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Commercial Regulatory Issues

Will The UK Supreme Court Decision In PACCAR Affect Hong Kong Litigation Funding?

The Hong Kong Department of Justice's approach to litigation finance and third party funding is coming into greater focus following the UK Supreme Court’s July 26, 2023 ruling on R. (on the Application of PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28. Mondaq reports that PACCAR has defined "damaged-base agreements" or "DBAs" in the United Kingdom. DBAs are strictly regulated in the UK, now including litigation funding agreement contract law. Many UK courts have operated under the assumption that funding of litigation agreements does not fall under the purview of DBAs. PACCAR's Supreme Court decision has sparked a fervent debate around this topic.  Mondaq says that Hong Kong DBA relevancy differs from the UKs DBA approach. Specifically, in Hong Kong, champerty and maintenance are illegal factors that can lead to a fine and prison sentence.  It’s important to note that Hong Kong does allow waivers to the general prohibition of litigation investment if: 
  1. Third parties share a common interest in funding the outcome of a case.
  2. Accessible justice is a prime consideration.
  3. Insolvency proceedings are necessary.
Commercial People Moves

Aon Joins The European Litigation Funding Association (ELFA)

The European Litigation Funding Association (ELFA) is pleased to announce Aon’s Litigation Risk Group, the litigation risk solutions arm of Aon’s M&A and Transaction Solutions, has joined ELFA as an associate member.  “ELFA founding members are on the forefront of litigation finance in Europe”, said Paul Jeroen van de Grampel, Managing Director and Global Co-Head of Aon’s Litigation Risk Group. ”As a pioneer of litigation risk and insurance capital solutions, it is important for Aon to offer its leadership as part of ELFA and continue to shape this industry. ”  Van de Grampel added, “We are delighted to join ELFA and look forward to collaborating with like-minded professionals and industry leaders to build a deeper understanding of litigation funding within the industry. Aon is well positioned to contribute valuable insight on how litigation funding can be leveraged as a valuable tool for access to justice and, where possible, seek combinations with insurance solutions, to better support the growth of fair and effective dispute resolution mechanisms and shape better decisions.”  Omni Bridgeway Managing Director and ELFA Chairman, Wieger Wielinga commented: “ELFA was established to serve as the European voice of the commercial litigation funding industry, and we are immensely proud to welcome reputable and knowledgeable professional services firms such as Aon. The members of ELFA look forward to collaborating with Paul Jeroen and the entire Aon Litigation Risk Group who have decades of experience with the practice of litigation funding globally and particularly in the context of European civil law. Their expertise with litigation risk transfer through insurance will create deeper understanding in the market and help clients leverage bespoke insurance solutions.”
Commercial

LCM Announces Record Financial Results

A year of strong financial returns for litigation funders continues as Litigation Capital Management (LCM) released its full year audited results for the year ending 30 June 2023. The Sydney-based funder announced that it had achieved ‘record results’ with a realised income of A$181 million, with A$84 million of that income directly attributable to LCM. LCM also reported A$0.66 billion in total funds under management and its portfolio of investments are now valued at A$428 million. Praising the hard work of the LCM team, Jonathan Moulds, non-executive chairman, described the year as “LCM's most successful 12 months since inception” and provides the company “a platform from which to continue to expand our asset management business and develop scale.” With such a strong showing in the last year, Moulds highlighted that LCM had declared a final dividend of 2.25p per share, to be paid to shareholders on 27 October.  The funder also finished this period with A$104.5 million of gross cash, of which A$83 million was attributable to LCM. This marked a significant increase from its FY22 figures of A$50 million of gross cash, of which A$29m was attributable to LCM. Patrick Moloney, CEO of LCM, provided the following comment on the results: "Our fund management strategy is delivering third party capital for investment. Our referral network in Europe and APAC is delivering the high-quality investment opportunities that will underpin our generation of value and cash to Fund investors and LCM shareholders. As we continue to grow, increased activity levels will not need to be matched with proportionate increases in overall costs and this in turn means greater profitability and cash generation. This is a critical differentiator for LCM."
Commercial Regulatory Issues

Opportunities for Intra-EU Treaty Award Enforcement in the UK

Whilst it does not receive as much coverage as patent litigation or class action funding, the opportunities for litigation funders around investment treaty disputes are becoming increasingly tangible. As we have seen in the last year, whether it is disputes around bilateral investment treaties or the Energy Charter Treaty, one of the most important considerations for claimants is the selection of jurisdiction for enforcement. In a recent insights piece, Timothy Mayer, senior investment manager at LCM, provides an analysis of the recent developments around international treaty awards and how the UK’s departure from the European Union may make it a more appealing venue for enforcing arbitral awards in this area. Mayer looks at some of the significant judgements over the past five years, which illustrate how the EU has steadily become a less hospitable environment for those companies looking to enforce investment treaty awards. He highlights the path from decisions by the Court of Justice of the European Union (CJEU), such as Achmea vs Slovakia and Republic of Moldova vs Komstroy LLC, which both appeared to reinforce the idea that the court’s view was that ‘ECT based intra-EU arbitrations were contrary to EU law.’ However, Mayer also notes that since these decisions, all but one arbitral tribunal have still found that they have jurisdiction to hear these investment treaty disputes, despite the CJEU’s ‘Intra-EU Objection’. Furthermore, this year’s ruling by the English and Welsh High Court in Infrastructure Services vs Spain provided further reasons for optimism, as the court ruled that there were no reasons to set aside the award and ‘that EU law did not override the UK’s pre-accession treaty obligations to implement the ICSID Convention’. As a result of this pattern of decisions, Mayer suggests that claimants may increasingly look to enforce their investment treaty awards in non-EU jurisdictions, with the US and Australia being examples of creditors looking outside Europe for enforcement. Therefore, Mayer concludes, it is possible that the UK will see a ‘small Brexit-inspired benefit’ when it comes to dispute stakeholders looking to maximize their recovery in intra-EU disputes.
Commercial

The Flaws of Using Plaintiff Bias to Justify Litigation Funding Disclosure

The issue of transparency and disclosure in litigation funding, especially within patent infringement lawsuits, appears to be here to stay, as the last year has displayed increasing efforts from defendants and certain judges to enforce stricter requirements for funding disclosure. Whilst one of the most asserted arguments is that increased disclosure is necessary to uncover a plaintiff’s bias, it is worth considering whether this is a logical reason or even an effective method to uncover plaintiff bias. In an opinion piece for Bloomberg Law, Casey Grabenstein and Andrew Schwerin of Saul Ewing, analyze this very question and suggest that the burden of proof for launching such discovery attempts should rest with the defendant rather than the plaintiff. Grabenstein and Schwerin first compare two cases which involved defendants’ requests for further disclosure of details around the plaintiffs’ litigation funding arrangements, with two very different outcomes.  In the case of Speyside Medical, LLC v. Medtronic Corevalve, LLC, Judge Christoper Burke granted the motion to compel the plaintiffs to testify over their financial stakes in the lawsuit, stating that the size of their stake “is surely instructive as to the heft of any charge that their testimony may be biased by their ability to profit from the case result.” In GoTV Streaming, LLC v. Netflix, Inc., Magistrate Judge Shashi Kewalramani denied Netflix’s request for the disclosure of litigation funding documents, reasoning that the defendant’s argument was “too speculative to warrant the production of litigation funding related documents.” Grabenstein and Schwerin suggest that in the case of Judge Burke, the argument over bias would be far more relevant in the case of third-party witnesses, whereas “it should come as no surprise that plaintiffs and owners of plaintiff companies have a financial interest in the outcome of litigation and want to win the case.” They argue that the plaintiff’s financial stake is not relevant to the material facts of the case and, more importantly, that these kinds of orders “could prejudice plaintiffs who cannot afford to litigate the case on their own and have given up a portion of their recovery in order to secure representation.”
Announcements Commercial Deals

New research shows GCs seek greater value from legal claims and judgments

Burford Capital, the leading global finance and asset management firm focused on law, today releases new independent research that reveals how businesses are finding solutions to extract greater value from legal claims and judgments, based on a survey of 350 GCs, heads of litigation and senior in-house lawyers in the US, Europe, Asia, Australia and the Middle East.

The economic climate has amplified longstanding pressures on businesses, including legal departments. With research released earlier this year by Burford showing that GCs expect commercial disputes to increase in the next two years, how companies pay for and extract value from their meritorious claims is more important than ever. Burford’s new report on the economics of commercial disputes and enforcement demonstrates a desire by senior in-house lawyers to maximize the value of claims, judgments and unenforced awards, without adding to costs. Notably, 61% of those surveyed say that uncertain or challenging conditions would impact their likeliness to consider legal finance solutions.

Christopher Bogart, CEO of Burford Capital, said: “Companies account for well over fifty percent of Burford’s business today, including very large Fortune 500 global companies. As the former GC of such a company, I am awake to the financial pressures legal departments face, especially in uncertain economic times. The new research confirms GCs’ desire to achieve optimal financial outcomes with their claims, judgments and awards. At Burford, we are strategic partners for businesses seeking to reduce risk and maximize value both through our legal finance offerings and our enforcement and recovery services. More in-house counsel are realizing the innovative ways we can help them avoid leaving money on the table, and the research affirms that.”

Consistent with the growth of its business with leading companies, Burford on a group-wide basis recently entered into a $325 million transaction with a Fortune 500 company to finance a portfolio of matters in its affirmative recovery program, allowing the company to recognize immediate value from those claims.

Key findings from the research include:

Economic pressures impact how clients manage their costs and partners, with the majority of those surveyed likely to seek cost-sharing solutions.

  • Over half (52%) say they are likely to seek cost-sharing solutions with counsel or legal finance providers to mitigate the impact of the current economic climate.
  • Although many say they are likely to implement cost-saving measures to mitigate these impacts (44%), in-house lawyers seem to favor cost-shifting over cost-cutting.
  • Aside from relevant legal expertise, the top attributes in-house lawyers seek in outside counsel are efficiency and speed (89%), the ability to provide accurate budgets (87%) and familiarity with legal finance (69%).

Unenforced awards remain a problem for businesses, and even more so in the current climate.

  • Vanishingly few (2%) say they recovered 100% of the value of their judgments and awards over the last five years and a clear majority (61%) state that their opponents voluntarily pay their outstanding judgments and awards less than 50% of the time.
  • The consequence of slow-to-pay or fail-to-pay judgment debtors is many millions of dollars in lost value to businesses at a time when legal teams wish to minimize costs and maximize recoveries.

Enforceability is a key consideration for litigation and arbitration strategy.

  • Top perceived barriers to enforcement are jurisdiction and cost.
  • More than three quarters (77%) view ease and likelihood of recoverability as important factors in whether to pursue claims.
  • Immediate liquidity is a key benefit for funded enforcement and recovery.
  • More than half (57%) say they are likely to use financed enforcement and recovery services for a pending judgment or award.

The 2023 Commercial Dispute & Enforcement Economics Survey can be downloaded on Burford’s website. The independent research was conducted by GLG in June 2023.

About Burford Capital

Burford Capital is the leading global finance and asset management firm focused on law. Its businesses include litigation finance and risk management, asset recovery and a wide range of legal finance and advisory activities. Burford is publicly traded on the New York Stock Exchange (NYSE: BUR) and the London Stock Exchange (LSE: BUR), and it works with companies and law firms around the world from its offices in New York, London, Chicago, Washington, DC, Singapore, Dubai, Sydney and Hong Kong.

For more information, please visit www.burfordcapital.com.

This announcement does not constitute an offer to sell or the solicitation of an offer to buy any ordinary shares or other securities of Burford.

Commercial Legal Innovation

Embracing Sustainability in Litigation Finance

Gian Marco Solas, Ph.D.2, is a qualified lawyer and academic, and currently serves as the Lead Expert at the BRICS Competition Law and Policy Centre and in private practice, where he advises on the application of physics models in (antitrust) litigation and market & investment modeling worldwide. With over a decade’s experience working with law firms and litigation funders, where he has inter alia built and managed the (then) largest European collective redress initiative (the Italian truck cartel initiative), Dr. Solas has published a number of papers on litigation funding and is the author of Third Party Funding: Law, Economics and Policy (Cambridge University Press, 2019) and the forthcoming 'De Lege et Amore - Theory of Interrelation & Sustainability (Escargot, 2023) about the interrelation of the laws of physics and human laws in the economy. In his latest analysis about the litigation funding market, Dr. Solas looks at three previous historical litigation funding cycles that have similarly and quickly appeared and disappeared in specific spatio-temporal dimensions (Ancient Greece, Ancient Rome and Middle-Ages England), to then conclude - on the basis of recent and publicly available evidence - that the same 'destiny' appears to be repeating in the modern global cycle. This analysis on the one hand suggests to reject the non realistic view that litigation funding would be an uncorrelated asset class, which view ultimately is backfiring and making capital raises more difficult. While, on the other, to learn from its cyclicality and correlation to the economy to understand how and where to evolve. That is a fund individual choice that can be summed up, as matter of principle, to either transform into (or merge with) a proper asset manager (managing litigious and not litigious assets and / or classes thereof) or into a law firm (or special type thereof, with funds, technology, etc.) making profit both upfront and on a contingency / conditional or other basis. Such move would also potentially remove the need for discussions and implementation of sector-specific regulation of litigation funding while, from a more economic point of view, potentially allow to mitigate the risks physiologically linked to portfolios of unsecured debt in an economic downturn. In Dr. Solas’ view, it is therefore pivotal for the specialist litigation funding industry to embrace legal science and work on their “legal finance ‘beta’ strategy” to potentially move from the tail of the ending “debt cycle” to the head of the new “codified cycle”. This move should be designed to allow litigation funders to reach a realistic equilibrium between high-risk-high-reward investments with lower but steady and more secure income streams. Thus, freeing them from the evidently too tight and inefficient financial model that – together with regulatory pressure and other challenges – appear to be strangling the industry at this stage. In fact, many litigation funders are already part of larger and / or balanced conglomerates, while many others are not. All or most of them, however, seem to be still attached to the now surpassed view of a commoditized economy, that not only fails to capture the real value of legal claims, but also 'weighs' heavily on all asset managers in terms of compliance and legal costs. Most modern technology and legal science allows not just to analyze and factor the weight of the law in rational decision making, but also to enlarge the scope of viable legal claims and to codify any legal asset, therefore making them more economically valuable. Litigation funders’ higher familiarity and experience with the law compared to other asset managers could prove to be the distinguishing skill and make them not just sustainable - but also thrive - in the “new” codified economic reality. In addition to the books and articles mentioned above, further data for the above analysis can be found in the following forthcoming publications:
  • Physics as model for the law? Sustainability of the litigation finance business model (Journal of Law, Market and Innovation, 2024)
  • Third Party Funding in the EU. Regulatory challenges (Theoretical Inquiries on Law, co-ed. C. Poncibo’, 2024)
  • Third Party Funding in the EU (E. Elgar, co-ed. C. Poncibo’, E. D’Alessandro, 2024)
  • Third Party Funding and Sustainability considerations (E. Elgar, Research Handbook on Investment and Sustainable Development, 2024, co-ed Annie Lesperance and Dana McGrath)
Commercial Regulatory Issues

Kennedy, Manchin introduce bipartisan Protecting Our Courts from Foreign Manipulation Act to end overseas meddling in U.S. litigation

Sen. John Kennedy (R-La.), a member of the Senate Judiciary committee, and Sen. Joe Manchin (D-W.Va.) today introduced the Protecting Our Courts from Foreign Manipulation Act of 2023 to stop foreign entities and governments from funding litigation in America’s courts.  “Leaving our courts unprotected from foreign influence—such as from China—poses a major risk to U.S. national security. The Protecting Our Courts from Foreign Manipulation Act would put necessary safeguards in place to ensure that foreign nations, private equity funds and sovereign wealth funds linked to hostile governments are not tipping the scale in federal courtrooms,” said Kennedy. “Foreign actors such as China and Russia use third-party litigation funding to support targeted lawsuits in the United States, undermining our economic and national security. This legislation would provide a commonsense strategy to protect our legal system by requiring greater transparency and accountability from third-party groups and preventing third-party litigation funding from foreign states and sovereign wealth funds. I urge Senators on both sides of the aisle to support this bipartisan bill to ensure that our federal courts are protected from foreign influence,” said Manchin.  Rep. Mike Johnson (R-La.) introduced companion legislation in the House of Representatives. “Foreign states and sovereign wealth funds should not meddle in our justice system. This bill prevents foreign actors like China from financing malicious lawsuits, protects critical industries and prioritizes the interests of Americans in court,” said Johnson.  Currently, foreign entities flood courts with billions of dollars in litigation financing in order to achieve a particular outcome in a case. Hostile foreign governments or companies that are connected with those governments could fund lawsuits in federal courts in order to achieve their geopolitical objectives and undermine America’s national security, especially by targeting proprietary commercial and military technology and exploiting U.S. disclosure requirements. The Protecting Our Courts from Foreign Manipulation Act would:
  • Require disclosure from any foreign person or entity participating in civil litigation as a third-party litigation funder in U.S. federal courts.
  • Ban sovereign wealth funds and foreign governments from participating in litigation finance as a third-party litigation funder, either directly or indirectly. 
  • Require the Department of Justice’s National Security Division to submit a report on foreign third-party litigation funding throughout the federal judiciary.
In January, Kennedy urged U.S. Supreme Court Chief Justice John Roberts and U.S. Attorney General Merrick Garland to take action in order to mitigate the threat foreign actors like China pose by covertly funding litigation in U.S. courts. “The U.S. Chamber of Commerce applauds Sens. John Kennedy (R-LA) and Joe Manchin (D-WV), and Rep. Mike Johnson (R-LA) for introducing this landmark bill, and we urge Congress to quickly pass it to protect consumers, businesses, and U.S. national and economic security,” said Harold Kim, President of the U.S. Chamber of Commerce Institute for Legal Reform. “The R Street Institute is excited to support and endorse Senator Kennedy’s legislation that will shine a light on the shadowy funders of third-party litigation, and limit the ability of foreign governments to negatively impact various U.S. industries by tying them up in anonymous third-party litigation. The current third-party litigation funding laws lack much needed transparency, and they could open the door to foreign entities detrimentally impacting our national security. We applaud the Senator for his leadership on this issue, and we urge more lawmakers to join him in this effort,” said Anthony Lamorena, Senior Federal Affairs Manager at the R Street Institute. Full text of the legislation is available here.
Commercial Deals

Woodsford Pursuing Sale of US Passive Investments Portfolio

A recurring theme at industry forums and conferences over the last year has been the need for a secondary market for litigation finance, providing investors with alternative exit routes and allowing funders to raise additional liquidity. Whilst most of these secondary transactions go under the radar, a new story reveals that one of the leading global litigation funders is pursuing a significant portfolio sale in the secondary market. In an exclusive story from Bloomberg Law, Emily R. Siegel reveals that Woodsford is moving forward with plans to sell its portfolio of passive investments in the US, allowing the funder to refocus its capital on litigation that targets corporate malpractice. Although the funder has not specified the number of passive investments, nor the total value of the portfolio up for sale, it is reportedly meeting with several unnamed buyers. Steven Friel, CEO at Woodsford, explained the reason for this move by stating that “one of the ways in which we can fuel our growth—get cash for our growth and also re-position ourselves—is by pursuing a secondary market transaction.” Friel went on to emphasize that the funder would be looking to prioritize litigation led by consumers or shareholders who are seeking to hold companies to account. This will include identifying securities litigation which may involve US-based claimants, but which are being tried in other jurisdictions due to the 2010 Supreme Court ruling on securities lawsuits with foreign elements. Commenting on the transaction, Ted Farrell, founder of Litigation Funding Advisers, highlighted that whilst they do not always take place in public view, “secondary transactions are definitely a part of the every day in litigation funding now.”