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Commercial

The Benefits of Financial Transparency Between Funders and Clients

Whilst the debate rages on about the level of disclosure that funders and their clients should provide to the courts, it is important to note that financial transparency and disclosure between a funder and client is one of the best ways to ensure a successful partnership in any funding arrangement. In an insights post from Sentry Funding, Jack Burgess highlights the importance of greater financial transparency between funders and clients, as well as the ways in which funders can enhance both their own and their client’s position through this approach.  Firstly, he points out that it is one of the best ways to increase trust in litigation funding, as clients can often be under large amounts of stress during legal proceedings, and by providing open financial disclosure, funders are able to ‘ease their concerns and establish trust in the partnership.’ He also points out that this goes a long way to maintaining ethical funding practices, so that ‘clients can have confidence that they are partnering with a reputable and trustworthy organisation.’ Beyond this trust building, Burgess argues that this approach also empowers the client, because when a funder makes sure that the client is aware of all the information around ‘the terms, fees, and repayment structures’, these clients can then ‘make informed decisions about their legal financing.’ Similarly, financial transparency can be a helpful part of a funder’s risk mitigation strategy, as an informed client is one that is able ‘to make risk-aware decisions and plan accordingly.’ Burgess explains that Sentry Funding maintains its commitment to financial transparency through these four principles: open financial disclosure, client empowerment, ethical funding practices, and financial accountability.
Commercial Deals

AVZ Minerals Signs Binding Term Sheet with Locke Capital for up to $20m in Funding

As LFJ reported last week, it is clear that litigation funders see the potential for partnerships with companies in the mining sector, who are often embroiled in disputes with nation states over projects, and must pursue costly legal proceedings to safeguard their investments. An announcement from AVZ Minerals reveals that the Australian mineral exploration company has signed a binding term sheet with Locke Capital for a litigation funding facility of up to $20 million. The funds will support AVZ’s corporate and legal costs as it pursues six arbitration proceedings connected to the Manono Lithium and Tin Project in the Democratic Republic of the Congo (DRC). The funding from Locke Capital is expected to cover all costs related to the arbitration matters as well as ‘provide significant working capital to ensure AVZ can continue defending its legal rights to its interests in the Manono Project and ultimately see its development.’ AVZ explained that it has now entered into ‘a phase of exclusive due diligence with Locke until, at latest, 31 March 2024, with the aim of executing a formal agreement for the Funding Facility as soon as practicably possibly.’ Nigel Ferguson, CEO of AVZ, said that the company was ‘extremely pleased to have signed this Term Sheet with Locke, a global litigation funder with deep experience in funding complex litigation proceedings.’ He also said that the fact Locke had moved forward with the proposed funding, after completing its own rigorous due diligence on the proceedings, ‘validates AVZ’s strong position across all its legal disputes with a clear pathway to conclusion in AVZ’s favour.’ AVZ is currently pursuing the following legal proceedings related to the Manono Project:
  • Three ICC arbitration proceedings involving La Congolaise d’Exploitation Minière and/or Jin Cheng Mining Company.
  • Two ICC arbitration proceedings involving Dathomir Mining Resources SARLU.
  • One ICSID arbitration proceeding against the DRC.
Commercial Deals

Preview of the 3rd Annual LITFINCON Event

On March 6, 2024, Houston,Texas will host the third annual LITFINCON conference, convening some of litigation finance's top industry leaders, in an event sponsored by Siltstone Capital.  Above The Law recently published Gaston Kroub's preview of LITFINCON’s planned agenda at the Post Oak Hotel in Houston. Kroub says he has attended the past two LITFINCON conferences and finds the conference's networking experience to be a premier highlight.  LITFINCON is slated to hold several panel discussions on topics ranging from patent and intellectual property litigation investment law to regulatory compliance and ethical considerations for the international litigation finance community. Additionally, LITFINCON will host a roundtable composed of academic scholars who specialize in third party funding research.  Kroub says LITFINCON will also include several events for litigation investment professionals who specialize in mass tort and international arbitration law.
Commercial Regulatory Issues

Class Action Report Highlights Public Opinion on Litigation Funding

As the UK funding industry continues to adapt to this post-PACCAR world, it is becoming increasingly important for industry leaders to take the temperature of the public on the role of funders in class actions. The fourth annual Class Action Report published by Portland Communications shows that whilst there is some stagnation in the UK public’s understanding of class actions in general, there is a growing public understanding and acceptance of litigation funding. The report’s dedicated section on funding explains that ‘those expressing a ‘low’ level of awareness of litigation funders has dropped from 57% in 2022 to 49% in 2023.’ Part of this growth in awareness among the general public can be attributed to greater media coverage of the sector, with Portland finding that the volume of references to litigation funding by UK national news outlets grew by 65% from 2022 to 2023. One of the most intriguing areas explored by Portland was: ‘what return on a funder’s investment do the general public think is unfair?’ There was a wide variety of responses to this question, with ‘nothing is unfair so long as they still got their damages’ accounting for 28% of respondents, with another 28% saying that even ‘double investment is unfair’. Between these two polar opposite responses, the next highest answers were either ‘quadruple is unfair’ at 23% and ‘six times is unfair’ at 12%. Adrian Chopin, co-founder and managing director of Bench Walk Advisors, provides featured commentary within the report. He begins by noting that as “nearly half of respondents thought that a funder shouldn’t make more than double its money on an investment”, in order to comply with this standard whilst still breaking even, “a funder would have to win 50% of its cases on average.” Whilst Chopin acknowledges that on its own this “doesn’t sound so bad”, the economics of litigation funding make it a more challenging proposal. He points out that “the fact that funders’ investors must make a profit on their money, and the fact that the funder also has its own operating costs to cover out of those profits”, means that the win rate would need to be far higher. If this became reality, Chopin says that “the end result would certainly be far fewer funded claims.” The full Class Action Report from Portland can be downloaded here.
Commercial Regulatory Issues

Amendment to UK Bill is Only a ‘Partial Fix’ to PACCAR Issues

As LFJ reported last week, in the wake of the Supreme Court’s PACCAR decision, many advocates for the litigation funding industry have suggested that only the government can rectify the situation through new legislation that would more clearly define the place of litigation funding agreements (LFA). However, it appears that an initial attempt to manufacture a legislative shortcut through an amendment to the proposed bill will not be successful. An article by The Law Society Gazette canvasses the opinions of legal experts regarding the amendment to the Digital Markets, Competition and Consumers Bill, which is due to enter the ‘report stage’ next week. The amendment, listed as NC8, is described as a response to the PACCAR decision and ‘provides that a damages-based agreement is only unenforceable in opt-out collective proceedings before the Competition Appeal Tribunal if the agreement is with a provider of advocacy or litigation services.’ According to the industry leaders and experts that are quoted in the Gazette article, the current version of the amendment is not a complete solution to the issue of LFAs being classed as DBAs. Richard Pike, partner at Fieldfisher, explained that the amendment would only solve the problem for funding agreements in opt-out collective proceedings but not ‘any other type of proceedings.' Jonathan Barnes, director of the Association of Litigation Funders, also described the amendment as ‘a partial fix to the problem’. He expressed appreciation that the government had made an effort to address these issues that would limit access to justice, but emphasised that the amendment ‘does not address cases heard outside of the Competition Appeal Tribunal.’
Announcements Commercial Deals

Manolete Partners Reports Increases in Case Completions, New Investments and Revenue in Half-Year Results

With the numbers of insolvencies on the rise in the aftermath of the pandemic, insolvency litigation funders are seeing the market begin to shift in their favour, as reflected in new financial reporting from one of the UK’s leading funders of insolvency litigation. Manolete Partners released its unaudited half-year results for the six months up to 30 September 2023, reporting that the business has seen significant increases in case completions, new case investments and total revenues. According to the H1 FY24 results, Manolete recorded 116 case completions during this period, which marked a 21% increase from the 95 cases completed during H1 FY23. Across these cases, the average duration dropped from 14.9 months in FY23 to only 11.5 months in FY24. Manolete suggested that ‘this signifies a return to the Company's long established case duration of around 12.7 months, which had expanded temporarily due to the challenges presented by Covid.’ The funder also confirmed that it ended H1 FY24 with 417 cases that are still ongoing, which once again represented a significant increase of 58% over the same period in FY23. Moving on to Manolete’s investments, the funder reported a total of 179 new case investments in H1 FY24, representing a 116% rise from last year’s H1 total of 83 new investments. Manolete explained this increase, stating that ‘the higher level of insolvencies in the economy translated to higher new cases signed as well as the impact of the Barclay Bounce Back Loan Pilot (BBLs).’ Regarding the BBL pilot scheme, Manolete reported that since the start of the calendar year it has signed 80 of these cases and has already achieved completion on 27 cases. As LFJ reported in October, Manolete confirmed that it ‘is hopeful to shortly commence a separate BBL pilot with another well-known bank.’ Overall, Manolete recorded a 104% increase in total revenues, achieving £11.2m in H1 FY24 compared to £5.5m in H1 FY23 In his statement on the results, Steven Cooklin, Chief Executive Officer, highlighted the importance of the return of large company insolvencies “back to pre-pandemic levels”, which is now filtering down to create increased opportunities for funders focusing on insolvency litigation. He explained that “as the insolvency market develops through the current business cycle, the Directors anticipate a return to higher average case sizes, reflecting a greater mix of larger company insolvencies.”
Commercial Regulatory Issues

LFG’s Dyer says Reputable Funders ‘Remain Passive in Disputes’

Whilst intellectual property and patent lawsuits remain one of the top target areas for litigation funders, questions around these funders’ level of control and interference in the litigation process have come to the fore over the last year. In a piece for TheRecorder, Keith Zullow and Yoko Bian from Goodwin Procter interviewed Brendan Dyer, funding director at Law Finance Group (LFG). The interview covers a wide range of topics including LFG’s evolution from its beginnings in 1994, the nuances of case selection and LFG’s involvement in the litigation process beyond the provision of capital. Dyer begins the interview by highlighting LFG’s pedigree as “the oldest litigation funder in the U.S.”, and with nearly three decades of experience in legal funding, LFG is able to provide “unique and creative capital solutions that go above and beyond merely funding costs and a percentage of legal fees.” Addressing the contentious issue of funder control over lawsuits, Dyer pointedly states that “reputable commercial funders like LFG remain passive in disputes in which they have invested.” Whilst Dyer acknowledges that funders can often provide valuable expertise when it is requested by the client, he reinforces his initial point that “the claimant retains complete control over all decision-making.” Dyer also discusses the parameters which LFG uses when considering potential litigants or cases to engage with, stating that it primarily looks to identify “high-value commercial and IP claims that can benefit from our investment.” Speaking to the particular factors that are important in evaluating patent lawsuits, Dyer says that LFG “like to see at least two patents involved in the case along with a compelling invention story”, and also prefer cases that involve “open patent families.”
Commercial Regulatory Issues

ILFA Director Pushes Back on Calls for Legislation Mandating Funding Disclosure

As LFJ reported last month, the news that a Chinese company was funding multiple intellectual property lawsuits has reignited debates around expanding regulations of litigation finance. However, representatives for the funding industry continue to argue that the campaign driving these calls for a crackdown is not resting on a solid foundation of evidence. In an interview with Bloomberg Law, Gary Barnett, executive director of the International Legal Finance Association (ILFA), argues that increased disclosure requirements for litigation funding are neither necessary nor are they a reform that has widespread popular support. Barnett suggests that much of the narrative around the need for heightened disclosure stems from lobbying by the Chamber of Commerce, arguing that we shouldn’t “confuse [Chamber’s] interest in it with the overall direction that more disclosure is the way things are headed.”  Building on this argument, Barnett claims that the ‘Protecting Our Courts from Foreign Manipulation Act of 2023’ which was introduced in Congress “is based on a false premise.” He goes on to say: “The genesis of it is a commissioned paper that was paid for by the Chamber of Commerce that posits, based on no evidence and it’s pure speculation, that the legal finance industry poses a national security risk.” Barnett does not discount the idea that there is room for reform in funding regulations, explaining that “we’re not opposed to disclosure, we just think that requiring disclosure in every case causes more problems than it’s worth.” Addressing the Chamber of Commerce report’s specific claim that litigation funding provides an avenue for malign actors to interfere with US businesses, Barnett says that “foreign adversaries aren’t able to manipulate the legal system through legal finance providers.” However, Nathan Morris, senior vice president, legal reform advocacy at the U.S. Chamber Institute for Legal Reform, argues that their research shows “that there’s an incentive for geopolitical actors to use funding to engage in America.” Morris acknowledges that this foreign engagement may sometimes be about gathering information rather than damaging US businesses but emphasises that “if there’s no check on the ability for it to occur, it is exceedingly likely it will happen.”
Announcements Commercial Deals

Jade Road Investments Limited: Investment in Heirloom Litigation Finance

Jade Road Investments Limited (AIM: JADE), the London quoted company focused on seeking the best risk-adjusted returns globally, announces a new investment of $250,000 into Heirloom Litigation Funding 2022 SPV XI ("Heirloom Litigation Finance").  The investment was made in support of JADE's updated Investment Policy to invest in attractive, uncorrelated, risk adjusted return opportunities. This is the second investment made by JADE under its new Investment Policy approved in February 2023.  Its first investment, in April 2023, was into an Alternatives fund which invests primarily in asset-backed and/or income-producing opportunities such as equipment leasing, agriculture and infrastructure, and that are highly uncorrelated to the general market.  Heirloom Litigation Finance has issued JADE a 1-year, 14% cash interest debt note, that is backed by a diversified portfolio of disbursement fundings for small consumer litigation claims in the UK, all backed by insurance. Interest is paid quarterly. Unlike many litigation finance opportunities, these claims fall under established precedents or quasi-governmental compensation programs, which are expected to increase the chance of success and reduce the length of time to settlement. The investment is a related party transaction under the Aim rules for Companies as Heirloom Investment Management LLC is a substantial shareholder in the Company and Heirloom Litigation Finance is a self-managed Cayman Islands company wholly owned by Heirloom Holdings. The Directors of the Company consider, having consulted with WH Ireland Limited, the Company's nominated adviser, that the terms of the transactions are fair and reasonable insofar as its shareholders are concerned. JADE recognizes the importance of genuine diversification in this volatile market, and how alternative investing can reduce volatility and improve returns in an investment portfolio.  JADE is pleased to add another investment that would be difficult for most investors to either access or diligence, and which aims to provide genuine diversification and risk-adjusted return enhancement to an investor's portfolio.  John Croft, the Company's Executive Chairman, commented: "JADE's investment in Heirloom Litigation Funding 2022 SPV XI continues to build on our updated Investment Policy and our commitment to providing our shareholders with a portfolio of investments with solid risk-adjusted global returns.  With its strong return profile, insurance -backing, short duration and high coupon, which is paid quarterly, the Heirloom Litigation Finance investment is another step forward in JADE's on-going transformation."