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New research reveals growing business impact of in-house lawyers and legal departments as they increasingly generate cash recoveries

Burford Capital, the leading global finance and asset management firm focused on law, today releases new independent research based on a survey of 300 GCs and heads of litigation in the US and UK that demonstrates the transformative way that GCs view legal department impact. GCs seek to add value to the business, and affirmative litigation recoveries play an increasingly important role. GCs also see a role for their law firm partners and for legal finance, especially in relation to fostering innovation and providing support for affirmative recovery programs.

Christopher Bogart, CEO of Burford Capital, said: “Burford’s latest independent research shows that GCs are determined for the legal department to increase their business impact. Legal finance can help them, and the research shows that GCs are increasingly open to cost- and risk-sharing with third parties and that law firms need to be ready to talk to clients about this solution.”

Among the core findings of the research:

  • GCs are ambitious for the legal department’s impact in generating liquidity and transcending its traditional understanding as a cost center.
    • Over half (54%) say the legal department is understood to add value to the business by pursuing recoveries through litigation or arbitration.
    • An even larger majority (69%) say identifying new ways to add value to the business is the most important means by which in-house lawyers can contribute to the success of the company.
  • Still, many see opportunities to do more, specifically in adding value through meritorious affirmative recoveries.
    • Over half of those surveyed (51%) say they need to build infrastructure and process to add value through meritorious affirmative recoveries.
  • GCs expect law firms to be ready to provide guidance on value generation.
    • A solid majority (65%) say that receiving guidance from law firm partners about opportunities to innovate or add value to the business is one of the most important factors in individual GC success.
    • Six in ten say either that their panel litigation firms have spoken to them about legal finance in the last five years or that the firm’s doing so would have contributed to the company success.
  • Legal finance is poised to play an increasingly important role in GC success.
  • GCs see a role for legal finance, especially in relation to their affirmative recoveries.
  • Just under a third of GCs (27%) say their companies have used legal finance.
  • Similarly, almost six in ten say either that they reviewed legal finance partners in the last five years or that doing so would have contributed to the company’s success.

The 2022 GC Survey can be downloaded on Burford’s website, where full results are also available. The research report was conducted in June 2022 by GLG via an online survey, with responses from 300 US and UK GCs, heads of litigation and other senior in-house lawyers responsible for their companies’ commercial litigation.

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 principal offices in New York, London, Chicago, Washington, DC, Singapore, Sydney and Hong Kong.

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

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Commercial Deals

Patent Infringement Litigation Represents Major Growth Sector for LitFin

One of the largest areas of growth for litigation funding commitments is in the world of patent litigation, with patent infringement cases representing a lucrative world of disputes between patent holders, inventors and corporations. These funded lawsuits have become increasingly prevalent, yet with this activity has come an added layer of scrutiny as to the nature and origin of third-party funding. Reporting in Bloomberg Law details this trend, highlighting the recent case of VLSI Technology and Intel Corp., where Fortress Investment Group funded VLSI’s case and successfully secured a $2.18 billion verdict in its favour. Both parties are now set to appear before a federal district court, to examine whether VLSI sufficiently disclosed the financial backing it received. Regardless of the outcome of that case, it is expected that funders will continue to target similar cases, as Westfleet Advisors' managing partner, Charles Agee, points out that the costly and protracted timelines of these cases often could not go forward without third-party funding. Despite the expensive nature of patent infringement disputes, the possibilities of large payouts like the VLSI case make them an attractive proposition for funders. This viewpoint is reflected by other funders, with Burford Capital’s managing director, Katharine Wolanyk, stating that their firm receives more intellectual property-related requests for funding than any other area. Wolanyk also notes that this activity is now seeing patent owners exploring third-party financing much earlier in the process.
Commercial Regulatory Issues

Industry Leaders Discuss the Value of Disclosure

One of the hot topics of discussion for litigation finance leaders, regulators and commentators, is the extent to which disclosure of third-party funding needs to be mandated and enforced.  With numerous examples of judges highlighting this issue in ongoing cases, and legislators proposing reforms to disclosure rules, the debate appears to be growing in importance. Reporting by Law360 outlines recent comments from industry figures at a conference hosted by UC Hastings Law School in San Francisco. Speaking in favour of enhanced disclosure, Hausfeld’s global managing partner, Brent Landau, argued that requiring disclosure will actually benefit funders, as it will grant added legitimacy to the practice through transparency. Speaking from a funder’s perspective, Jiamie Chen, director of investor initiatives at Parabellum Capital, claimed that while funders are not opposed to certain disclosure, she believes that the idea of disclosure being used to unearth conflicts of interest is misguided, due to the fact that funders do not influence decisions during the litigation process or offer legal counsel. Bringing a different point of view, Judge Vaughn R. Walker, a retired US District Court Judge, pointed out that the existence of funding should not influence a court’s perspective, as any verdict or decision on awards should be made based on a case’s merit alone. This viewpoint was reinforced by Steve Weisbrot, the CEO of UK claims administrator Angeion Group, who argued that litigation funding has been a positive for the legal industry, as it has enabled lawyers without access to funds to fight cases that are ignored by larger firms.
Commercial Fundraising

North Wall Builds on Previous Successes with New €500 Opportunities Fund

With the ongoing economic instability and inflation pressures felt around the globe, investment firms are looking for alternative avenues to maintain returns and scale future growth. As a result, those firms willing to explore more niche opportunities including litigation finance are continuing to raise capital to take advantage. Reported by Bloomberg UK, North Wall Capital is a recent example of this trend, as it looks to raise €500 million to complete a second opportunities fund focused on the European market. North Wall’s chief investment officer, Fabian Chrobog, said that as opportunities in traditional markets remain restricted, the firm is looking for additional funding partnerships to exploit these alternative asset classes. The firm has already raised €250 million, with a significant portion committed by MLC, an Australian superannuation fund. On top of this second Europe opportunities fund, North Wall may soon look to build its third fund focused on litigation, having seen great success with its previous endeavours which included a £100 million commitment to the law firm PGMBM to fight high-profile ESG cases.
Commercial Deals

Pravati Capital’s CEO Discusses the Growth of Litigation Funding and ABS for Law Firms

As the litigation finance industry continues to mature, established leaders within the industry are now able to trace recent developments to the history of this niche area of financing. One such long-established figure, Alexander Chucri, founder and CEO of Pravati Capital, recently shared his thoughts on the most significant changes in litigation funding and what the future of third-party funding holds. Speaking with Dealmakers’ LINE magazine, Mr Chucri spoke about the transformation of litigation finance from a boutique world of small investments, to law firms being open to and eager for financing from firms like Pravati.  In particular, Chucri honed in on recent developments in certain states in the US around Alternative Business Structures (ABS) for law firms, which allows non-lawyers to participate in law firm ownership. While he sees the benefits for law firms seeking capital, Mr Chucri maintains that for a funder like Pravati, it is far more advantageous to invest in a firm through existing methods rather than risk the complications and potential conflicts of interest that come by taking an equity position. As for the future of the litigation finance industry, Mr Chucri sees no slowdown on the horizon and expects growth to continue as law firms and corporates will utilise this tool in their litigation arsenal with increasing frequency. He also highlighted the benefits of working with a dedicated litigation funder over a hedge fund, as the former can handle all case underwriting needs and therefore reduce the complications of sharing confidential data with third-parties.
Commercial Regulatory Issues

Omni Bridgeway Weighs In on New Zealand’s Proposed Class Action Reforms

As regulation continues to be the subject of debate in the litigation funding industry, the differences in approach across jurisdictions has shed light on wider issues of legislation covering litigation. In New Zealand, this has most recently manifested through the government’s review of its class action regime and the impact of litigation funding. In an article for BusinessDesk, Omni Bridgeway’s Gracey Campbell offers a funder’s perspective on the Law Commission’s report on class actions, released in June of this year. Their analysis praised the Commission’s recommendations for courts to oversee concurrent class actions, but argued that where concurrent actions do not include members present in both actions, then they should not be classed as competing actions. Furthermore, Campbell suggested that any kind of certification test would only increase the time and cost burdens on proposed class actions, without providing significant benefits. With regard to the Commission’s proposals for third-party funding regulation, the article praised the report’s view of funding as primarily existing to provide access to justice, as well as the decision not to impose any kind of mandatory level of returns to class action members. However, Campbell argued against the proposal of a ‘rebuttable presumption’ that funders would provide for security costs, and instead argued in favour of giving the courts the power and discretion to order this based on a case’s individual circumstances.
Commercial Deals

General Counsels Share Views on Third-Party Litigation Funding

A common refrain from leaders and commentators in the litigation funding industry is that one of the biggest developments that has fuelled growth has been the uptake of third-party funding by corporates. However, the exact type of situation and motivation for these large companies to engage funders is not so clear, and some in-house counsels are still struggling to see the benefits over self-funding. Reporting from the International Legal Finance Association’s (IFLA) inaugural conference, Legal Newsline, highlighted comments by general counsels (GCs) at some of America’s leading companies that suggest widespread acceptance is still not a reality. Rishi Varma, general counsel for Hewlett Packard Enterprise, acknowledged that while the industry has momentum, GCs still have concerns around undue influence and control by funders over the litigation process and settlement decisions. Looking at the issue from a different perspective, Raytheon Technologies’ chief litigation counsel, Steven Greenspan, argued that a large obstacle is the imbalance in returns that a funder may receive. Greenspan stated that a situation where the funder’s own returns outweigh the client’s is a major issue, therefore funders may need to explore structure agreements which see a more equal distribution of financial return if companies are to be enticed. However, not all GCs shared the same concerns and objections. Sandy Grimm, chief legal officer at Southeastern Grocers, highlighted the benefits of being able to shift costs off the balance book and reduce impact on the company’s budget. Grimm pointed out that being in an industry that primarily values a company’s EBITDA, the value of moving those costs away from the budget and onto a third-party does represent a major benefit.
Commercial

Legal 500 Releases Funder Rankings and Shares Industry Insights from Litigators

Legal 500 has announced its litigation funding rankings for 2023. This year sees the rankings expand to cover not only the top UK funders, but also the leading funders in the US market. In its article announcing the 2023 rankings, Legal 500 provided an update on the state of the market with insights from industry leaders and litigators in both regions. Diane Sullivan, a partner in Weil’s New York office, described how the size and breadth of the industry had grown, with funders now engaged in a wide variety of cases from patent litigation to mass tort cases. Commentary from litigators also stressed the importance of the relationship between law firms and funders, with Jonathan Sachs, partner at BDB Pitmans in London, highlighting the need for funders to trust solicitors and to avoid trying to control the litigation process as a third-party. Meanwhile, Hausfeld’s Lucy Rigby pointed out that funders now exist in a competitive market, and to stand out from the crowd, they must go beyond just providing capital and excel in terms of speed and transparency Legal 500’s finalised rankings for this year included ten firms in its UK listings, whilst its inaugural US rankings included nine funders. Burford, Harbour and Therium were all listed as tier one funders in the UK, and Burford repeated that achievement in the US, alongside Omni Bridgeway. It is worth pointing out that Legal 500 has yet to disclose its methodology for assigning funders to its various tiers.
Commercial Regulatory Issues

Deminor’s CEO Argues the EU’s Proposed Fee Caps Would Harm the Industry

As Litigation Finance Journal has reported in recent weeks, the response to the EU Parliament’s approval of the Voss Report has been largely negative from industry leaders across the continent. Whilst funders and law firms alike recognise the need for regulation and oversight, the specific proposals in the report have been criticised for addressing problems that don’t exist, and for a lack of empirical basis. In an interview with The Law Society Gazette, Deminor’s CEO, Erik Bomans, specifically took aim at the proposal to cap litigation funders’ fees to 40% of any awarded damages. Bomans argued that a hard cap like this would result in cases not receiving much-needed financing, as any funder must weigh potential returns against the inherent risks of a case which includes the possibility of exorbitant costs driven up by a prolonged process. Bomans reiterated the criticism of many industry leaders that the proposed changes represent an incomplete understanding of the third-party funding industry, with Bomans further comparing it to the actions of the US Chamber of Commerce, which has always opposed and lobbied against the industry. Bomans argues that there is no more pressure placed on a client by a funder than any normal relationship between a claimant and their legal counsel, citing the existing oversight in place from the courts themselves.
Case Developments Commercial

LCM Funds £900 Million Class Action Against Amazon

Class actions alleging anti-competitive behavior by corporations have become a frequent sight in the UK litigation space, with the Competition Appeal Tribunal as venue for these high-stakes showdowns between consumers and businesses. Many of these actions would not be possible without third-party funding, and last week saw yet another example, as Litigation Capital Management (LCM) announced the financing of a new claim against Amazon. Detailed in reporting by The Guardian, the e-commerce industry leader is facing a class action suit alleging that its ‘Buy Box’ feature misinforms consumers by highlighting products and sellers beneficial to Amazon, rather than promoting the genuine best deals and prices. Julie Hunter, the class representative for the case, argues that by putting either Amazon’s own products or retailers who use Amazon’s logistics services at the top of their online store, the company is using its dominant position to deny consumers’ fair choice. The CEO of LCM, Patrick Moloney, said that this case was the latest in a series of competition-related cases that the firm has funded, and that the funder would continue to support consumers in disputes in the UK. The £900 million class action covers all UK consumers who purchased products through Amazon since October 2016, and is an opt-out claim. Amazon’s representative denied any wrongdoing by the business, and stated that there was no merit to the claim, as the company has always supported independent sellers and therefore allowed consumers to choose from the best prices.
Case Developments Commercial

Woodsford Funds $1 Billion Class Action Against Toyota Australia

The Volkswagen emissions scandal of 2015 stands out as one of the largest automobile industry scandals in history, and one of the most notable examples of a corporation facing repercussions for violating environmental standards. In what may be a successor to that, Toyota is facing a major class action suit in Australia, alleging that it produced hundreds of thousands of vehicles with so-called diesel defeat devices (DDD). An article by Sky News Australia illustrates the scale of this class-action, which alleges that up to 500,000 vehicles may have been affected, with the prospect of a settlement that could exceed $1 billion. Maddens Lawyers Australia, which is bringing the action against Toyota, argue that Toyota’s conduct was both ‘misleading and deceptive’ and violated Australian Consumer Law. Brendan Pendergast, special counsel at Maddens Lawyers, argues that if the allegation is proven, then this would represent one of the largest class action successes in Australian history. The class action is being funded by Woodsford, as part of an ongoing push by the funder to back cases targeting ESG violations and open avenues for consumers who otherwise would lack the capital to seek legal redress. Charlie Morris, chief investment officer at Woodsford, states that this action is about offering justice to consumers who were deceived, as well as holding corporations to account where they deliberately act in a way that harms the environment. In a statement, Toyota Australia denied any wrongdoing and stated that all of its processes meet emissions standards, and that they will strongly defend against this class action.
Commercial Deals

New Law Firm Brings Together Transatlantic Expertise to Target Group Litigation

As Litigation Finance Journal heard at IMN’s conference this week, group litigation continues to be a growing market and one of particular interest to litigation funders in the UK and around the world. Therefore, it is perhaps no surprise that a new law firm has launched in the UK, specifically targeting this area of litigation. As reported in The Law Society Gazette, the launch of Lanier, Longstaff, Hedar & Roberts LLP represents a transatlantic partnership between two English barristers and a US trial lawyer. Mark Lanier, founder of The Lanier Law Firm, along with its chief operating officer, Kevin Roberts, represent the American side of this partnership. While both the UK founding partners, Tom Longstaff and Ducan Hedar, hail from Manchester-based Exchange Chambers and have both previously worked as solicitors at Linklaters. Mr Lanier stated that he views the UK as an ‘emerging market’ for the same kind of group litigation that has flourished in the US, whilst Mr Longstaff agreed that there is a great opportunity for UK litigators to learn lessons from legal actions in the US that seek to represent groups of consumers seeking justice. Now that the firm has been granted its license by the Solicitors Regulation Authority, it expects to announce its first case in November, and will continue to recruit staff for its office in Manchester.
Announcements Case Developments Commercial

Hausfeld & Co LLP: Amazon faces £900m demand to compensate tens of millions of UK customers, as Lawsuit accuses E-Commerce giant of unlawfully favouring its own product offers

A ground-breaking new legal claim (“UK Buy Box Claim”) alleges that Amazon has breached competition law and caused millions of UK customers to pay higher prices for products sold on Amazon.co.uk and the Amazon mobile app by obscuring better-value deals.

The opt-out collective action, to be filed in the Competition Appeal Tribunal in London, will allege that the Big Tech company abuses its status as the dominant online marketplace and harms customers by channelling them towards its “featured offer”.

This featured offer – prominently located in the “Buy Box” on Amazon’s website and mobile app – is the only offer considered and selected by the vast majority of users, many of whom trust Amazon and wrongly assume it is the best deal.

However, Amazon uses a secretive and self-favouring algorithm to ensure that the Buy Box nearly always features goods sold directly by Amazon itself, or by third-party retailers who pay hefty storage and delivery fees to Amazon, it will be alleged.

The Buy Box is designed and presented in a way that effectively prevents millions of consumers from navigating the site to find cheaper offers, or better delivery options, for the same product, according to the claim.

Such manipulation of consumers is a breach of Amazon’s obligation as the dominant marketplace not to distort competition. The claim will seek damages from Amazon estimated in the region of £900 million.

Julie Hunter, a longstanding advocate of consumer rights, is seeking to represent the interests of tens of millions of Amazon users in the collective action, which is due to be filed before the end of October.

Who is eligible

Anyone who lives in the UK and made purchases on Amazon.co.uk or on the Amazon app since October 2016 is an eligible member of the claimant class. In accordance with Competition Appeal Tribunal rules, the collective action is being filed on behalf of all potential claimants without them needing to actively opt in to the claim.

The case against Amazon

The e-commerce giant is accused of unlawfully abusing its dominant position. According to the claim, Amazon steers potential purchasers to products which are not designed to be the best offers for consumers. Rather, the so-called Buy Box offers are systematically biased to favour goods sold by Amazon itself as part of its retail business; and/or by third party sellers who pay to use Amazon’s order fulfilment and delivery services (which are a key source of revenue for Amazon).

Other sellers, who do not pay for Amazon’s fulfilment services, are nearly always excluded from the Buy Box, stifling their ability to offer consumers a better deal, and leaving consumers out of pocket. It will be alleged that Amazon uses the Buy Box feature to manipulate consumer decision-making - directing customers to the product featured prominently in the Buy Box, and thereby obscuring the full range of options available to them, which may be cheaper and/or offer greater value.

The claim will accuse Amazon of breaching section 18 of the UK Competition Act 1998 and Article 102 of the Treaty on the Functioning of the European Union. It coincides with increased concern amongst the public and policymakers about Amazon’s dominant position as both a marketplace and a market participant (see Investigations and regulatory decisions, below).  

About the class representative

Julie Hunter has worked exclusively in consumer research, advocacy and protection for more than 20 years. She is an independent consultant who has worked with leading consumer organisations in the UK and abroad on topics such as consumer vulnerability, digital services, financial services, consumer rights, customer service and complaints.

Ms Hunter is Chair of the Consumer & Public Interest Network, an independent organisation representing consumers in the development of voluntary standards, supported by the UK standards body BSI. Ms Hunter is also a member of the Financial Services Consumer Panel (FSCP), an independent statutory body representing consumer interests in the development of UK policy for the regulation of financial services. Earlier in her career, Ms Hunter spent six years leading research projects and investigations at Which?.

Investigations and regulatory decisions

The European Commission is pursuing two formal antitrust investigations into Amazon.  One of these, initiated in November 2020, is evaluating the same alleged “self-preferencing” by Amazon as is alleged in the UK claim.  The Commission’s preliminary finding was that the rules and criteria for the Buy Box unduly favour Amazon's own retail business, as well as marketplace sellers that use Amazon's logistics and delivery services. The Commission is currently evaluating commitments offered by Amazon to address these concerns.

In July 2022, the Competition and Markets Authority ("CMA”) announced that it was investigating Amazon’s business practices, including how it sets the criteria for selection of the featured offer.  The CMA indicated that its investigation followed on from that conducted by the European Commission.

An investigation by Italy’s competition regulator concluded in December 2021 that Amazon had abused its dominant position by making certain benefits to third-party retailers conditional on their purchasing of its logistics service.

In the United States, the House Judiciary Subcommittee on Antitrust concluded that Amazon’s online retail dominance gives it monopoly power over third-party sellers on its US marketplace and that it effectively precludes retailers who have not purchased its logistics services from “winning the Buy Box”.

Statements

Julie Hunter, the proposed class representative in the action, said: “Nine out of ten shoppers in the UK have used Amazon, according to surveys, and two thirds use it at least once a month.  Like countless millions of people in the UK, I often use Amazon for the convenience it offers.

“Many consumers believe that Amazon offers good choice and value, but instead it uses tricks of design to manipulate consumer choice and direct customers towards the featured offer in its Buy Box. Far from being a recommendation based on price or quality, the Buy Box favours products sold by Amazon itself, or by retailers who pay Amazon for handling their logistics. Other sellers, however good their offers might be, are effectively shut out – relegated down-page, or hidden several clicks away in an obscure corner of Amazon’s website.

“Online shoppers have a right to be treated fairly and to be able to make informed decisions. This lack of transparency and manipulation of choice is an abuse of consumers’ trust, as well as a raid on their wallets.  Amazon occupies an incredibly powerful position in the market, making it impossible for consumers to take individual action. Amazon shouldn’t be allowed to set the rules in its favour and treat consumers unfairly. That is why I am bringing this action.”

Lesley Hannah, one of the partners at Hausfeld & Co LLP leading the litigation, said:

“Most consumers use the Buy Box when purchasing products on Amazon – estimates range from 82% to 90%. This means that millions of consumers have paid too much and been denied choice. This action seeks fair redress for them.

“Amazon takes advantage of consumers’ well-known tendency to focus on prominently-placed and eye-catching displays, such as the Buy Box. Amazon doesn’t present consumers with a fair range of choices – on the contrary, the design of the Buy Box makes it difficult for consumers to locate and purchase better or cheaper options. Amazon should not be allowed to take advantage of its customers in this anticompetitive way.” 

“Competition laws are there to protect everyone. They ensure that individuals can make genuine and informed choices, and are not simply led into making selections which benefit the companies they interact with. Fairness is at the heart of competition law and consumers are not being treated fairly by Amazon.”

Further information

Affected Amazon users, on whose behalf the class action is brought, will not pay costs or fees to participate in this legal action, which is being funded by LCM Finance, a global litigation funder.

Ms Hunter is represented by Anna Morfey, Lesley Hannah and Aqeel Kadri of Hausfeld & Co LLP, and by Marie Demetriou KC, Robert O’Donoghue KC and Sarah Love of Brick Court Chambers.

To learn more about Ms Hunter’s claim, please visit www.ukbuyboxclaim.com.

About Hausfeld & Co LLP

Hausfeld is a leading disputes-only law firm specialising in competition law, with significant expertise in all aspects of collective redress and group claims, including abuse of dominance litigation against Big Tech and other large corporates.

The firm pioneered the Trucks Cartel litigation in the UK, Germany and the Netherlands. It has acted on some of the most complex damages claims of the last decade: on the “Interchange Fee” litigation against Visa and Mastercard, in “Google Shopping” claims on behalf of price comparison websites against Google; against six financial institutions over their participation in unlawful price-fixing of the foreign exchange currency markets; and against Google, Apple and Qualcomm in relation to their alleged abuse of dominance concerning Google Play Store, Apple App Store and the smartphone chip market respectively.

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Commercial Special Features

Recap of IMN’s Inaugural International Litigation Finance Forum

IMN’s inaugural International Litigation Finance Forum brought together a crowd of international thought-leaders from across the industry, showcasing perspectives from funders, lawyers, insurers and more across a packed day of content.

Following IMN’s successful New York conference, the London event demonstrated the growing reach and maturity of litigation funding, as topics covered everything from recent industry developments to the nuances of international arbitration and dispute resolution. At the core of the day’s discussion, the central themes of regulation, ESG and insurance were present throughout each session, with unique insights being shared by panelists.

The day began with a panel focused on the current state of litigation funding in Europe, where the topic of regulation took center-stage. Whilst most speakers agreed that the proposed reforms in the recently approved Voss Report were a step in the wrong direction for the industry, Deminor’s Erik Bomans offered a contrarian take on regulation, and highlighted that the very existence of this debate around regulation is a positive sign of the industry being taken seriously.

During the second panel on jurisdictional differences in Europe, this view was echoed by Clémence Lemétais of UGGC Avocats, who stated that it was promising that the EU parliament is raising the visibility of the industry, but that the draft resolution ‘shows a lack of knowledge’ about the industry itself. This was further reinforced in terms of individual country requirements by Koen Rutten of Finch Dispute Resolution, who argued that regulation has to be based on facts, and has to address a problem, which he does not see in the Nethlerlands.

A fireside chat with Rocco Pirozzolo of Harbour Underwriting gave the audience a detailed overview of the impact and evolving nature of ATE insurance on litigation funding. During this interview, Mr Pirozzolo highlighted the difference in approaches between insurers and funders when assessing cases, but further highlighted the need for collaboration between the two to deliver wider access to justice.

Two panels completed a busy morning of discussion, with the first providing insight into the evolving nature of funders’ approach to capitalization, and the second analyzing the best practice for those seeking funding. LCM’s Patrick Moloney honed in on the evolution of the industry having come from a place of being perceived as ‘the dark arts and then loan sharks’ to now being in a position where funders like LCM garner investment from public listing. Later, Ben Moss of Orchard Group, offered a detailed overview of how requests for funding should be best structured and highlighted the ‘holy trinity’ of ‘merits, budget and quantum’.

The afternoon saw a broadening of the range of discussions, kicking off with Tom Goodhead of Pogust Goodhead providing an insightful presentation on group litigation in the UK and the need for future reforms to enable growth. Another two panels brought a wealth of insights, with the topics of co-investing, diversification and the secondary market in the first, being followed by a wide-ranging discussion of the different types and applications of litigation insurance.

After a breakout meeting explored the best practices in talent development and growth for women in litigation finance, a trio of panels capped off the day’s agenda. In a wide-ranging discussion of innovative deal terms and structures, panelists from the likes of Brown Rudnick, Litigation Funding Advisers and Stifel, provided insight into everything from the effect of insurance on pricing to the increasingly technical and data-drive process of due-diligence.

Taking a more global approach for the penultimate panel, Alaco’s Nikos Asimakopoulos, skillfully guided the audience through a global look at enforcements and international arbitration. The panel of legal experts discussed an extensive range of topics, with Tatiana Sainati of Wiley Rein, spotlighting ESG as a primary driver in the increase in transnational disputes and particularly in the EU where ESG initiatives have taken hold.

In the final panel of the day, the topic focused in on the use of litigation funding by corporates and institutional investors. In an illuminating exchange, Woodsford’s Steven Friel played down claims by other funders that CFOs and other corporate executives primarily look to litigation funding for its ability to shift legal costs off the balance book. Instead, Friel and other panelists highlighted the need for funders to bring more than just capital to the table, and that true value could be brought through a funder’s insight, as well as its ability to manage the litigation process and reduce the non-financial resource burden on corporates.

Overall, IMN’s inaugural UK event displayed the incredible depth of the litigation funding industry and gave attendees a wealth of insights that will no doubt generate further discussion and debate among leaders. In a day of packed content, IMN’s roster of speakers and panelists provided both high-level overviews and detailed looks at the nuances of certain industry sub-sectors.

Editor's Note: An earlier version of this article erroneously attributed the detailed overview of how funding requests should be structured to Rosemary Ioannou of Fortress Investment Group. The remark was made by Ben Moss of Orchard Group.  We regret the error. 
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Commercial Legal Innovation

Funders Must Move Beyond Providing Capital and Add Value Through Collaboration

To close out IMN’s International Litigation Finance event, a panel discussed the ways in which corporates and institutional investors are using litigation finance. Moderated by Stefano Catelani, Founding Partner at Calimala Legal, the panelists included Andrew Leitch, Senior Associate at Bryan Cave Leighton Paisner LLP, Sonia Hadjadj, Chief Insights Officer of Crafty Counsel, Noah Wortman, Director-Global Collective Redress for Pogust Goodhead, Verity Jackson-Grant, Head of Marketing and Business Development at Simmons & Simmons and Steven Friel, CEO of Woodsford.

The panel began with Steven Friel challenging the oft-repeated claim that corporates use litigation finance to offset legal costs from their balance books, stating that in Woodsford’s experience, this is rare and not the primary motivations for corporates. Friel went further and argued that in regular commercial litigation there isn’t often a great incentive for corporates to seek third-party funding, saying that ‘more has been said about it than done’. Instead, Friel noted that the real value of litigation funding to these institutions tends to be in group litigation, where a funder like Woodsford can bring these opportunities to stakeholders’ attention, organize them and then manage the process moving forward. Verity Jackson-Grant agreed with Friel’s position and highlighted that it was refreshing to hear a funder challenge this mantra which is regularly repeated by other industry leaders. She pointed out that while corporates are not using litigation finance for every kind of case, there are occasions where ad hoc cases can represent cash flow issues or just unnecessary hassle for using legal spend, where a company will then take advantage of third-party funding. Instead, Jackson-Grant argued that litigation funding should be seen as a tool that can be used when it adds value. Noah Wortman emphasized that in his experience of working with institutional investors and particularly pension funds, the value of bringing in a third-party funder often stems from a desire to outsource the management of these cases externally. Not only does it offload administrative responsibilities and alleviate strain, but funders can actually add real value through their experience and insight from working on similar cases. Wortman also emphasized that in order to maximize value, funders must highlight that the relationship is collaborative and a partnership beyond just funding. Sonia Hadjadj brought the insightful perspective of in-house legal counsels, stating that for those in that role, every decision has to be reinforced by a business case, and in order to justify bringing in a funder, in-house counsels need the support to actually bring a viable business proposition to the CFO. Andrew Leitch put forward that this is an area where education and information still plays a key role in helping to overcome these obstacles, and that all leaders in the industry need to continue to provide that education wherever possible. Woodsford’s Friel also stated that funders need to be experts at removing obstacles in the litigation process, and offering more than just capital, arguing that if all a funder can provide is capital then ‘clients want us to be cheap, fast and quiet.’ Jackson-Grant added to this idea, suggesting that funders need to move away from the message of ‘funding is your solution’ and instead work collaboratively with lawyers and insurers to offer options to general counsels, and then let those counsels choose the solution that best fits their problem.
Commercial Legal Innovation

Wide Range of Insurance Solutions Available to Litigators and Funders

Building on the earlier fireside chat about ATE Insurance, IMN's conference began its afternoon agenda with a panel exploring the broader impact of insurance on the litigation funding market.

The panel was moderated by Steve Jones, Executive Director & Joint Practice Head at Gallagher, and the panelists included: Robin Ganguly, Executive Director for UK & EMEA at Aon, Carlos Ara, Equity Partner at Cuatrecasas, Mohsin Patel, Co-Founder & Director of Factor Risk Management Ltd and Rocco Pirozzolo, Underwriting Director at Harbour Underwriting.

The panel began with an overview by Rocco Pirozzolo on the ways in which insurance providers have innovated to meet the needs of funders, as the capacity required for these cases has continually increased. In particular, he focused in on Security for Costs cover, which has been designed to combat defendants' use of this mechanism as a stalling tactic. Pirozzolo explained that this can come in the form of an anti-avoidance endorsement or deed of indemnity. As a result, Pirozzolo argued, these tactics force defendants to instead look at the merits of the case and often settle.

Mohsin Patel addressed the market growth which has seen the volume and scale of requirements for insurers increase. As a result, some industry leaders are looking to co-insuring arrangements and therefore, the importance of brokers has also grown, as they can help reduce that 'transactional angst'. Patel also highlighted the utility of Capital Protection Insurance (CPI), which can allow a funder to remove the downside risk of losing a claim in exchange for a lower potential return. Patel argued that CPI can make a broader range of cases financially viable, thereby benefitting both funders and lawyers.

Moving from single-case to portfolio insurance, Robin Ganguly examined the ways in which insurers will assess the risks of different types of portfolios. For those with existing historic cases to be insured, insurers can tailor a policy for a secondary market sale based on factors including case duration and funder involvement. For those empty or forward looking portfolios, it is the funder's track record that the insurers are underwriting. Ganguly also stressed that insurers can put limits on policies for these portfolios including case type and size, jurisdiction of cases, and can even mandate insurer approval of individual cases.

Carlos Ara agreed with the panel that the evolving market is experiencing a wider breadth of investors, and that this has also opened the way for insurance policies that can be taken out after the initial investment, or in cases where secondary market transactions are possible. Ara also raised the suggestion of greater collaboration between funders and insurers, with opportunities for them to collaborate on the creation of new products for clients.

Mr Pirozzolo also covered the cases of defendants taking ATE insurance policies. He explained that this was a less common occurrence, in part because it is much more difficult for a defendant to define what would count as a win. Outcomes are clear when the claim is dropped or the defendant is successful at trial, but other degrees of success make it harder for insurers to offer the right cover for a defendant. Pirozzolo did raise the very rare example where insurance can be provided, which only kicks in if the case goes to trial, but in his own words, 'it's jolly hard to do'.

Commercial Fundraising

Funders Diversify Their Capitalization Sources, Driven by ESG and Emerging Markets

In a panel during the morning of IMN's International Litigation Finance event, the topic of differing approaches to capitalization and sources of investment was discussed. The panel was moderated by Dennis Knitowski, EVP & Head of Capital Markets at Cartiga, LLC and featured Patrick Moloney, Managing Director of LCM, Andi Mandell, Partner at Schulte Roth & Zabel and Katherine Mulhern, CEO of Restitution Impact Limited.

The discussion began with the panelists exploring the evolving nature of funder capitalization. LCM's Moloney spoke to his firm's blended approach, where its business model is that of a fund manager whilst also utilizing listings on both the Australian and London Stock Exchanges. Moloney noted that this has been an evolution as the company and wider industry has matured, and that LCM is now seeing interest from increasingly sophisticated investors, including endowment funds.

Andi Mandell discussed her view on the North American market, where there has been an increased interest from private equity and hedge fund entities that are keen to provide funding to law firms. Mandell noted that recent legal reforms in states like Arizona and Utah, which allow non-lawyers to share in the firms' revenue, has also driven further investment. However, Mandell clarified that this new Alternative Business Structure has also attracted bad investment into the sector.

In a different area of focus, Katherine Mulhern's Restitution works in the space of supporting post-war newly democratic government, and therefore has a wider approach to seeking investment. Mulhern explained that Restitution works with everyone from foundations and donors to ESG investors and insurers.

The panel also discussed the need to garner mainstream appeal for the litigation funding industry in order to increase the pool of investors engaged with funders. Moloney highlighted that the industry went from being viewed as 'the dark arts and then loan sharks', but the perception of the industry has already shifted dramatically. Mandell noted that ratings agencies are now more willing to rate some transactions in the market, but also raises the issue that the IRS has still not provided concrete tax guidelines for funding deals, which is a barrier to some investors.

When looking to attract new investors, the panel agreed that ESG investors are likely to represent an increasingly large share of the market, as the number of ESG-related cases is continuing to rise. However, Mulhern pointed out that the Sustainability and Governance aspects of ESG are less-defined, but that if funders can successfully define and measure impact, then class actions in this field will be a valuable asset. Moloney also suggested that emerging markets play a similar role in broadening a funder's portfolio, as they continue to look for jurisdictions with evolving legal systems to open the door for third-party funding.

A discussion of the impact of technology and data on litigation funding led to a question around the rise or cryptocurrency and the blockchain, and whether it has had a significant impact on funders. Moloney acknowledged that it is beginning to encroach on funding and has utility for those looking to trade in business and cases. However, Mulhern provided a unique view, and described it as a mixed blessing. She pointed out that while crypto can unlock capital, it is also widely used in countries with weak regulatory oversight to hide money.

Announcements Commercial Deals

EU and UK market are set to capture 15.8% of global litigation funding, poised for strongest growth worldwide

Deminor, a leading international litigation funder, projects that the investment potential for litigation funding in Europe is set to reach USD 1.8bn annually, representing nearly 16% of the global market. This is according to the white paper, Litigation Funding from a European Perspective, released today. Deminor predicts the investment potential for litigation funding in Europe is set to reach nearly USD 3.7bn in 2025 (+100%), compared to USD 17.8bn globally in 2020.

The actual amount invested in litigation annually is still a fraction of the investment potential estimated at 27% (USD 486m in Europe).  As a percentage of total litigation spend, actual amounts invested by third party funders in litigation represent less than 1%.  Real investments in litigation are likely to move closer to the investment potential over the next years, but fears that third party litigation funding is driving up the cost of doing business in Europe are largely overdone.

The white paper predicts the ESG agenda will be one of the drivers for growth in the UK and Europe, with cases having already been heard claiming damages for environmental harm. Climate and human rights issues are equally set to benefit from litigation funding over the next few years as this market looks to keep up with changing social issues. Other areas for growth include anti-trust damages, commercial litigation, including intellectual property, and data breaches.

Erik Bomans, CEO of Deminor, commented: “The growth of litigation funding in Europe will not only create a shift in perception, but in consumers’ and businesses’ ability to successfully resolve legal disputes that otherwise wouldn’t be accessible to them. Given the economic uncertainty, Deminor anticipates the market will shift towards businesses using the funding to be strategic with capital and release money that would otherwise be tied up in litigation. This is also likely to lead to more successful litigation outcomes where businesses can benefit from the knowledge of experts in the field.”

The report forecasts that while the EU market is still relatively small, the increase in the use of litigation funding is expected to hit annual growth of 8.3% in the next five years. Growing costs and focus on working capital is a key factor, prompting businesses to free-up working cash from long-term litigation projects and use litigation funding as a financial management tool. The United Kingdom is set to be the biggest single market contributor, with annual investment potential reaching USD 1bn.

Countries such as Germany and the Netherlands have been key players facilitating collective actions ahead of the European Representative Action Directive which makes a collective action mechanism available for consumers in all EU countries in the future. Several business lobby groups are calling for regulation of the litigation funding industry but, given the industry’s small scale in comparison to the litigation market as a whole, this looks premature.

Erik Bomans added: “Regulation is not necessarily negative and may create more certainty and transparency in the market, provided it is used to protect fair market competition and access to justice for all market players regardless of their financial means. The goal should be to give consumers and smaller companies litigation options to support justice, to champion social progress and to restore balance.”

About Deminor

Founded in 1990, Deminor is a leading privately-owned and international litigation funder with offices in Brussels, Hamburg, Hong Kong, London, Luxembourg, Madrid, Milan and New York. Deminor’s name, derived from the French “défense des minoritaires”, reflects its origins in providing services to minority shareholders. Deminor is still very much defined by the pursuit of good causes and its determination to restore justice for clients. Combining skill sets from 16 different nationalities and 14 languages, Deminor has funded cases in 18 jurisdictions including the Americas, the Middle East and offshore centres such as the Cayman Islands and Bermuda. With specialists in arbitration, intellectual property, competition, corporate & post-M&A, investments, enforcement, and tax litigation, Deminor has achieved positive recoveries for clients in more than 81% of the cases it has funded, against an industry average of 70%.

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Commercial Legal Innovation

The Evolving Role of ATE Insurance in Litigation Funding

In the first fireside chat of IMN's inaugural event, Lucy Pert, Partner at Hausfeld, spoke with Rocco Pirozzolo, Underwriting Director at Harbour Underwriting, about the evolving role of ATE insurance in litigation funding.

The conversation began with a discussion of how the nature and demand for ATE Insurance has evolved over the last two decades. Mr Pirozzolo highlighted that between 2000 and 2010, most ATE policies were taken out directly with litigants. However, after first encountering litigation funding in 2007, the sector has experienced a complete reversal, with most policies in the last decade coming from funders.

In terms of the types of cases that are attracting ATE Insurance, Pirozzolo claims that it has largely followed the trends of the wider litigation funding industry. Over time, the volume of cases has shifted from unitary claims and insolvency misconduct claims to a large amount of class action claims, as well as commercial litigation cases which are now attracting third-party funding.

Discussing the challenges that ATE insurers face, Pirozzolo highlights that they cannot afford to blindly rely on funders' due diligence, as there are different levels of return on investment and risk compared to funders. Similarly, when assessing a case, Pirozzolo argues that while funders are able to first analyze the possibility of enforcement and the true value of the case, insurers must nearly always begin by solely assessing the merits of the case.

Responding to Ms. Pert's question around the high costs of ATE Insurance, Mr Pirozzolo argues that ATE is unique due to the binary outcomes that are possible for any given policy. As a result, there is very little margin for error compared to other types of insurance which can rely on the principle of many premiums paying for a small number of claims.

Furthermore, Pirozzolo rejected the idea that the high costs of litigating is the fault of funders, lawyers or insurers individually, instead pointing to the current environment which has fueled these rising expenses. He went on to say that despite these costs, it is the partnership between these players which allows the litigation funding industry to deliver wider access to justice.

The fireside chat concluded with Mr Pirozzolo offering his view on what anyone should look for in a good ATE provider. In particular, he highlighted an 'A' rating from one of the agencies, the ability for the insurers to deal with complex issues such as providing a deed of indemnity, and finally ensuring that the provider has a team of experienced and high quality professionals.

Commercial Regulatory Issues

Opening IMN Panel Discusses Regulation and Education Amidst Industry Growth

IMN's International Litigation Forum began today with a panel moderated by Jason Woodland, Partner at Peters & Peters Solicitors LLP. Panelists included David Greene, Co-President of CORLA, Erik Bomans, CEO of Deminor, Paul De Servigny, Investment Manager at IVO Capital Partners, Ana Carolina Salomão Queiroz, Partner at Pogust Goodhead, Polly O'Brien, Partner at Schulte Roth & Zabel.
The panel focused on emerging trends and developments for the litigation funding industry in Europe. Unsurprisingly, the topic of regulation was front of mind for the panelists, with the approval of the Voss Report by the EU parliament still a key area of concern for the industry in Europe. Polly O'Brien stated that with the growth of litigation funding, it was inevitable that regulation would be on the horizon, but that any cap on fees would endanger certain cases being funded. David Greene highlighted that there seems to be no interest in similar regulation in the UK where 'litigation funding is already regulated by the courts', and claimed that the Voss Report is 'built on misunderstandings of the market'.
Deminor's Erik Bomans took a self-proclaimed 'contrarian' view of regulation, arguing that the very fact regulatory bodies are looking at the industry 'puts litigation funding on the map and on the agenda'. While Bomans acknowledged the negative tone of the Voss Report was not helpful, he maintained that the very fact the debate is taking place within the EU is a positive for the industry. Bomans stated that 'a light touch regulation would be good to see'.
Education was another key topic of discussion amongst the panel, with IVO's Paul De Servigny stating that it had been his 'main goal in the the last 12 months'. Ana Carolina Salomão Queiroz reframed the issue as being about providing information rather than education, while stressing that beyond investors, lawyers and companies; it is the judicial branch and the courts that need more awareness of how third-party funding is widening access to justice. David Greene built on his earlier point regarding the misunderstandings in the Voss Report by stating that politicians and policy makers should be priorities for education.
The panel discussion also contained a brief but illuminating exchange around the possibilities for a secondary market for funded cases. Paul De Servigny highlighted this as an area where he has seen more and more questions being asked by clients, but as of yet IVO hasn't sold any cases on the secondary market. Erik Bomans agreed that while a real secondary market does not exist today, the advent of one would be a positive for the industry because it would increase liquidity and 'where there's more liquidity, there's less risk'. Salomão Queiroz added that there is unlikely to be a secondary market until funding cases is 'seen as a financial product, not a legal product'.
All panelists agreed that there was still no shortage of cases to be funded, as the industry continues to grow, with Bomans stating that Deminor had seen a doubling in the volume of funding requests in the last year. David Greene also suggested that there is currently a strong equilibrium between cases and capital available, arguing that the bigger issue to watch for is the capitalization of funders to ensure financing is available throughout legal proceedings. Polly O'Brien also raised the importance of ATE Insurance to the future of the industry, both in terms of the cost and availability of the product, as well as ensuring that the wording of policy documents adequately protects funders.
Commercial Regulatory Issues

Litica Argues for Increased Awareness of ATE Insurance Among Litigators

ATE insurance has been a well-established product for the last two decades in the UK, and its use in other jurisdictions is beginning to pick up speed. Following the announcement of class-action regulations being rolled back in Australia, one leading provider of ATE insurance suggests that litigators need to be at the forefront of putting this product in front of their clients. Writing in LawyersWeekly, managing director of Litica Australia, Philip Lomax, argues that litigators should be looking to get on the front foot both in terms of understanding ATE insurance best practices, and increasing engagement with clients around this area. Lomax points out that while the use of ATE insurance in Australia had been previously limited to niche cases involving litigation funders and class actions, with upcoming regulatory reform it should now become customary for litigators to inform clients of the available options. Lomax points out that this increased demand is highly likely, reflected by the fact that Litica launched its own Australian division earlier this year. Given that more and more providers will soon be offering ATE insurance, he highlights that it would benefit both litigators and clients to raise their familiarity with the application of the product and those insurers best-placed to offer it.
Commercial Deals

Only 1-week until Information Management Network (IMN)’s International Litigation Finance Forum

On October 18th, 2022, IMN will host the International Litigation Finance Forum in London. The London edition of this one day summit will draw a diverse crowd of investors, litigation funders, brokers, corporate claimants, law firms and other entities in this developing market. LFJ will be reporting live from the event. So if you can't make it to London next week, check our website for regular updates on the panel discussions, which we will post the day of the event. We will also be live-tweeting from our Twitter account. Hope you enjoy IMN in London!
Announcements Case Developments Commercial

High Court shuts down BHP move to block access to class action

The High Court of Australia has today unanimously dismissed BHP’s attempt to block shareholders who are not resident in Australia from participating in a class action against the company.

The case, jointly run by Phi Finney McDonald and Maurice Blackburn, seeks recovery of investor losses caused by the mining company’s alleged breach of its disclosure obligations under the Corporations Act in relation to the catastrophic collapse of the Fundão dam in Brazil in 2015.

The High Court’s decision ends BHP’s multiple unsuccessful attempts over the last three years to exclude the claims of foreign residents who had invested in BHP Billiton Limited securities traded on the ASX, as well as investors in BHP Billiton Plc securities traded on the London and Johannesburg stock exchanges.

Cameron Myers, Special Counsel at Phi Finney McDonald, welcomed the High Court judgment.

“The High Court’s decision promotes access to justice, and confirms Australia’s class action regime as one of the most flexible and efficient mechanisms for resolving common issues between claimants. It ensures that foreign group members can seek redress and vindicate their claims in Australian courts,” he said.

“This decision has positive ramifications for all manner of class actions with an international element, including environmental claims. It will also benefit defendants who wish to resolve their liabilities, instead of cynically seeking to disenfranchise claimants.”

Irina Lubomirska, Special Counsel at Maurice Blackburn, welcomed the result.

“Despite the almost three-year delay occasioned by BHP’s appeals before the Full Federal Court and the High Court of Australia, we have steadfastly opposed BHP’s attempts to narrow the Federal class action regime. By rejecting BHP’s appeal, today’s High Court judgment endorses Parliament’s deliberate choice of a broader representative procedure which enhances access to justice and aids the efficiency of court processes,” she said.

“This is a welcome result not just for BHP’s shareholders but for all prospective group members, wherever located, who may continue to seek redress through our Federal class action regime.”

In today’s judgment in BHP Group Limited v. Impiombato & Anor (M12/2022), the Court stated, “BHP's construction of Pt IVA ignores the Constitution and the legislation passed by the Commonwealth Parliament vesting jurisdiction in the Federal Court, and rewrites the Federal Court of Australia Act.”

“Who makes the claim and where they live does not determine the jurisdiction of the Federal Court or the claims that may be brought in accordance with the procedures in Pt IVA.”

“BHP's construction would undermine the purpose of Pt IVA by not allowing non-residents to be group members in representative proceedings.”

On 31 May 2018, Impiombato v BHP Billiton Limited was filed in the Federal Court of Australia. The class action alleges that BHP breached its continuous disclosure obligations and engaged in misleading and deceptive conduct in its representations to the market.

Anyone who bought shares in BHP from 8 August 2012 through 9 November 2015 inclusive may be eligible to join this class action. Shareholders do not need to take any action to participate, but can register for further information at: www.bhpclassaction.com

Background

BHP, in a joint venture with Vale SA, owns Samarco Mineração SA, which operates the Germano iron ore mine in Minas Gerais state, Brazil. The 5 November 2015 collapse of the Fundão tailings dam at the Germano mine released approximately 60 million cubic meters of waste water in the largest tailings dam rupture ever recorded.

The mudflow flooded the nearby municipality of Bento Rodrigues and killed 19 people. Over 8,000 fishermen lost their livelihoods and 400,000 people lost access to potable water. The mudflow ultimately travelled 600 kilometres to the ocean, creating a toxic brown plume visible from space.

In the period that followed the dam collapse, BHP’s stock price plunged across all markets, falling 22% in Sydney and 23% in London and Johannesburg between 5 November 2015 and 30 November 2015. The class action will seek to recover losses to shareholders throughout this period, during which BHP’s combined market capitalisation fell by more than $25 billion.

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Case Developments Commercial

Omni Bridgeway Funds Class Action Against IG Markets

Class actions that gain access to third-party funding have repeatedly demonstrated an ability to redress the balance of power in favour of individuals against large companies. A newly launched action in Australia looks to continue this trend, as an equity market broker is on the receiving end of a class action representing up-to 20,000 investors. Reporting in the Australian Financial Review details the announcement of a class action being brought against IG Markets, for allegedly marketing contracts for difference (CFDs) to investors without properly detailing the risks, and without proper assessment of these investors' ability to undertake such trades. The class action is led by Piper Alderman and is being funded by global industry leader, Omni Bridgeway. Martin del Gallego, a partner at the law firm, stated that IG Markets was improperly marketing these products to inexperienced investors who could not fully evaluate the risk they were undertaking. This case stands out due to its jurisdictional significance, as the sale of CFDs to retail investors is banned in both Hong Kong and the US. Federal judges within Australia have already previously taken a damming view of CFDs, with Justice Jonathan Beach comparing them to heroin.
Commercial Legal Innovation

Coinbase Funds Lawsuit Challenging United States Treasury Department on Crypto Privacy and Innovation 

Brian Armstrong (CEO and Co-Founder of Coinbase) recently announced litigation funding of a new lawsuit that questions the integrity of the United States Treasury's sanctions of Tornado Cash privacy software. Coinbase's litigation investment aims to vindicate six individuals who were added to the United States' sanctions list as part of banning Tornado Cash.  According to Coinbase’s blog, Tornado Cash's open source software design offers a valuable personal privacy protection utility. Coinbase claims that Treasury may have overreacted by sanctioning the entire Tornado Cash software program protocol technology.  Coinbase suggests that law-abiding citizens have a right to privacy, and that congress has not entitled the Treasury to sanction open source software. Coinbase also is concerned that Federal sanctions on open source software may preclude future software innovation.  Coinbase's hope is that the Treasury will reverse the personal sanctions attributed to the six individuals who are the subject of the claim. Additionally, Coinbase hopes to signal the firm's approach to protecting personal privacy and pure cryptocurrency innovation. 
Case Developments Commercial

Funder Purchases Claim Against Medical Company Accused of Fraudulent Restructuring

In the current financial climate, and with many companies still struggling to recover from the effects of the pandemic, the risks of malpractice and wrongdoing by these insolvent companies’ directors and their financial backers has reached the spotlight. In a new case set to be heard before the High Court, a medical company is facing claims that it illegally restructured in order to avoid paying creditors, including victims of a previous lawsuit. Detailed in an article by Yahoo Finance, Hospital Medical Group (HMG) along with its lender, Barclays, and its solicitors, Wilkes, are facing a £40 million claim for allegedly defrauding creditors. The legal action claims that both HMG and Barclays knew that the restructuring was illegal, but carried on regardless with the intention of not repaying outstanding loans. The claim is being brought by Henderson & Jones (H&J), a litigation funder which bought the claim from HMG’s liquidators. This case is sure to gain significant attention for two reasons. Firstly, HMG’s creditors include hundreds of women who successfully brought a claim against HMG for supplying defective and dangerous breast implant prostheses. Secondly, the claim highlights the potential liability for banks who are involved in restructurings, and emphasises the need for these financial institutions to ensure their client’s restructurings are not designed to defraud creditors. Henderson & Jones was co-founded by Philip Henderson and Gwilym Jones in 2016.
Commercial Deals

Cryptocurrency Fraud and Scams Represent Niche Opportunity for Funders

The boom in both interest and investment in cryptocurrency over the last few years has been synonymous with extraordinary stories of massive returns on investment, as well as an equal and growing number of instances of investors falling foul of scams and fraudulent schemes. For most retail investors, there has been relatively little hope of recourse, due to the capital requirements to fund litigation against these crypto schemes. As a result, victims are now looking to funders to finance their claims. An article by Cointelegraph Magazine examines this new trend and highlights specialised funders who are emerging to meet this niche demand, including Nemesis, a new litigation funder. Founded by Jason Corbett, previously a managing partner at Silk Legal, this start-up aims to finance claims against those crypto schemes and projects in order to secure financial compensation for victims, and Corbett argues, to ensure that this niche industry becomes a more secure and trustworthy market. Bill Tilley, managing partner at LegalTech Investor, highlights that these efforts are not without their difficulties, due to the often near-impossible task of pinning down which jurisdiction these defendants can actually be taken to court in. This is reflected by Corbett, who states that the best jurisdictions to bring claims are still those which have more established and broader third-party funding industries, such as the UK, US and Australia.
Commercial

LionFish’s Managing Director Takes Aim at the Voss Report

Since the approval of the Voss Report by the European Parliament last month, which included more stringent regulatory reforms to third-party funding, there has been severe backlash from funders and legal professionals alike, who have argued the suggested proposals would do more harm than good. As LFJ has reported in recent weeks, these critiques have come from across multiple jurisdictions, including industry leaders in Canada who are keen to avoid any emulation in their own country. An opinion piece in The Law Society Gazette by Tets Ishikawa, managing director of LionFish, offers a detailed critique of the Voss Report and argues that it is flawed both in its central premise and the data used to support its proposals. Tackling the report’s claim that funders are frequently seeing returns of over 300% and even reaching 3,000%, Mr Ishikawa highlights that this is based on outdated and out-of-context data points. Instead, he points to the latest data from Burford Capital, which suggests such returns represent a fraction of actual investments by funders, and that a more statistically representative average would be closer to 69%. LionFish’s Ishikawa also argues that while the report’s proposals claim to be in service of protecting consumers, these measures do little to achieve that. Instead, he suggests that the European Commission consider implementing an obligation for losing defendants to pay the funder’s costs, as this would wholly protect claimants from exploitation. Finally, Mr Ishikawa notes that while the report uses Australia as an example of a jurisdiction that has implemented stricter regulation on litigation funding, we have seen in the last few months that Australian courts and now the government have actually reversed course and are implementing reforms to widen access to third-party funding.
Commercial Regulatory Issues

Canadian Litigation Funding Leaders Argue Against Increased Regulation

The evolving state of litigation finance regulation continues to be a key issue for funders around the world, and while the demand for third-party funding is on the rise, certain jurisdictions are looking to tighten regulatory oversight of the industry.   In an article by Canadian Lawyer, law firms and funders alike are speaking out against suggestions that their own jurisdiction would benefit from industry regulation via legislation. Omni Bridgeway’s chief investment officer in Canada, Paul Rand, argues that oversight from the courts already fulfils the function of such regulation, and that creating further restrictions does not solve any tangible problem the industry faces. Leading figures from Canadian law firms agree, with Hugh Meighen of Borden Ladner Gervais and Chenyang Li of Davies Ward Phillips & Vineberg, both stating that litigation funding in Canada already exists within a cautious best-practice model. Li points out that it is always in the best interest of funders to maintain a reliable and trustworthy relationship with clients, as without it, they would never see returns on investments. Rand highlights that the Canadian industry is also experiencing ongoing growth, with Omni Bridgeway looking to meet demand from larger corporate clients who view third-party funding not as a necessity, but as a valuable tool to utilize.
Commercial Special Features

Key Takeaways from LFJ’s Special Digital Event: ESG in Litigation Funding

On Wednesday October 5th, LFJ hosted a panel discussion and audience Q&A covering various aspects of ESG within a litigation funding framework, including how funders consider ESG claims, how serious LPs are when it comes to ESG-related criteria, and the backlash swirling around the topic itself. Panelists included Andrew Saker (AS), CEO of Omni Bridgeway, Neil Purslow (NP), CEO of Therium Capital Management, and Alex Garnier (AG), Founding Partner and Portfolio Manager of North Wall Capital. The event was moderated by Ana Carolina Salomao, Partner at Pogust Goodhead. Below are some key takeaways from the digital event: How do you consider ESG being relevant to litigation funding? AS: It’s a truism that litigation funding provides access to justice. By definition it’s a social benefit. Litigation acts as a deterrent, and leads to environmental, social and governance improvement. So financing that through litigation funding assists with the achievement of various ESG goals. ESG can both be a goal to be achieved through litigation funding, and also internally to be used to identify risks internally, and to inform decision-making. How do your LPs consider ESG? Is ESG part of their mandates? Is it truly something that benefits your fundraising? AG: We at North Wall are launching the third vintage of our legal assets fund, having deployed the first two vintages. There is strong investor demand for ESG-compliant and ESG-focused litigation financing. The questions asked on ESG are the same as with litigation financing – we’re asked how we screen deals, how we incentivize counter-parties to continually improve on ESG. In our partnership with Pogust Goodhead, you have given us an undertaking to pursue only ESG-compliant cases (not that that was required, because that is the whole philosophy of the firm). But we have put that in place in documents in a non-litigation financing context. For example, when investing in e-commerce businesses, we have put in place interest rate ratchets linked to measurable goals such as environmental and social factors—achieving carbon neutrality, etc. And then actively seeking cases that meet ESG criteria as well. Cases around recompense for exploited workers is an example. I think investors are also concerned about people going too far the other way—about greenwashing, tokenism, at taking positions at the expense of returns and downside protection. Do you see that because you have an ESG awareness, you are able to access different investment pools than you otherwise would? Can you use it as leverage when fundraising? NP: From Therium’s perspective, we see that some of our LPs are very focused on ESG-compliant criteria. We’ve been reporting to them for years on ESG compliance in different ways and how we think about that in our asset class. But you have to be careful here about what ESG means in the context of this particular asset class. What we’re doing is very different vs. a private equity fund or something like that. So you have to answer investor concerns very specifically for our asset class. And you also have to be careful about making ESG claims in a way that makes sure they are properly understood to our audience (particularly if you are addressing a retail audience). There is a danger there, that we all need to be very cognizant of. How do managers and investors think about supporting a case that has strong ESG components to it, but doing so for a plaintiff that is non-ESG (for example, an Oil & Gas claimant)? AS: The perception of what ESG is, needs to be taken in context of that particular case. Supporting a coal company would not be considered an ESG strategy. But if that coal is being used to provide power and heat and electricity in the middle of winter to Ukraine, then yes it could be considered a socially important strategy. So it is a challenge. In some of our funds, that decision is taken away from us – our LPs have very strict no-go zones. That does assist us in identifying those claimants we’re able to support. In other funds, we have a great degree of discretion. Generally, we try to balance what we consider to be competing ESG requirements and objectives.   Will the International Legal Finance Association look to establish ESG criteria or metrics for the industry? NP: That’s a very interesting question. I am not aware of any discussion to do that yet. I think it’s extremely important how the industry engages with this topic. There is also another side to this—the greenwashing aspect. We need to be very careful that our industry is not representing itself to be something it is not. So there is a very strong case for a strong ESG narrative here. How ILFA engages with that in best practices has not yet been discussed. What are the particular challenges or hurdles which funders, law firms or claimants might face in environmental suits specifically, in addition to the usual financing criteria? AG: You tend to have very deep-pocketed defendants, which requires a level of stamina. You also tend to have a very wide group of claimants, because so many people have been affected by the environmental disasters in question. The flipside of that of course, is that the public relations impact of a defendant digging its heels in when they’ve done something of that sort means that a settlement is much more likely, as the liability and causation is much clearer than it is in other cases.
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