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Commercial Regulatory Issues

California Legislature’s Litigation Finance Bill On Hold Until 2024

As we have seen in recent weeks and months, there has been accelerated momentum behind state legislatures moving forward with legislation to govern and more heavily regulate the use of third-party litigation funding at the state level. However, in an unexpected turn of events, it appears that California’s proposed bill to impose stricter guidelines on litigation financing will not be moving forward this year. An article by The Recorder covers an announcement by California State Senator Anna Caballero that the advancement of SB 581, a bill which would have increased restrictions on the funding of consumer litigation, is now on hold until January 2024. According to the reporting, this decision was announced alongside numerous other bills as part of the Legislature’s ‘suspense file day’, when decisions are made as to the future progression of bills in the committee stage. Whilst Sen. Caballero’s announcement did not offer any explanation as to why the bill’s advancement had been stalled, it is notable that SB 581 had already seen its scope reduced from the initial draft text published in February. The revised bill announced in April had shed the mandatory disclosure requirements for third-party funding, and narrowed its scope to focus on lending to small-scale consumer litigation, rather than commercial litigation. With these changes made after significant criticism from the likes of ILFA and Consumer Attorneys of California, it is difficult to predict what the final version of SB 581 will look like, if it indeed moves forward in 2024. 
Commercial Regulatory Issues

Mastercard Class Action Representative Discusses State of Collective Redress 

The UK’s collective redress regime has received significant attention for its positive developments in recent years, and particularly for the involvement of litigation funders in supporting collective claims against large corporations. At a conference in London this week, the class representative for the high profile claim being brought against Mastercard spoke about the current state of class actions in the UK. Reporting by The Law Society Gazette highlights comments made by Walter Merricks, a former solicitor and financial ombudsman, at the London International Disputes Week event.  Speaking on a panel discussion about the future of collective redress in the UK, Merricks argued that defendants have an incentive to settle before trial under the current collective redress regime. He highlighted that in a settled claim, unclaimed damages may be returned to the defendant whilst unclaimed damages in a trial are distributed to charity, which he argues should incentivize defendants to look at settling ‘when the doors of the court loom.’  However, Merricks stated that those involved with collective claims are ‘all a little nervous’ at the moment, as they await the Supreme Court’s ruling on the DAF appeal, which could have a huge impact on the future of litigation funding in ongoing and future claims. Merricks also announced the formation of the Class Representatives Network, a new organization designed for class action representatives to come together and share their insights and experiences. 
Commercial Deals

An Analysis of Litigation Funding’s Potential Growth in Italy

As LFJ reported last week, we are seeing more and more evidence that litigation funding is becoming more widely adopted in Italy and is being put forward as a capital solution for a wide range of litigation across the public and private sector. A new article looks at the potential future for the litigation financing market in Italy, examining what sectors would benefit most from its adoption and how the market may be helped by legislative reforms. A blog post on HUB | Area Centro Meridionale’s LinkedIn, provides analysis on this topic by Daniela Saitta, president of LFAA (Litigation and Financing Arrangement Advisory) and Stefano Previti, managing partner of Studio Previti and founder of LFAA.  Saitta and Previti highlight bankruptcy proceedings as one of the biggest areas which could benefit from a growth in litigation funding in Italy, stating that there are around 100,000 ongoing insolvency proceedings in the country. They also point to litigation areas such as international arbitration, banking and finance disputes, and compensation claims as potential beneficiaries of third-party funding. Looking at the effect of legislative reforms that could pave the way for an increase in litigation finance usage, the authors highlight two decrees which reformed the civil process and worked to simplify judicial activity in order to increase efficiency and reduce case duration. Saitta and Previti point out that if these decrees are successful in reducing the duration of proceedings to match the standards in other European jurisdictions, cases in Italy may become more attractive to litigation funders.
Commercial Deals

Opportunities and Challenges for Litigation Funding in India

When discussing the future growth of litigation funding in new jurisdictions around the world, India is often highlighted as one of the most attractive opportunities, given the size of its economy and the associated scope of its litigation market. An article by Business Today provides an overview of the current state of litigation financing in India, with insights provided by industry leaders from different organizations involved in the sector. Ashish Chhawchharia, partner and head of restructuring services at Grant Thornton Bharat, points to the combination of rising legal costs and the huge volume of cases, as being a key driver for the industry’s growth in India.  To demonstrate the size of the potential market, the article includes data from the National Judicial Data Grid, which reveals that as of May 1, 2023, there are nearly 43.5 million pending cases throughout the Indian court system. With such a large volume of cases, new funders like FIGHTRIGHT Technologies are turning to analytics tools to help assess cases and perform the necessary due-diligence, with FIGHTRIGHT’s CEO Nitin Jain highlighting that by utilizing technology, they can make litigation funding ‘one of the least risky products’.  However, obstacles remain for litigation funding’s growth in India as Sumit Agrawal, founder of Regstreet Law Advisors, states that ‘the regulators are monitoring this trend closely to ensure that it is properly regulated and does not lead to any financial misconduct or illegal activities.’ Jain argues that increased regulation will be inevitable as the industry matures, and suggests that some degree of legislative standards will be beneficial, stating that ‘the more formal it becomes, the better it is for the industry.’
The LFJ Podcast
Hosted By Adam Gerchen |
In this episode, Adam Gerchen, Co-Founder and CEO of Gerchen Capital Partners, discusses the evolving secondaries market for litigation funding. Adam explains why he chose to focus exclusively on secondaries for his GCP venture, why the secondaries market is coming to fruition at this point in time, what type of deal flow GCP is experiencing, and how the presence of a secondaries-only fund like GCP in the Litigation Finance market will influence the trajectory of the industry. [podcast_episode episode="11365" content="title,player,details"]
Case Developments Commercial

Woodsford-Funded Claimant Awarded £12.6 Million in Damages in Scottish Court

The harmonious relationship between a funder, a law firm and the claimant is at the center of the ongoing success of the litigation finance industry. However, as a recent judgement demonstrates, there are occasions where funders must support claimants who have been failed by their legal counsel, and as a result, lost out on a successful litigation outcome. In a post last week, Woodsford announced that a claimant it had funded, Centenary 6 Limited (C6), had been awarded £12.6 million in damages for the negligent behaviour of TLT Solicitors that led to C6 losing its prior case against Grant Thornton. Lord Ericht of the Scottish Outer House, Court of Session, ruled that TLT was at fault for its failure to provide C6 with adequate advice on ‘an order for caution for expenses’, which subsequently led to C6’s claim being dismissed. Commenting on the outcome of the case, Woodsford’s chief investment officer Charlie Morris stated: “This fantastic result has been a long time in the making. Woodsford started supporting C6 in this classic David v Goliath fight back in June 2017. On the one side, C6 with no meaningful assets, on the other a well-resourced law firm backed by deep-pocketed PI insurers. Despite having a meritorious claim (negligence was ultimately admitted), the defendant and its insurers dragged this out for far longer than they should have. They now have to pay the price for that. Woodsford is delighted to have been a part of this successful team.”
Announcements Commercial

Burford Capital Reports Full Year 2022 Financial Results

Burford Capital Limited ("Burford"), the leading global finance and asset management firm focused on law, today announces its audited financial results for the year ended December 31, 2022 ("FY22").1 The Burford Capital 2022 Annual Report, including financial statements (the "2022 Annual Report"), is available on the Burford Capital website at http://investors.burfordcapital.com. Christopher Bogart, Chief Executive Officer of Burford Capital, commented: "The pace of case progress in our portfolio quickened in 2022, resulting in a meaningful improvement in our financial results. Earnings per share more than doubled, driven by a 47% increase in total revenues, including 64% growth in capital provision income. Moreover, we deployed a record $457 million on a Burford-only basis into new capital provision-direct assets, historically our most profitable, and generated robust Burford-only cash receipts of $328 million. "Court activity has continued to work through the backlog caused by the Covid-19 pandemic, and we are seeing a high level of portfolio activity in 2023, with 28 case milestones already having occurred and 61 more expected through the remainder of the year. "We believe our portfolio is at a turning point, with a potential increase in our realization rate as more of our capital provision assets resolve. We expect to continue to see strong demand for our capital from tighter financial conditions and an unfolding economic downturn. "We believe that our revised approach to determine the fair value of our capital provision assets under US GAAP represents a defining milestone in the evolution of the accounting for our asset class, and we expect it to become the industry standard. As we expected, the application of the revised fair value policy has resulted in a moderate increase in the carrying value of our capital provision assets." The full FY22 highlights can be found in Burford Capital’s press release here.
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Case Developments Commercial

LCM Announces Settlement in Australian Class Action

Litigation Capital Management Limited (AIM:LIT), a leading international alternative asset manager of disputes financing solutions, announces that a settlement (subject to court approval) has been reached in an Australian class action.  The class action was brought in the Federal Court of Australia against the Commonwealth of Australia on behalf of persons who are alleged to have suffered loss and damage as the result of the contamination of their land at seven sites in proximity to Department of Defence military bases.  The Commonwealth has agreed to pay the sum of AUD$132.7M in order to resolve the class action, prior to the commencement of a hearing in the case scheduled to begin on 15 May 2023, as documented in a Heads of Agreement that has been executed by the parties. All other terms of the settlement are confidential, and the settlement and LCM's fee are subject to court approval. The claim forms part of LCM's managed Global Alternative Returns Fund ("Fund I") and was funded directly from LCM's balance sheet (25%) and Fund I Investors (75%). LCM is presently unable to estimate the quantum of the likely revenue and profit that will be generated from this investment if the settlement is approved by the court, but will provide a further announcement in relation to this in due course. Patrick Moloney, CEO of LCM, said: "This settlement demonstrates LCM's experience in class actions in Australia. Producing an outcome for the parties without incurring the expense of a contested hearing, the settlement is a positive resolution both for LCM and for the class members, who have been able to utilise LCM's funding in order to achieve this result.  We are pleased to have been able to support class members in upholding both environmental and health protections."
Commercial

Montana Enacts New Legislation Regulating Third-Party Litigation Funding in the State

Calls for increased regulation of litigation financing have traditionally been aimed at national governments, with lobbying efforts focused on enacting nationwide changes to impose stricter oversight on the practice. However, the last few months have demonstrated that these efforts may be finding more success in individual states, as just last week, Montana became the latest state to enact new legislation regulating third-party litigation funding. Senate Bill 269, the ‘Litigation Financing Transparency and Consumer Protection Act’, was signed into law by Governor Grey Gianforte last week, and enforces several new requirements for the use of litigation funding for civil actions in Montana.  The most notable measure included in SB 269 is the mandatory disclosure of all litigation financing contracts. The bill states that ‘a consumer or the consumer's legal representative shall, without awaiting a discovery request, disclose and deliver’ the litigation financing contract to all parties involved in the litigation. This includes all parties and their legal representatives, courts or tribunals, and insurers “with a pre-existing contractual obligation to indemnify or defend a party to the civil action.” The legislation also prohibits anyone from acting as a litigation financier in Montana, unless they are formally registered with the secretary of state. Section 7 of the bill does provide a number of exemptions from the requirements; however, this primarily applies to non-profit or business entities that provide financing for a legal action without receiving ‘the payment of interest, fees, or other consideration’.