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Commercial Fundraising

Risk Averse Investors Adds Pressure to Funders Seeking Capital

The beginning of 2023 saw much speculation that litigation funding was about to enter the next phase of impressive growth, fueled by a rise in litigation that often accompanies an economic downturn, and the associated need for outside capital as legal budgets are tightened. However, it has recently been emphasized that funders are not insulated from the same troubles faced by financial markets, and as a result, not all funders will be able to fully benefit from future opportunities. An article in Bloomberg Law explores the current difficulties faced by commercial funders, highlighting the recent financial struggles of Lionfish, and last week’s announcement of layoffs at Validity Finance following a reduction in investment from its backer, TowerBrook Capital. Looking at the uncertain market conditions, Omni Bridgeway’s co-chief information officer Matt Harrison suggested that many funders may not survive the current economic instability, saying that “they don’t have the money available to them to invest in cases and in law firms.” David Perla, co-chief operating officer at Burford Capital, highlighted that the long delay between investment and return may be causing hesitancy among investors being asked to provide capital to a funder’s third or fourth round of financing. Perla argued that it is difficult to sell investors on further capital injections without being able to demonstrate success, explaining that “if you’re on fund three or four and you’re not doing well, you can’t sell the mystery anymore.” In an environment where it is increasingly difficult for businesses to raise capital, one of the major issues for litigation funders is the level of risk that investors see in the proposition. Charles Agee, CEO of Westfleet Advisors, explained the issue succinctly: “There’s been a pullback from risk assets, and litigation is definitely seen as a risk asset.”
Commercial Deals

LexCapital and ASMEL Finalize Contract for Litigation Funding Services to Local Authorities in Italy

As LFJ reported last month, the Italian litigation funding market experienced an exciting new development, as a startup Italian funder announced a partnership with a local association to provide funding for litigation on behalf of its partner institutions. A month later, it appears that the partnership is moving ahead, as it has been reported that the contractual deal for ongoing litigation funding arrangements between LexCapital and ASMEL has been finalized. Reporting in Legalcommunity.it reveals that the contract for litigation funding agreements between LexCapital and ASMEL, which represents over 4,000 local authorities in Italy, has been agreed upon. The article states that the contract governing these future funding activities was structured by CMS Law’s public finance group, led by Domenico Gaudiello and Domenico Musso. The agreement will allow ASMEL to promote LexCapital’s funding and litigation expertise services to all the associated local authorities, using this standardized approach. As reported last month, the local authorities will be able to transfer the dispute rights for active and passive cases to LexCapital, who will cover the legal costs and take a portion of any financial award if the dispute is successful.
Commercial Fundraising

TowerBrook Capital Cuts Investment with Validity; Funder to Lay Off Over Half its Staff

Private equity firm TowerBrook Capital was Validity Finance's primary investor in the firm's 2018 launch. However, TowerBrook has announced that it will cease to continue funding Validity due to a perceived lack of enterprise value, this despite Validity's high internal rate of return (34%). Bloomberg reports that New York-based Validity plans to slash staff from 20 down to 7-10. The funder has already let six employees go, with more layoffs to come. Validity CEO Ralph Sutton says the funder will focus on IP claims going forward, as those have been the most profitable, with the funder having “won” all of its eight completed patent investments.

Sutton claims he has received $50MM of capital commitments out of a total $100MM fundraise he is seeking to finance future IP litigation. For its part, TowerBrook will remain a minority investor in Validity, and maintain its commitment to the cases it has already funded.

According to Sutton, TowerBrook does not want to sell its stake in Validity's cases, viewing Validity's IRR as strong overall. The investor is simply concerned about a potential exit from the funder over the coming years, given the lack of enterprise value over anything beyond the portfolio of cases Validity manages.

Currently, Validity has invested more than $400MM in nearly 75 cases, with the portfolio having fully resolved 13 of those, and returned more than the principal investment in 12 of those 13.

Announcements Case Developments Commercial

RORO CAR SHIPPERS FAIL IN THEIR ATTEMPT TO LAUNCH UK SUPREME COURT APPEAL OF CARTEL CLASS ACTION CERTIFICATION

In a huge boost to the hopes of millions of UK consumers who stand to gain from a Woodsford-funded collective action against five large shipping companies who engaged in an anticompetitive cartel, the UK Supreme Court announced yesterday that it had refused to allow a further appeal against certification of the collective action to proceed.

In 2018, the European Commission (EC) fined the international shipping companies a total of EUR 395 million for their participation in a cartel between 18 October 2006 and 6 September 2012.

The EC found that the companies fixed prices, rigged bids and allocated the market for roll-on, roll-off (“RoRo”) transport of vehicles into Europe. According to the EC, the companies had agreed to maintain the status quo in the market and to respect each other’s ongoing business on certain routes, or with certain customers, by quoting artificially high prices or not quoting at all in tenders for vehicle manufacturers.

The claim, which seeks compensation significantly in excess of £100 million, is one of the first to be heard in the UK’s Competition Appeal Tribunal (CAT), which ruled earlier in 2022 that a collective proceedings order (CPO) could be launched on behalf of U.K. consumers and businesses that allegedly paid inflated prices due to the actions of the cartel.

Affected cars include passenger cars and light commercial vehicles such as vans, which represent over 80% of all new car and van purchases in the UK. Examples of affected cars include Ford, Vauxhall, Volkswagen, Peugeot, BMW, Mercedes, Nissan, Toyota, Citroën and Renault.

The CAT action was filed on behalf of the class by consumer rights champion, Mark McLaren. Financed by Woodsford, McLaren is represented by Sarah Ford KC, Emma Mockford and Sarah O'Keeffe of Brick Court Chambers, instructed by Scott + Scott UK.

Woodsford’s Chief Executive Officer, Steven Friel commented: "This is an important milestone for this case specifically, and also for promotion of collective redress in the UK more generally. Woodsford is dedicated to holding corporate wrongdoers to account and helping deliver access to justice. We are proud to support Mr. McLaren, who is now much closer to obtaining compensation for the millions of affected car purchasers.”

Hugh Tait, the Senior Investment Officer leading the case for Woodsford, commented: “This is a great success for consumer redress in the UK, and I am proud of Woodsford’s significant part in it. Woodsford is now clearly established as the most successful ESG and litigation finance business in this area of UK collective redress. My only regret is that big corporate defendants continue to use their significant legal and financial resource to fight technical arguments, with the goal of delaying compensation payments to consumers. “

Impacted customers can find further information about the case at https://www.cardeliverycharges.com/

A detailed case study can be found here.

About Woodsford

Since 2010 Woodsford has been helping to hold corporates to account for their egregious behaviour. Whether it is helping consumers achieve collective redress, ensuring that inventors and universities are properly compensated when Big Tech infringes intellectual property rights, or helping shareholders in collaborative, escalated engagement up to and including litigation with listed companies, Woodsford is committed to ESG and access to justice. Working with most of the world’s leading law firms, our strength lies in the combination of our legal experience, investment, business and technical expertise, together with significant financial resources.

Interviews, photos and biographies available on request.

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Announcements Commercial Deals

Omni Bridgeway Announces Completion of Fund 1 Secondary Market Transaction

Omni Bridgeway Limited (Omni Bridgeway, Company, OBL) (ASX: OBL) announces that the sale of a participation in Fund 1 to Gerchen Capital Partners (GCP) has completed and the Initial Payment of US$38.0 million has been received and distributed as set out in our announcement dated 11 May 2023.  Further, the residual interest in Fund 1, previously owned by the original investor, has been purchased by Fund 4, such that the original investor no longer retains any interest in Fund 1.  The continuing investors in Fund 1 will be GCP and OBL.
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Case Developments Commercial

Panthera Resources Agrees to Due-Diligence Deadline Extension with LCM Funding SG

As LFJ reported in February of this year, the gold exploration and development company, Panthera Resources, entered into an arbitration funding agreement (AFA) with Litigation Capital Management’s subsidiary, LCM Funding SG Pty Ltd. The agreement, which is set to provide Panthera with $10.5 million for a claim against the Indian government, is still being finalized pending further due diligence by LCM. Reporting by Sharecast provides an update on the AFA as Panthera Resources announced that it had agreed to an additional one-month deadline extension for LCM to fully complete its detailed due-diligence. Panthera stated that it did not expect further deadline extensions, and that once this due-diligence process was complete, Panthera and LCM would be able to finalize a funding confirmation notice. The claim in question focuses on allegations that the Indian government had breached the Australia-India Bilateral Investment Treaty. Commenting on the deadline extension, Panthera’s board stated: “In addition to pursuing a potential claim against the Republic of India for breaches of its obligations under the Australia-India Bilateral Investment Treaty, the company continues to pursue an amicable resolution of the dispute, and the grant of the Bhukia Prospecting License. In this regard, the company remains in advanced discussions with a potential joint venture partner pending the resolution of the LFA.”
Case Developments Commercial

Delaware District Court Rules in Favor of Compelling Plaintiff to Disclose Details of Financial Interests

Whilst state legislatures across the US continue to debate and advance legislation to mandate the disclosure of litigation funding in civil cases, in most jurisdictions the power to order disclosure still sits with individual courts and judges. This has been most frequently demonstrated in the area of patent litigation, and we now have yet another example from the Delaware District Court, where the court ruled in favour of compelling disclosure of financial interests. In a blog post on Lexology, Stanley M. Gibson, partner at Jeffer Mangels Butler & Mitchell, provides analysis on the district court’s ruling in Speyside Medical, LLC v. Medtronic CoreValve LLC et al, which granted the defendant’s motion to compel the plaintiff to provide information on its members and litigation funder. Medtronic had argued that the disclosure of this information was pertinent to the case, as it would bring to light any issues or biases caused by parties having a financial interest in the litigation’s outcome. The district court agreed with the defendant’s argument, and stated that the details of who has a financial stake in the case were “relevant to bias for purposes of future cross-examination” of the plaintiff’s members. Furthermore, the court ruled that the exact level of financial stake was relevant to this issue, explaining that a “1% stake will have a different impact on a witness than a 98% stake”.  Gibson notes that this information is most useful in providing context for the court in terms of what ‘winning’ the case would mean for each party, and as to the level of financial reward they could seek from recovery if successful.
Consumer

Louisiana Senator Makes Case for Litigation Funding Disclosure Bill

As LFJ reported last week, Louisiana has become the latest state in the US to advance new legislation that more closely regulates third-party litigation financing and increases disclosure requirements for funders operating in the state. With the bill making its way through the Louisiana legislature, the bill’s sponsor has spoken out in support of the proposed law and offered an argument for its necessity. In an op-ed published in the Shreveport Times, State Senator Barrow Peacock puts forward his argument that litigation funders are currently ‘using the civil justice system as an investment tool’, without any requirement that they disclose their involvement in cases. Sen. Peacock also suggests that the involvement of funders creates conflicts of interest between the claimant and their legal counsel, as he claims that the attorney’s salaries ‘are coming from the pockets of third-party financiers’, which supposedly allows a funder to exert control over the litigation. Sen. Peacock also includes the now common refrain from critics of the litigation finance industry, that third-party funding is a vehicle for foreign interests to undermine US national security. The op-ed concludes by not only asking readers to contact their state representatives to support Senate Bill 196, but also implores them to contact their representatives at the federal level to push for Congress to enact similar legislation that would mandate litigation funding disclosure nationwide.
Case Developments Commercial

LLS-Funded Class Action Enlists Hayne Royal Commission Barrister

For litigation funders, it is imperative that any legal action they choose to finance not only has a strong theory of the case to win, but also is paired with the best legal representation possible. This is especially true in high value class actions that may proceed to trial, such as the ongoing shareholder class action in Australia being brought against a prominent wealth management company over alleged failures to disclose misconduct. Reporting by the Australian Financial Review reveals that the class action being brought against Insignia Financial has enlisted the services of barrister Michael Hodge KC, who comes highly regarded having assisted the Hayne Royal Commission in 2018 as counsel. The investor class action, which is being led by Shine Lawyers and financed by Litigation Lending (LLS), is set to proceed to trial in Federal Court from June 5, with an expected duration of around five weeks. The class action representing shareholders who bought Insignia shares between March 1, 2014 and July 7, 2015, is centered on allegations that Insignia failed to disclose misconduct. This included conflicts of interest and insider trading, which led in turn to shareholders suffering financial losses.  Craig Allsop, joint head of class actions at Shine Lawyers, claimed that “the company breached its continuous disclosure obligations and misled its shareholders.” Insignia’s own spokesperson provided a statement saying that “Insignia Financial will vigorously defend the claim and is looking forward to having the matter heard and determined.”