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Commercial

Houlihan Lokey’s Valuation Framework for Litigation Finance Assets

Whilst the vast sums of capital raised by litigation funders and the equally impressive settlements and awards achieved often dominate the headlines, there is a more fundamental question that underpins the market: how do we value individual litigation finance assets? A new white paper from Houlihan Lokey sets out to provide a framework to assist in the valuation of third-party litigation finance assets.  The paper acknowledges from the outset that any attempt to provide a valuation of litigation finance assets ‘can be challenging’, explaining that unlike calculation the valuation of a business, these assets ‘typically do not have representative metrics that can be easily capitalized.’ Furthermore, the fact that litigation funding assets are rarely uniform in nature and are ‘often highly customized with structured payoffs to the financier’, it is difficult to compare the economics of different pieces of litigation. Houlihan Lokey’s valuation framework is comprised of four key steps:
  • Step 1: Underwriting Assumptions
  • Step 2: Discount Rate and UEV Discount Estimation
  • Step 3: Milestone Probability and Litigation Risk Discount Estimation
  • Step 4: Fair Value Estimation
The white paper then lays out the individual equations that form each of the steps in the valuation framework, before providing an example to illustrate how the framework is used in practice. However, it is also noted that the framework is simplistic ‘as it assumes that the Asset is fully funded at the start’, and ‘also does not consider settlements.’ However, the author adds that the framework ‘can be expanded to handle these and other considerations.’ To read the full white paper, click here.
Commercial People Moves

Litica Appoints Ben Hooper and Sam Dansey to Leadership Team

An announcement by Litica highlights two new appointments to the company’s leadership team, as Ben Hooper has joined the company as Finance Director and Sam Dansey takes on the role of Head of Operations. Hooper brings over 20 years in accounting and a depth of expertise in the insurance industry to his new role at Litica, having previously been a partner at Gravita. Hooper also served in senior managerial positions at both Blick Rothenberg and Moore Stephens. In his new position as Litica’s Finance Director, Hooper will oversee ‘all aspects of internal finance, accounting, and tax compliance.’ Dansey brings his own wealth of experience in underwriting and operations, having worked across insurance, broking, and reinsurance. Dansey arrives at Litica from Allianz, where he served as the Head of Home Underwriting, having previously spent five years at Flood Re as the Head of Operations and Market Relations. Steve Ruffle, Co-Founder and Director of Litica, described the appointments as “a significant milestone” for Litica, and said that Hooper and Dansey’s “wealth of experience and expertise will undoubtedly contribute to our mission of setting the highest standards in the litigation insurance industry.”
Case Developments Commercial

Therium Announces Settlement for 700 UK Businesses in Claims Brought Against Mastercard and Visa

Funded claims brought in the Competition Appeal Tribunal continue to achieve successful outcomes, as a claim brought against two of the world’s largest payment processing corporations has achieved a settlement for over 700 companies. An announcement from Therium Capital Management reveals that a settlement has been reached in claims brought by over 700 UK businesses against Mastercard and Visa. The settlement will provide compensation to this group of claimants, which is mostly comprised of retailers, as well as local authorities and universities. The claims, which were fully funded by Therium, focused on allegations that Mastercard and Visa had broken both domestic and European competition regulations through their use of multilateral interchange fees (MIFs).  Fred Bowman, Senior Investment Manager at Therium, stated: “Therium is proud to have provided the funding that enabled the claimants to take legal action against such well-resourced defendants. This result demonstrates the important role of litigation finance and we are very happy to have supported the claimants in this long-running litigation.” Therium’s announcement also clarified that whilst these claimants have settled, there is a wider group of claims focusing on MIFs, ‘which are currently being managed together in the Competition Appeal Tribunal in the UK in the Merchant Interchange Umbrella Proceedings.’ These claims are due to proceed next year, with the first trials set to begin in February 2024.
Case Developments Commercial

Federal Court of Australia Dismisses IOOF Class Action

As LFJ reported earlier this week, the shareholder-led class action brought against Wellard and funded by ICP Funding has reached a settlement agreement. However, today we have news of another investor-led class action which has met a different fate, as the case brought against IOOF and funded by LLS has been dismissed by the court. Reporting from Australian Associated Press, published by Yahoo Finance, provides an overview of the judgement in the IOOF class action in the Federal Court, where Justice Anderson dismissed the case and stated that the claimants had failed to provide evidence for the allegations brought against IOOF, now known as Insignia Financial. In his judgement, Justice Anderson reasoned that “the evidence as a whole, does not rise to the level of establishing a problem with IOOF's culture, systems, governance and compliance during the relevant period." The class action, which began in February 2020, had been brought on behalf of investors who alleged that IOOF engaged in material non-disclosures, as well as misleading or deceptive conduct between March 2014 and July 2015. The claim alleged that these breaches in disclosure obligations had led investors to purchase IOOF shares at an inflated price. In response to the favourable judgement, Insignia’s spokesperson continued to attest that the allegations in the case “were all historical, relating to matters which are more than a decade old," and had been “investigated, and disproved or addressed at the time."  The group members in the class action were represented by Shine Lawyers, with the firm’s joint-head of class actions, Craig Allsop stating that they would consider whether they would appeal the court’s judgement. Funding for the class action was provided by LLS Fund Services. The case is John Mcfarlane ATF The S Mcfarlane Superannuation Fund v Insignia Financial Limited in the Federal Court of Australia, New South Wales Registry.
Commercial Fundraising

Qanlex Raises $30MM for Third Litigation Investment Fund

With competition among funders increasing across the major markets of the US, UK and Australia, emergant funders are keen to explore opportunities in jurisdictions that lack a well-established funding market. The investment appetite for these specialist regional funders appears to remain healthy, as a funder with a focus on Latin America has completed a new $30 million fundraising round.  An article from Financecommunity.es covers an announcement by Qanlex, a litigation funder with operations in both Europe and Latin America, that it has raised $30 million for its third litigation investment fund.  Fernando Folgueiro, co-founder of Qanlex, stated that the establishment of a third investment fund will allow the funder to expand its operations and pursue its goal of “levelling the playing field in the legal system and ensuring that justice is accessible to all.” Qanlex’s other co-founder, Yago Zavalia Gahan emphasised that this latest fundraising “underlines the confidence that investors have in our business model and our mission to democratize access to justice.” As LFJ reported in September 2022, Qanlex has also conducted two separate fundraising rounds to develop its proprietary Case Miner platform, which allows the funder to find and analyse potential cases for investment. Last year’s $3 million fundraising round saw Qanlex secure investments from private capital including The LegalTech Fund, Carao Ventures, FJ Labs and J Ventures. In Latin America, Qanlex has a presence in Argentina, Brazil, and Columbia, with European operations in Spain and France.
Case Developments Commercial

Rockhopper Enters Into Funding Agreement to Monetize Arbitration Award

In August 2022, LFJ reported on the €190 million arbitration award secured by Rockhopper Exploration, a UK-based oil and gas exploration company, from the Italian government over its breach of the Energy Charter Treaty (ECT). Whilst LFJ reported at the time that Harbour Litigation Funding had provided the legal finance for Rockhopper to pursue the arbitration proceedings, it now appears that the company has entered into an agreement with a new funder to monetize its ICSID award. A press release from Rockhopper Exploration reveals that it has signed ‘a funded participation agreement with a regulated specialist fund with over $4bn in investments under management.’ The agreement will allow Rockhopper to ‘retain legal and beneficial ownership’ of the ICSID award, which will allow the business to remove any additional costs from pursuing the award whilst accelerating the enforcement process. The terms of the new funding agreement are split into three tranches, with the first payment of €45 million to be paid immediately, of which, Rockhopper will receive around €15 million. The second ‘contingent payment of €65 million’ will be made following a successful annulment hearing outcome, with the amount reduced if the annulment is only partially successful. The third third tranche includes ‘potential payment of 20% on recovery of amounts in excess of 200% of the Specialist Fund's total investment including costs.’  The terms of the agreement ensure that Rockhopper will pay ‘€26 million of the Tranche 1 proceeds to discharge all of its liabilities under the agreement with the Original Arbitration Funder.’ Samuel Moody, chief executive of Rockhopper, explained that the funded participation agreement “provides near-term certainty for Rockhopper and de-risks our exposure to the annulment process, while maintaining potentially significant upside exposure both to a successful annulment outcome and eventual recovery.”  This move to secure new funding for monetisation and enforcement of the award follows a protracted process over the last year, as Italy sought to annul the award under Article 52 of the ICSID convention. The ad-hoc ICSID committee had issued a provisional stay of enforcement in March 2023 to allow Rockhopper and Italy to pursue measures to discuss risk mitigation for non-recoupment if the award was annulled. The stay of enforcement was lifted in July and Rockhopper states the Italian government ‘has not responded to Rockhopper's September 2022 request for payment of €247 million, or to multiple subsequent attempts to engage in negotiating a settlement.’ The ICSID annulment hearing is set for April 2024.
Case Developments Commercial

Attorney in Patent Infringement Case Files Motion to Withdraw, Citing Issues with Funder

The role of funders in patent litigation has come under much scrutiny over the last year, with objections arising over the lack of disclosure of funder involvement and the level of control that funders can assert. An emergency motion for withdrawal made by a plaintiff’s attorney has provided some insight into one such case, where the relationship between legal counsel and plaintiff has broken down over the actions of an outside funder. A blog post on Patently-O by Dennis Crouch, law professor at the University of Missouri School of Law, analyses an ongoing dispute between a plaintiff and its attorney over the role of a third-party funder in its patent infringement case.  The conflict emerged in the case of CTD Networks v. Microsoft, an infringement lawsuit that was dismissed in the Western District of Texas for a failure to ‘include plausible allegations of infringement’, and which has subsequently been appealed. However, since the appeal was filed, the plaintiff’s attorney, William P. Ramey III has filed an emergency motion seeking court approval to withdraw from the case.  Ramey’s motion alleges that CTD’s funder, AiPi failed to pay legal fees and that ‘CTD is controlled by AiPi, whose principal recently formed Whitestone Law.’ Ramey explains that the conflict over control emerged because AiPi’s co-founder, Eric Morehouse, ‘explained that he controls CTD because he bought the patents which allowed him to do what he wants with the patents and settlements.’ He also alleges that the funder and its owner ‘appear to be purposely prejudicing Ramey LLP’s and CTD Network’s interests in the pending appeal at the Federal Circuit by not filing an appeal brief.’  CTD has filed a response to Ramey’s request to withdraw, arguing that ‘CTD Networks is not controlled by any other party’, and that ‘AiPi is not "adverse" to Mr. Ramey, AiPi is adverse to improper handling of litigation.’ The brief places the blame squarely on Ramey, stating that the attorney ‘is facing sanctions in a number of other matters in a number of other jurisdictions and has been sanctioned in a number of cases over the past few years.’ Whilst CDT does not object to Ramey’s withdrawal from representing the business, it argues that Ramey cannot withdraw wholly from the matter, as they remain responsible for their actions in this matter and remain as a party from whom Defendant is seeking sanctions.’   This ongoing conflict once again demonstrates the issues that can arise in cases where the line between a funder of patent litigation and an entity controlling the litigation is blurred.
Commercial Legal Innovation

Growing Strength of Insurers Represents Competition for Litigation Funders

In panel discussions at industry forums and conferences, there is often much conversation around the harmonious relationship between litigation funders, litigation risk insurers and law firms. However, new insights from industry executives suggest that insurers are not just partners in the world of legal finance, but instead are more frequently positioning themselves as genuine competitors to traditional funders.  Reporting by Bloomberg Law examines the growing influence of insurers in the legal finance market, featuring insights from numerous industry executives who suggest that insurers are able to offer attractive products and services, allowing insurers to take business from traditional litigation funders. Stephen Kyriacou, managing director at Aon Plc, explains that through the offering of judgment preservation insurance, “funders have started to kind of cede that ground to us and focus on other avenues.” Bob Koneck, senior vice president at Atlantic Global Risk, highlights that insurers can compete with funders for their law firm clients because “it’s a more economical way for them to finance their litigation.” Megan Easley, who left a position at Omni Bridgeway to join CAC Speciality, argues that insurers are able to offer “more tools and more ways to create good outcomes for clients.” The article also notes that beyond the activity of these insurers in the market, their growing strength is reflected in the fact that we have seen professionals, such as Easley, leaving positions at funders to join insurers. Jason Bertoldi, head of contingent risk solutions at Willis Towers Watson, explains that “there’s been a noted influx of really talented people who are entering the space,” and there are no signs that this trend is slowing down. Reacting to the growing momentum behind insurers in the market, litigation funders are taking a pragmatic view of the impact this will have on their own businesses. Burford Capital’s co-COO, David Perla describes insurers as being an ‘adjacent’ presence to funders, rather than ‘competition’ for their market share. Cesar Bello, research and portfolio manager at Corbin Capital Partners, goes a step further and argues that whilst there has been growing discussion and concern over insurers replacing funders, “it just hasn’t happened.”
Case Developments Commercial

$23M Settlement Reached in Shareholder Class Action with Wellard

The Australian class action landscape continues to show the significance of funded claims, as we have seen numerous settlements announced and approved over recent months. This trend has continued as the respondent in a shareholder class action has announced that it has reached a settlement agreement with the group members. An ASX announcement from Wellard Limited revealed that the company has reached a $23 million settlement agreement in a class action brought by a group of its shareholders in 2020. The company, which operates as a livestock carrier operator, specified that ‘the settlement is without any admission of liability’ and that if the settlement receives court approval, the settlement payment ‘will be fully met from available insurance proceeds.’ John Klepec, executive chairman of Wellard, stated that the company is “pleased that this matter has been resolved, so we can focus on the operations of the business,” and offered reassurance that “the settlement will not impact Wellard’s cashflow.”  The class action was brought against Wellard over allegations that the prospectus for its Initial Public Offering (IPO), published in November 2015, ‘contained misleading statements or material omissions.’ Furthermore, the lawsuit claimed that Wellard had breached its continuous disclosure obligations and ‘made misleading representations as to its forecast financial performance for FY2016.’ The group members in the class action are represented by Quinn Emanuel Urquhart & Sullivan, and entered into a litigation funding agreement with ICP Funding Pty Ltd.  The case is Ewok Pty Ltd as trustee for the E & E Magee Superannuation Fund v Wellard Limited, in the Federal Court of Australia, Victoria Registry.