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Case Developments Commercial

Coinbase Scores Victory with Supreme Court Ruling on Federal Arbitration Act

Litigation Finance Journal recently reported that Coinbase became the first US-based cryptocurrency company to argue a case in front of the Supreme Court. The June decision has been announced, and with a 5-4 majority in favor of Coinbase, the high court ruled "that an interlocutory appeal about one matter (arbitrability) bars the district court from proceeding on another (the merits)." CoinDesk says the ruling is a distinct legal victory for Coinbase, one that could impact future lawsuits against all companies in the United States. For over a century, the Federal Arbitration Act (FAA) has been part of user agreements to protect corporations from risk and expense associated with court battles to resolve customer claims. The decision does not represent any high-court conclusions on cryptocurrencies, outside of Coinbase being one of the associated parties.   A lower court decision from the U.S. District Court for the Northern District of California denied Coinbase's arbitration agreement approach. On appeal, the Ninth Circuit denied Coinbase's motion to halt hearings while appeal is in progress.  The Supreme Court's decision in favor of Coinbase effectively stays any trial proceedings while appeal is in progress. 
Case Developments Commercial

Malaysian Government Acknowledges Need for Legitimate Litigation Funding Whilst Calling for Accountability 

The ongoing saga of the Sulu heirs arbitration case against the Malaysian government, which stands out as one of the high-profile cases of litigation funding in an international dispute, continues to evolve. After the Paris Court of Appeal ruled that the previous arbitral panel did not have jurisdiction to make its award, top officials from the Malaysian government have continued to speak in public about the perceived injustices of the arbitral process and the role that third-party litigation funding has played in it. An article by New Straits Times reports on the latest comments by Azalina Othman Said, a government minister for law and institutional reform, who continued to criticise the perceived failure of arbitrations and stated that "a strict code of ethics for arbitrators will cut any sham arbitration - that could go so far as to try to cripple sovereign nations - at its knees". Azalina also raised the issue of forum shopping, stating that claimants are able to do this and engage in an “endless pursuit” because “they are funded by a litigation fund with seemingly deep pockets and investors backing their pursuit.” In a separate interview with El País, Azalina Othman Said elaborated on her position regarding third-party funding and the need for more regulation of the practice, stating that whilst she appreciated there was a need for “legitimate funding”, it is also true that “there must also be accountability.” Regarding previous statements that the Malaysian government would pursue legal action against Therium for its role in funding the Sulu claimants, Azalina clarified that they were not threatening the funder, but if they find “an intention to subscribe to unlawful strategies or activities” then the government will “do what we need to do to defend our reputation.”
Commercial Regulatory Issues

Dutch Implementation of the EU Representative Actions Directive Sets Criteria for Litigation Funding

Analysis of new regulations which affect litigation funding in the European Union has largely focused on the negative impact of potential reforms that may be implemented as a result of the Voss Report. However, in the more immediate future, we will no doubt see how different countries within the EU will implement the Representative Action Directive, which may have an equally significant impact on the proliferation of third-party funding on the European continent. In a piece of analysis published in Lexology, Jeroen van Hezewijk, Jelle Drok, and Marco Vogels of Freshfields Bruckhaus Deringer, analyse the Netherlands’ implementation of the Directive through the ‘Dutch Implementation Act’. Having entered into force on 25 June 2023, the Freshfields authors examine the scope of the Netherlands’ implementation, as well as its specific regulations around issues such as qualified entities and litigation funding. With regards to litigation funding, the authors note that the new act has expanded upon previous legislation that governed the criteria for third-party funding of collective actions. These include prohibitions on actions brought against “a defendant that is a competitor of the funder or against a defendant on which the funding provider is dependent.” From a disclosure and transparency standpoint, the implementation act requires that when funding is involved in cross-border representative actions, the qualified entity must disclose its funding source on its website. Further disclosure of information around third-party funding may also be requested.
Announcements Commercial Regulatory Issues

New report warns: Restrictions on legal finance would leave EU businesses and consumers more vulnerable

European businesses and consumers could be left without access to a vital financing tool providing access to justice, experts warn today.

A report by the International Legal Finance Association (”ILFA”), which analyses proposed regulation on legal finance recently endorsed by the European Parliament, warns that if implemented, this could create a legal environment in Europe that would prevent many meritorious cases from being pursued.

This would be to the detriment of businesses — including startups and SMEs — and consumers alike, and it would only grant a licence for wrongdoers to continue to harm EU citizens and smaller, less well-resourced SMEs.

Legal finance provides the necessary resources in what are often lengthy and expensive legal endeavours, which empowers consumers and businesses, large and small, to seek the remedy they are due. Many funded matters are “David vs. Goliath” in nature, in which a smaller company is engaged in litigation against a larger well-resourced adversary. For EU citizens, it has helped bring cases in Europe on behalf of individuals and collective rights’ claims against a number of corporate entities.

However, in October 2022, an own-initiative report from Member of the European Parliament (MEP)  Axel Voss made recommendations which would significantly undermine the availability of legal finance within the EU.

The proposal put forward by Axel Voss MEP would make it more difficult for small and medium-sized enterprises (SMEs) to mitigate risk and keep capital in their business, and for consumers to have the necessary resources to seek redress and defend their rights. It includes the introduction of a fee cap for funders and a controversial forced disclosure provision for claimants, all of which would drastically reduce the economic viability of legal finance.

Now, experts in legal finance, collective redress, and consumer rights speak out about the dangers of the EU turning Voss’ recommendations into law. ILFA challenges the assumptions in the Voss proposals, as follows:

  • Lawmakers across EU member states are already struggling to implement the Representative Actions Directive (RAD) - aimed at strengthening the collective interests of consumers and ensuring a right to redress via representative actions. Limiting legal finance risks undermining the positive steps being made to create a collective redress regime that works for consumers.

  • Legislating the recommendations of the Voss Report would embolden large companies to engage in intellectual property (IP) theft from Europe’s SMEs. Without legal finance, Europe’s SMEs cannot defend themselves against malfeasance by multinational corporations or well-resourced Chinese companies.

  • Legal finance could be a vital component in the future battles on data, artificial intelligence, and new technologies involving analysis of complex issues and new legal concepts which will require resourcing to ensure that the EU’s “Brussels Effect” is realised. There are currently few, if any, resources available to fund meritorious litigation with scant evidence in the Voss Report that public funding or bank loans could assist.

  • Legal finance is an emerging market in Europe. The steady growth of legal finance in Europe is not only beneficial to European companies and consumers, but to the European economy.  Sophisticated and well-established investors, including pension funds and institutional investors, are continuing to see investments in legal finance as a worthy addition to their portfolios, driving important investment into the European economy during turbulent times.

Gary Barnett, Executive Director of ILFA, says: “Legal finance empowers businesses, large and small, to mitigate risk and maintain sufficient capital so they can grow and innovate. Without access to this financing, many meritorious claims, including those brought by small and medium-sized enterprises (SMEs) and consumers, would not go forward. Legal finance providers are experts in finding the most meritorious, and often important, cases that the courts need to hear and are willing to invest the time and money into issues that serve the public good.  The EU should be finding ways to increase access to this vital resource that benefits the EU legal system and its citizens.”

Prof. Dr. Ianika Tzankova, First European Chair of Mass Claim Dispute Resolution, partner at Birkway, says: “One of the big advantages of the Representative Actions Directive in my view, is that it explicitly recognises the importance of the principle of equality of arms, meaning a fair balance in the opportunities given to both parties. Legal finance takes seriously the idea that financial equality of arms is required for effective collective redress and consumer protection. In fact, without the availability of that funding source I doubt there would be any meaningful collective redress in the EU right now.”

Thomas Kohlmeier, Co-founder and co-CEO of Nivalion AG, a provider of Legal Finance Solutions in Europe, says: “The Rule of Law in Europe needs the support of funders who understand the law and are willing to share in the risk and invest in meritorious cases. The question that has not been answered to date is what happens to all those important cases that will go unheard in the courts if the special interests get their way? It seems almost cynical to restrict access to justice on the basis of unproven allegations and misunderstanding of key economic principles.”

The report is released as the deadline for European Member States to implement the Representative Actions Directive has passed on 25 June. The EU Commission will begin enforcement action against a number of member states given their failure to transpose the RAD after a two-year hiatus meaning important cases against corporate malfeasance could be jeopardised.

ILFA recommends that any further EU legislation should await the full implementation of RAD and comprehensive consultation with key stakeholders, such as consumer rights groups and SMEs Executive Agency, and ensure that any regulatory proposals are based on facts, data, and real-world experience.

Consumer rights experts are concerned that further legal finance regulation will affect the realisation of the Representative Actions Directive (‘RAD’), Europe’s first class action law.

The full report from ILFA, Resourcing the Rule of Law, is available here.

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Commercial Regulatory Issues

Law Professors Argues Funders are Not “Passive Partners” in Mass Tort Lawsuits

Critiques of third-party litigation funding tend to focus on two main issues: the perceived lack of transparency around funders’ involvement, and the potential for these funders to unduly influence the litigation process. A new academic paper suggests that a major issue is the involvement of litigation funding in mass tort lawsuits, arguing that funders will control the litigation in order to drive up their own financial returns whilst leaving the actual victims worse off. An article by Bloomberg Law features an interview with Samir Parikh of Lewis & Clark Law School, who recently published a paper entitled ‘Opaque Capital and Mass Tort Financing’ on the Yale Law Journal Forum.  In the interview, Parikh claims that there are no real restrictions on outside capital taking control of mass tort lawsuits, despite the fact that litigation funders almost unanimously assert that they do have control over the litigation process or on settlement decisions. Parikh’s essay states that funders are never “passive partners” and that the reason these investors are pursuing mass tort cases so actively, is because they are aiming “to dictate outcomes.” Parikh compares the situation to other investment markets, claiming that “it’s a playbook we’ve seen private equity funds run in distressed debt situations all the time. And the truth is it could be happening in cases that we don’t know about.” Parikh’s theory centers around his concept of “the Alchemist’s Inversion”, where funders will look to create mass tort cases without doing proper due diligence on all the claimants, then they will look to increase the value of the claims before dictating the timing and details of any settlement. Parikh believes that these kinds of situations already exist, but with the alleged danger posed to the actual claimants in mass torts, he argues that “even if it’s happening on a small scale, the point is the explosion of the practice should be anticipated.”
Announcements Commercial

Manolete Partners Releases Audited Results for FY23

Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing company, today announces its audited results for the year ended 31 March 2023.  Steven Cooklin, Chief Executive Officer, commented: "The annual results for FY23 mask a picture of two very different six-month periods for the Company: the first half of the trading year was subdued, as the Company had only just begun to emerge from the ending, in April 2022, of the temporary suspension of certain important insolvency laws that the UK Government had instigated in June 2020 in response to the COVID-19 pandemic. While normal insolvency laws resumed at the start of the financial year, there is always a natural time lag between insolvencies commencing and the associated litigation claims being referred to Manolete, as Liquidators and Administrators need time to conduct their regulatory investigations before they can assemble cases for consideration by us. The second half saw a strong resumption of the growth that the Company had exhibited prior to the pandemic, as the UK Insolvency Market returned to normal operations with a strong recovery in cases being referred to us.  Given the fact that we enjoyed only the latter six months of more "normal" trading, the results are highly commendable given the loss made in H1 and recovery in H2. We had a record number of 798 new case enquiries and a record number of 263 new case investments; gross cash receipts from completed cases were at a record level of £26.7m and a new record was also set with 193 cases being legally completed in the 12-month period. We ended the year with another record number of 351 live cases in progress and the Company returning to profitability in the second half. These positive KPIs have continued into the current FY24 - with signed cases for the first two months of FY24 being 154% higher than the first two trading months of the FY23. Consequently, we have added, and continue to add, to our expert in-house legal and financial analyst teams to address the increased level of demand for our insolvency litigation solutions. With prevalent headwinds of inflation and significantly higher interest rates facing the UK economy, the Company is well set for continued growth over the foreseeable future". Financial (statutory and non-statutory) highlights:
  •     Realised revenues on completed cases were £26.8m, an increase of 76% (FY22: £15.2m) although FY23 contained an exceptionally large funded case completion of which £4.9m was recorded in realised revenue (total settlement £9.5m).
  •     129% of total revenues represented by realised revenues on fully completed cases (FY22: 77%) offset by negative unrealised revenues.
  •     Increase in the valuation of the cartel cases contributed £1.2m to gross profit in FY23 (FY22: £5.1m).
  •     EBIT reduced by 159% to a loss of £(3.1)m (FY22: £5.3m) a result of pressure on valuations in H1 FY23 on existing cases and a single rare larger case loss at trial.
  •     The Company made a loss before tax of £(4.0)m (FY22: £4.5m profit).
  •     Gross cash receipts from completed cases were £26.7m, an increase of 72% (FY22: £15.5m).
  •     The Company's retained share of gross cash receipts from completed cases (after all legal costs and payments to Insolvent Estates) was £13.1m, an increase of 47% (FY22: £8.9m).
  •     Cash generated from operations (after all completed case costs and all overheads but before new case investments and taxation) was £8.0m (FY22: £4.4m).
  •     Gross cash of £0.6m and borrowings of £10.5m (FY22: £2.2m and £13.5m) as at 31 March 2023 and £14.5m unutilised funds available on the Revolving Credit Facility with HSBC.
  •     Final dividend of nil per share. 
Operational highlights:
  •     New case investments in UK insolvency cases, an increase of 65%: 263 in FY23 (FY22: 159).
  •     Based on unaudited internal management information: ROI of 125% and Money Multiple of 2.2x from 689 completed cases since inception
  •     Based on unaudited internal management information: 193 cases were completed in FY23 (FY22: 139 cases), with an average duration per case of 15.5 months (FY22: 13.2 months), generating a Money Multiple of 1.9x (FY22: 1.87) and an IRR of 131% (FY22: 132%)
  •     Average case duration across the full portfolio of 689 completed cases is 12.8 months
  •     29% increase in live cases: 351 in process as at 31 March 2023 (272 as at 31 March 2022)
A copy of the annual report and accounts will be available on the Company's website shortly and will be posted to shareholders in due course.
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Consumer

Supporters of Louisiana Litigation Finance Disclosure Bill Discuss Route Forward After Governor’s Veto

Efforts to increase the amount of regulation around litigation financing within individual states has been on the rise throughout the last year, with state legislatures across the US introducing new legislation. A recent attempt in Louisiana, which placed a large emphasis on increasing transparency requirements for third-party funding, suffered a major setback as the Governor vetoed the bill which had been approved by the legislature. Reporting by the Louisiana Record provides an update on efforts by supporters of Senate Bill 196 to push forward with seeing these increased disclosure measures implemented. Lauren Hadden, general counsel for the Louisiana Association of Business and Industry (LABI), stated that if the state legislature is able to reconvene later in June, “we would obviously love to see SB 196 among the list of bills taken up.”  However, as it is currently uncertain whether the legislature will come back for a veto-override session, Hadden suggested that the bill’s supporters “stand ready to work with all interested parties to once again develop legislation that addresses this issue during next year’s legislative session.” Hadden argued that SB-196 was not an attempt to outlaw or restrict third-party litigation funding, instead it was designed to be “a balanced transparency measure that would have simply balanced the ledger in litigation.” The decision as to whether or not the legislature will hold a veto-override session will likely not be motivated by the litigation financing bill itself, as Republican lawmakers in the legislature have discussed it primarily in relation to the Governor’s plans to veto a more contentious bill passed by House Republicans.
Announcements Commercial

New research offers inside look at how businesses are managing litigation in uncertain economy

Burford Capital, the leading global finance and asset management firm focused on law, today releases new independent research on how in-house lawyers are adjusting their strategies in a period of sustained uncertainty. Businesses are seeking to manage risks and costs, and in turn, legal departments—and the outside law firms that work with them—have the opportunity to position themselves as part of the solution, with legal finance expected to play a role.

To better understand how macroeconomic trends impact senior in-house lawyers’ thinking about litigation, managing risk and their expectations for their law firm partners, Burford commissioned independent research that was conducted via extensive one-on-one interviews with 66 GCs, heads of litigation and other senior lawyers responsible for litigation at companies in the US, Europe, Asia and Australia.

Nearly three in four (74%) senior in-house lawyers expect to see an increase in the volume of disputes over the next two years due to the current geopolitical, economic and regulatory environment. Four in five (80%) say the current economic uncertainty will have knock-on effects for the legal department. Not surprisingly, a solid majority (62%) expect their law firms to offer more cost and risk-sharing solutions, and over half (51%) expect their firms to be knowledgeable about legal finance.

Christopher Bogart, CEO of Burford Capital, said: “We at Burford have been at the forefront of legal finance since 2009, working with lawyers in good and bad economic times. What remains constant is that in-house lawyers are always looking for ways to maximize corporate value and share risk. Burford’s latest research confirms that legal finance has taken on greater importance for businesses, especially as uncertainty in the global economy remains. We stand ready to partner with clients to solve their pressing needs, and to equip their outside counsel to be as nimble and innovative as their clients expect.”

Key findings from the research include:

  • The economy is increasing the volume and potential budget challenges of commercial litigation and arbitration.
    • Senior in-house lawyers expect to see an increase in the frequency of commercial disputes in the next two years, and the economy is exacerbating the challenges in-house lawyers face in paying for litigation and arbitration.
    • Cost causes some businesses to forgo meritorious claims and awards, while others are becoming more proactive in safeguarding claims as valuable business assets.
      • “[I]n an economic downturn, we may not be as motivated to pursue some litigation or transactional matters without creative billing options. Law firms want to be sticky with their clients, and companies are increasingly narrowing down who they work with to add more favorable terms with a select group of firms,” said an associate general counsel of a media and entertainment corporation.
  • GCs believe it is important for the legal department to show it can not only manage costs, but also add value to the business.
    • Cash flow and liquidity remain very important factors for GCs when they consider pursuing meritorious claims.
    • While GCs don’t use quantitative financial modeling of commercial claims, most say it would be valuable to be able to predict potential returns.
    • The availability of legal finance increasingly plays a role in deciding whether or not to pursue meritorious litigation or arbitration claims.
      • “[Legal finance] gave the CFO the opportunity to time recoveries as he needed them and use that funding to invest in the company,” said a general counsel of a global food and beverage company.
      • “I have explored the use of legal finance and would do so again. The liquidity aspect is a big needle-mover for many companies, especially because it could provoke a settlement earlier, bring in money earlier and de-risk litigation,” said corporate counsel and director of a global retail corporation.
  • GCs expect more financial innovation from outside counsel.
    • GCs expect their law firms to offer more cost and risk-sharing solutions, particularly in a down economy, which also means that law firms are expected to be knowledgeable about legal finance.
      • “I want my outside counsel to be aware of and advise on every option available to us in setting a strategy,” said a chief litigation counsel of a manufacturing corporation.

The 2023 GC Survey can be downloaded on Burford’s website. Extensive one-on-one interviews were conducted by phone between March and May 2023 by Ari Kaplan Advisors.

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.

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Case Developments Commercial

Dieselgate Claims Demonstrate Power of Litigation Financing

Consumers who have been the victim of corporate negligence or fraudulent practices by large multinationals have always been at a disadvantage when it comes to seeking justice, overwhelmed by the sheer scale of legal and financial resources that companies have in reserve. However, recent years have demonstrated that litigation funding can make a significant impact in leveling the playing field between consumers and corporations. In a blog post on LinkedIn by Sparkle Capital Limited, a UK litigation funder, this exact dynamic is explored in relation to the ‘Dieselgate’ emissions scandal which has illustrated the power of litigation financing. The article highlights the staggering number of consumers that approached law firms in the UK to pursue claims against vehicle manufacturers, noting that without third-party funding, very few of these claims against well-resourced companies could have been pursued.  Sparkle Capital goes on to point out that these partnerships between funders, law firms and claimants has achieved notable progress in securing compensation for consumers, with manufacturers forced to reach significant settlement agreements in the face of these funded claims. They also suggest that the successes of the Dieselgate claims lay out a perfect example for how litigation funding can be used in future situations where a very high volume of consumers are looking to bring claims against multiple large corporations.