violations of environmental law.

AFR’s reporting is based on a Gramercy investor presentation from May 2023, which covered the “Special Situations Opportunity” for funding the deal with Pogust Goodhead and offered insight into the financial returns that Gramercy was expecting. The presentation separated the deal into two loans, each accounting for $250 million in capital, with the first loan projected to return approximately $95 million over 2-3 years and the second to return around $220 million over a 3-.3.5 year period. 

Whilst both firms declined to comment on the details of the funding arrangement, Pogust Goodhead’s managing partner Tom Goodhead spoke about the firm’s broader financial strategy, explaining that debt capital markets have allowed it “to level the playing field with the corporations that have access to sophisticated corporate finance.” Mr Goodhead went on to say that this approach enables the firm “to take up the fight for justice on victims’ behalf despite the often elaborate attempts by large mega-wealthy corporations to deflect and obstruct.”

As the UK government moves forward with its legislation to reverse the effects of PACCAR, the parallel progress of its review into the litigation funding industry is attracting even more attention than the bill itself, with funders weighing in on the direction this review should take.

An article in The Law Society Gazette covers a media briefing from Christopher Bogart, chief executive of Burford Capital, who spoke about the upcoming Civil Justice Council (CJC) review into third-party litigation funding in the UK. Commenting on the choice to have the CJC lead the review, Bogart said that “the CJC has a long history of being sensible [in its] thinking about this industry” and that he saw no reason “why that would change.”

However, when it came to discussing the potential reforms to the litigation finance industry that this review might recommend, Bogart was particularly scathing when it came to the idea of a cap on funder’s returns, saying it “would be a preposterously dumb idea.” He argued that there was little logic behind the argument for imposing such a restriction on this kind of financial transaction, acknowledging that whilst there was “some superficial appeal” to outside observers of the industry, “it doesn’t stand up to any sort of rational financial scrutiny.”

Similarly, Bogart cautioned against the introduction of capital adequacy requirements for litigation funders that are used for the banking industry, arguing that the suggestion that funders may run out of capital during a case also lacks evidence as the funding industry “has been operating for over 20 years, and you don’t have a history of that happening.” In reality, Bogart explained, the litigation finance industry has repeatedly demonstrated “a history of larger players being willing to step in and buy out claims if somebody doesn’t have the capital.”

Reporting by Bloomberg and shared on Yahoo Finance provides details on a new class action that has been launched on behalf of the people of Bougainville, an autonomous region of Papa New Guinea, against Rio Tinto Plc over its alleged mismanagement of the Panguna copper mine. The Panguna Mine Action (PMA) lawsuit alleges that it was the closure of the mine in 1989 by Rio Tinto’s former unit Bougainville Copper Ltd. that led to protests over the ‘disbursement of revenue’ from the shuttered mine, which then escalated into a civil war that resulted in the deaths of up to 20,000 people.

The Bouganvillean plaintiffs are being represented by lawyers from Sydney-based firm Morris Mennilli and Port Moresby-based Goodwin Bidar Nutley, with Matthew Mennilli stating that the plaintiffs are seeking compensation that could amount to billions of dollars. According to PMA’s website, the class action is being supported through third-party funding, although the name of the litigation funder has not been released.

In an emailed response, Rio Tinto stated: “We are reviewing the details of the claim. As this is an ongoing legal matter, we are unable to comment further at this time.”

The class action has been filed in the National Court of Justice of Papua New Guinea.

The latest Quarterly Focus from CDR looks at the topic of third-party funding in China, examining how the country’s legal system has continued to demonstrate an openness towards arbitration funding whilst taking a more cautious approach when it comes to litigation funding. The article gathers insights from legal professionals with experience in Chinese disputes, exploring how the country has created both opportunities and hurdles for funders looking to expand into this market.

The publication of the China International Economic and Trade Arbitration Commission (CIETAC) 2024 rules is highlighted as the latest development in China’s arbitration bodies explicitly addressing third-party funding, with the Beijing Arbitration Commission (BAC) and Shanghai Arbitration Commission (SHAC) having taken similar steps in recent years. Addressing how these developments in arbitration rules have evolved, Rachel Turner of Pinsent Masons explains that “China has a number of arbitration institutions that are relatively independent but follow each other quite closely.”

However, whilst commissions have created a structure for third-party funders to operate within, the details of these rules have raised some concerns for funders. Carolina Carlstedt from Litigation Capital Management (LCM) says that rules around disclosure of third-party funding are “rather broad” and could, depending on the interpretation, include a range of sensitive information around the funding arrangement. Carlstedt goes on to suggest that “this level of disclosure is likely to put off the international funders and may even end up detrimental to funded claimants as it would disclose the size of their war chest.”

When it comes to litigation, China’s courts have not shown the same openness that can be seen in the approach of the arbitration commissions, with a 2021 decision from the Shanghai Second Intermediate Court ruling that a funding arrangement was ‘invalid in domestic litigation proceedings.’ Omni Bridgeway’s Ruth Stackpool-Moore and Chee Chong Lau argue that this decision and the broader structural issues have made it “difficult for professional funders to consider the funding of domestic litigation in the PRC.”The full Quarterly Focus, which also analyses the state of third-party funding in Hong Kong and the future of the market in China, can be read here.

In a contributed article to Law360, Bob Koneck, Chris Le Neve Foster and Richard Butters from specialist insurance broker Atlantic Global Risk, discuss an innovative model for litigation finance. The authors explain that this new model, which they describe as ‘insurance-backed litigation funding’, is differentiated from traditional approaches to litigation funding through ‘the pricing and the parties’. 

Expounding upon this idea, the authors detail how the structure of insurance-backed funding arrangements differ, with the law firm or client first securing an insurance policy to cover a minimum amount of recovery before non-recourse capital is secured to finance the litigation itself. This funding arrangement means that the capital will be repaid by two separate sources: the damages from the case and the ‘the proceeds of the insurance policy that will pay out if the financed litigation yields a monetary recovery insufficient to repay the funder.’

The authors further explain that using this model in cases where the claimant is unsuccessful, ‘the loss triggers a payout under the insurance policy that repays the funders their deployed capital and, depending on the structure of the financing, some or all of the funders' accrued but unpaid interest.’

As for the relative pros and cons of adopting an insurance-backed approach, the authors argue that this model is ‘usually cheaper’, due to the fact that it allows ‘insurance-backed funders to price their capital using an interest rate, without any right to the remaining upside in the litigation.’ On the other hand, insurance-backed funding creates an ‘enhanced execution risk’, as the increase in the number of parties involved in closing any funding arrangement can ‘slow or complicated the process.’

The full article, which explains the different aspects of insurance-backed litigation funding and the process for acquiring it, can be read here.

The business of mass tort funding continues to be grow in the world of litigation finance, with the potential for large settlements being secured if the claims can attract a sufficiently high volume of claimants.

An opinion piece by Sujeet Indap in the Financial Times looks at the recent announcement of a settlement in the Johnson & Johnson talcum powder mass tort case, and the ways in which it has put the contentious role of litigation funders in the spotlight once more. Indap highlights that J&J used its press release announcing the settlement to take aim at “the unregulated and surreptitious financing of product litigation”, which it argued had created financial incentives for these large-scale mass tort cases.

Furthermore, Indap notes that J&J has since informed the federal court that it would be seeking details around the funders’ of the talc litigation, and would be serving Fortress Investment Group with a subpoena. J&J have argued that the involvement of litigation funders like Fortress have made the bargaining and settlement process more difficult, claiming that the priorities of the plaintiffs’ lawyers have been complicated by the need to ensure sufficient financial returns on the funders’ investments.

Speaking with Indap for the article, Samir Parikh, law professor at Wake Forest University, suggested that the most important factor in the success or failure of mass torts is the ability of lawyers and other third-parties to find and register huge numbers of claimants for these cases. Parikh argues that, rather than being focused on the merits of the claims being brought, “the name of the game is really marketing, or ‘building inventory’.”