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Commercial Deals

Macfarlanes Sees a Broad Array of Investors Engaging with Funders

In an economic climate that has continued to demonstrate instability and uncertainty for private investments, the avenue of investment in litigation funding represents a viable alternative to traditional asset classes. Litigation finance represents not only an opportunity to add increased diversity to an investor’s portfolio, but also provides an investment vehicle with the potential to reap surprisingly high returns on the initial investment. Recapping a recent roundtable by the law firm Macfarlanes, Private Debt Investor highlights the increasing growth in the litigation funding industry as representative of the sustained appetite of investors. Of interest to funders is the fact that this pool of investors includes not only established asset management firms, but also other institutional investors such as sovereign wealth funds and also retail high-net-worth investors. Macfarlanes also predicts that the industry’s growth, especially in the UK, is far from its peak. However, caution is advised, as investments in litigation are inherently risky and cannot be assessed through the usual financial and economic indicators. Macfarlanes stressed the key point that ultimately, while funders will usually only fund cases with a high probability of success, the fact that the outcome ultimately rests in the legal system carries additional risk. Additionally, whilst there are no immediate signs of a regulatory crackdown, investors should consider that legislators will be keeping a close eye on these activities and further reform is not out of the question.
Case Developments Commercial

Inventor Leverages Litigation Funding to Beat Microsoft

One of the great benefits of third-party legal funding is the ability for small companies and even individuals to fight on a level playing field against the world’s largest corporations. This dynamic was made evident in a recent case, where a US inventor was able to achieve a $10 million award for patent infringement from Microsoft, after enlisting the support of a litigation funder. Detailed in an article by Bloomberg Law, inventor Michael Kaufman has been in a decade-long struggle to receive compensation, after he alleged that Microsoft infringed his technology patent by using it in their Visual Studios Software. However, it wasn’t until he and attorney Ronald Abramson sought funding from Woodsford Litigation Funding that he was able to take Microsoft to court with previously inaccessible financial resources to fight the case. Whilst Microsoft initially claimed it had not used the patented product to a significant degree in 2019, lawyers for Abramson discovered that this was only true for the previous year, and Microsoft had in fact been substantially using the product in prior years. After an appeal in federal court, the panel opinion stated that Kaufman should have received royalties from the product usage dating back to 2011. Whilst victories in patent infringement cases for individual inventors is rare, Nicole Morris, a professor at Emory School of Law, highlighted that in situations where they can receive third-party funding, inventors are determined litigants due to their desire to see their own invention and work recognised.
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Case Developments Commercial

Third-Party Funding Allows 150,000 Customers To Seek Compensation From Banks

In a landmark New Zealand case, 150,000 customers of ANZ and ASB banks will likely be represented in a class action against the two institutions, after the High Court approved the matter as an opt-out lawsuit. The claim is notable not only for its size and scope, but also because it is being funded jointly by two litigation funders: LPF Group in New Zealand and CASL from Australia. According to The New Zealand Herald, the case’s origins lie in the alleged failure of both banks to provide their customers reliable and accurate information, when they varied the terms of these customers’ home and bank loans. Whilst ANZ and ASB have already made settlement payments to customers to the tune of $29.4 million and $8.1 million, respectively, lawyers for the claimants argue that these are not nearly commensurate with the actual compensation customers should receive under current legislation. Whilst both banks have vowed to continue to defend the claims, this latest ruling has demonstrated the power of opt-out claims for large groups of customers, especially where third-party funding is available to finance the proceedings.
Commercial Regulatory Issues

Court of Appeal Raises Concerns With Incentives For Third-Party Funding

A recent case involving Cost Proceeding Orders (CPOs) being granted against train operators by the Competition Appeal Tribunal (CAT) has raised questions about the level of oversight needed for third-party funders. Whilst dismissing the appeal made by these train operators against the decision to approve the CPOs, Lord Justice Green questioned whether the incentives for litigation funders could damage the legitimate goal of wider access to justice. Reporting by LegalFutures highlights that the Lord Justice’s comments were provoked after examining the surprisingly high costs budget over the claimant, Mr Justin Gutmann. Whilst Green LJ still denied the train operators’ appeal, he highlighted that the case demonstrated that where litigation funders are involved, there is a legitimate concern that litigants will claim unreasonably high costs in order to ensure funders receive a return on their investment. The Lord Justice also suggested that there is a risk that claimants who are funded by third-parties may be encouraged to settle in a shortened timespan and for a smaller award in order to achieve returns in a timely manner. However, he also acknowledged that these funders play an important role in widening the access to justice gap, and in enabling consumers to seek compensation from institutions. Whilst this is clearly an area of concern for some within the judicial system, Green LJ pointed out that a high costs budget does not automatically result in those costs being ordered to be paid, even where the class action is successful. Therefore, while there are underlying concerns that incentives may be perverted, it still remains in the hands of the legal system and tribunals to ensure the third-party funding mechanism is not being abused.
Commercial

Woodsford Whitepaper on Litigation Finance and Bankruptcy in the United States  

Engaging litigation investment is a fundamental utility for firms navigating the thorny journey of bankruptcy restructuring. Woodsford has published a new whitepaper with insights into the benefits that litigation finance offers during corporate insolvency reorganization.  According to Woodsford, litigation investment offers creditors and debtors various benefits for the hope of future returns on current distressed assets. Woodsford outlines several examples of bankruptcy litigation finance scenarios as part of the whitepaper.  Furthermore, Woodsford suggests that bankruptcy funding options fit a wide range of scenarios that increase leverage for corporate investors to rise successfully from insolvencies.
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Commercial Legal Innovation

$200M Bitcoin – USDT Protection Fund Announced 

With the global innovation pace of digital assets, innovative vehicles are being engaged that serve many of the same purposes of traditional litigation finance products. For example, BitGet has coordinated a "protection fund" that mimics a hybrid BTE - ATE insurance instrument to safeguard user deposits.  Cointelegraph.com reports that BitGet chose not to utilize third party insurance carriers and leverage digital asset architectures to organize the $200M fund in-house. BitGet decided to secure the fund with a combination of Bitcoin and Stablecoin assets to mitigate the risk of cross-border cryptocurrency market volatility.  Meanwhile, Cointelegraph.com also reports news of Voyager Digital’s similar fund that turned into a court-appointed scenario under bankruptcy restructuring. BitGet and Voyager both seemingly created the funds as an alternative to traditional litigation investment agreements.
Commercial Fundraising

Omni Bridgeway Establishes New Debt Facility To Meet Growing Demand

Throughout 2022, we have witnessed a growing discussion and corresponding action that suggests the global litigation funding market is set to see increased growth. In another sign of this expanding demand for financing, global funder Omni Bridgeway is making waves with an impressive $250 million debt facility that the funder says will allow it to continue servicing an increasingly large portfolio of clients, whilst reducing risk across its investments. Speaking with Lawyers Weekly, Andrew Saker, the chief executive of the firm, highlights that this refinancing is just one tool in its arsenal of capital, which includes around $3 billion ready to be strategically deployed. Mr Saker notes that there is an expanding demand for dispute financing, and Omni Bridgeway has also seen recent cases where governments are starting to take part in class action suits. This trend has given the funder plenty of confidence that the market is far from its peak, both in Australia and around the world. Australian law firm Gilbert & Tobin acted as legal counsel for Omni Bridgeway on this refinancing, with Louise McCoach describing it as not only a significant milestone for the funder, but also a landmark transaction for the market.
Commercial Deals

Litigation ABS Transactions Represent Enticing Investment Vehicle

Although the litigation funding market already represents an attractive prospect for investors looking for more reliable returns in an economic downturn, the secondary investment market for litigation asset-backed securities is also attracting more attention. Whilst these types of deals are still relatively low in volume compared to other ABS investments available, they remain a viable option. Research by Bloomberg highlights that the Kroll Bond Rating agency has assigned ratings for these types of deals to the tune of $1.2 billion in the last two years alone. However, senior director for ABS at the agency, Joanne DeSimone, says that while there is the potential for growth, investors should not expect to see a drastic rise in the number of litigation ABS deals in the coming years. According to DeSimone, most transactions are usually conducted by the same issuers each year. Whether or not the cadence of this subset of ABS deals experiences rapid growth, investment firms do not see any slowdown in the related volume of litigation financing opportunities. The head of US securitized products at Janus Henderson, John Kerschner, predicts that the current economic climate will likely fuel increased litigation, and where that activity rises, so will the number of funding agreements in play.
Consumer

Cash4Cases Funder Sentenced for Defrauding Investors 

Former New York attorney, Jaeson Birnbaum, was sentenced last week to three years in prison for defrauding over $3 million from investors through his funding company Cash4Cases. Reporting on the sentencing, Claims Journal outlined how in several instances, Mr Birnbaum deceived investors by putting forward lawsuits that were not even funded by his company. U.S. Attorney Damian Williams explained that in order to execute this fraud, Birnbaum falsified company records to hide the truth from prospective investors. Both of Mr Birnbaum’s fraudulent litigation ventures, Cash4Cases and Liberty Bridge, made Chapter 7 bankruptcy filings in 2020. This led the defrauded plaintiffs to sue the ex-lawyer for over $61 million in damages, less than $20 million of which has been recovered to date.
Announcements Case Developments Commercial

English Court of Appeal decides that ground-breaking £93m legal claim brought on behalf of rail passengers against train operating companies can proceed

London’s specialist competition court, the Competition Appeal Tribunal (CAT), decided in October 2021 that a class action should proceed on behalf of rail passengers who are allegedly being overcharged by the Southeastern and South Western rail franchises by not making ‘boundary fares’ sufficiently available. Southeastern and South Western could have taken last year’s decision as a prompt to do the right thing by their customers and offer compensation. Unfortunately, they sought to delay resolution of the case, and ultimately the payment of compensation, by pursuing an appeal. In yesterday’s unanimous decision of the Court of Appeal, Southeastern’s and South Western’s appeal was dismissed. The class action will proceed. The pursuit of justice for rail passengers has taken a significant step forward. Justin Gutmann, formerly of Citizens Advice, is the Class Representative. His standalone claim against Southeastern and South Western was the first of its kind to be filed in the UK and is estimated to be worth around £93m in damages for rail users. The Court of Appeal’s decision means that millions of passengers who have paid twice for part of their journey on Southeastern and South Western routes because they were not sold a boundary fare, will now automatically be represented at court, unless they choose to withdraw from – or opt out of – the claim. The defendants argued that some consumers might have suffered relatively small damages, some as little as “the price of a takeaway cappuccino”, and that such small losses should be excluded from the claim. The class representative, quite rightly pointed out “for some consumers even a cup of takeaway coffee is meaningful”, and the Court of Appeal clearly agreed. Delivering the single judgment of the Court of Appeal, Lord Justice Green stated: “In mass consumer claims quantum might characteristically be calculated by multiplying very small numbers (the individual claim) with very large numbers (the class) to arrive at a substantial aggregate award. An analysis of whether a claim or category of claims might be nominal or de minimis forms no part of such an exercise. There is no logic in the CAT calculating an aggregate award which is the sum of a multitude of small claims but then slicing off a percentage to reflect the fact that some (or even most) of the claims are small. To allow this would derogate from a central purpose behind the regime which is to vindicate the collective rights of consumers sustaining small losses.” Mr. Gutman’s case is funded by Woodsford, one of the world’s leading ESG and litigation finance businesses, which has provided a significant, multi-million budget for legal fees and other costs. Lord Justice Green acknowledged the access to justice benefits of litigation funding, and rejected the defendants’ arguments that the payment of a return to a litigation was a negative factor. He stated: “to enable mass consumer actions to be viable at all will invariably necessitate the assistance of third-party funders… and the [Court] must therefore recognise that litigation funding is a business and funders will, legitimately, seek a return upon their investment”. Woodsford’s Chief Investment Officer, Charlie Morris commented: “This is an important milestone in the promotion of collective redress in the UK, which allows consumers and small businesses to achieve compensation for the wrongs committed by big business. Woodsford, a business dedicated to holding corporates to account and delivering access to justice, is proud to support Mr. Gutman, who is now much closer to obtaining compensation for the millions of rail passengers.” Steven Friel, Woodsford’s Chief Executive Officer, commented: “This is a huge success for consumer redress in the UK, and I am proud of Woodsford’s significant part in it. This victory in Justin Gutman’s case relating to overcharging on the rail network follows hot on the heels of an important preliminary victory in Mark McLaren’s case relating to car delivery charges. Both are backed by the team here at Woodsford, which is now clearly established as the most successful ESG and litigation finance business in this area of UK collective redress. My only regret is that big corporate defendants continue to use their significant legal and financial resource to fight technical arguments, with the goal of delaying compensation payments to consumers. Now that the Court of Appeal has rejected Southeastern’s and South Western’s appeals, they should settle the case against them and allow rail users to receive the compensation they are owed.” Southeastern and South Western customers can find further information about the case at https://www.boundaryfares.com/
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Announcements Case Developments

SIGNIFICANT MILESTONE IN ESG ACTION BROUGHT AGAINST AIRBUS IN AMSTERDAM

The District Court in Amsterdam has delivered a significant decision in a ground-breaking ESG action brought against Airbus. The action is organised and funded by the ESG team at Woodsford. Airbus SE is a European headquartered, multinational aerospace corporation. Airbus designs, manufactures and sells civil and military aerospace products worldwide. In one of the most egregious breakdowns of ESG in recent years, it came to light in the course of investigations by the French Parquet National Financier, the U.K. Serious Fraud Office, and the US Department of Justice that Airbus had engaged in bribery and corruption on a global scale. In January 2020, Airbus agreed to pay penalties of approximately US$4 billion plus interest and costs to resolve foreign bribery charges with US, French and UK authorities. These matters led to a significant drop in Airbus’ share price. Airbus investors who suffered significant losses as a result of these breakdowns in ESG, and Airbus’ failure to disclose them to the market in a timely manner, fall into two main categories - those who trade in Airbus securities within the US, and those who trade in Airbus securities in Europe (France, Germany and Spain). In May 2022, Airbus agreed a multimillion-dollar settlement (subject to U.S. court approval) in the US with investors who fall into the former category. However, the vast majority of affected investors fall into the latter category. Airbus has not yet settled with, and has therefore not yet been held accountable to, investors who trade Airbus securities in Europe. Woodsford brought the above ESG failings, and Airbus’ failure to disclose them to the market in a timely manner, to the attention of major international, institutional investors, and has organised them into a special purpose entity, called Airbus Investors Recovery Limited (AIRL), to engage with Airbus. AIRL has commenced legal proceedings against Airbus in Amsterdam. Woodsford also supports Airbus Investor Recovery Stichting (AIRS), which is also litigating against Airbus. AIRL and AIRS are advised and represented by the Amsterdam office of international law firm Scott+Scott. Unfortunately, it is common for big corporates to react to investor concerns by delaying and obfuscating ESG actions like this. In a move that would have delayed AIRL’s Dutch action, Airbus asked the District Court in Amsterdam to refer the case to the European Court of Justice (ECJ), and to stay (i.e. suspend) the Dutch action pending the outcome of the ECJ referral. Further, Airbus argued that, contrary to AIRL’s simple suggestion that Dutch law should apply to the case on the basis inter alia that Airbus has its statutory seat in The Netherlands, Airbus argued that some combination of French, German and Spanish law might apply. This could have led to delay and unnecessary complications in the resolution of the litigation. In a decision dated 27 July 2022, the Dutch court found against Airbus, and has agreed with AIRL, on these points. The matter will proceed before the Dutch court, and Dutch law will apply. There will not be a reference to the ECJ and there is no reason to otherwise stay the proceedings. Airbus was not granted leave to appeal the decision. The Dutch court therefore will now address the merits of the matter with Airbus being required to make substantive submissions later this year. Steven Friel of Woodsford commented: “This is an important milestone in AIRL’s efforts to hold Airbus to account for the losses suffered by investors due to catastrophic breakdowns in ESG at Airbus. I hope that Airbus takes the decision of the Amsterdam court as a prompt to engage seriously with AIRL with a view to settling these proceedings. It is in the interests of all concerned that this unfortunate episode in Airbus’ corporate history is finally brought to an end.” About Woodsford Since 2010 Woodsford has been helping to hold corporates to account for their egregious behaviour. Whether it is helping consumers achieve collective redress, ensuring that inventors and universities are properly compensated when Big Tech infringes intellectual property rights, or helping shareholders in collaborative, escalated engagement up to and including litigation with listed companies, Woodsford is committed to ESG and access to justice. Working with most of the world’s leading law firms, our strength lies in the combination of our legal experience, investment, business and technical expertise, together with significant financial resources.
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Commercial Deals

UK Startup Funder Seeks to Meet Regional Demand for Small Cap Funding

Litigation funding in the UK has been largely dominated by national or even global firms based out of London, who have traditionally focused on the lucrative market within the capital and surrounding regions. However, a new funder is seeking to widen access to financing for underserved regions in the country, with Thaxted Capital launching its new service out of Manchester. Speaking with the University of Cambridge’s Judge Business School, Jack Bradley-Seddon, founder of Thaxted Capital, described the need for wider regional representation, as well as funders who cater to the small-cap funding cases that require under £1 million in commitment. Thaxted has already secured £25 million in funding from Sandton Capital Partners, which singled out the new firm as a much-needed entrant into the market that can bring a unique approach. Mr Bradley-Seddon is also an alumnus of the Judge Business School, where he was awarded an EMBA in 2020, and has previously worked as an associate at both Akin Gump Strauss Hauer & Feld and Bench Walk Advisors.
Commercial Legal Innovation

New Italian Funder Promises To Combine Experience With Technology

As LFJ has been reporting, the European litigation funding market is continuing to grow and is predicted to see rapid expansion in the forthcoming years. This is reflected in the wave of new startup funders launching throughout the region. Just this week, a new Italian funder has arrived on the market: Lexcapital. In an article for Legal Community, one of the founders of Lexcapital, Giuseppe Farchione, spoke about the company’s innovative approach, which will combine the founders’ many years of experience, as well as the harnessing of new technologies to accurately assess the likelihood of a successful claim. At the heart of this proposition is a proprietary algorithm, Litigation Assessment, which the funder claims will save time and resources when evaluating the probability of a profitable return when engaging in a case. Mr Farchione comes from RSM, where he was a partner leading their special situations team, and is joined in the management of Lexcapital by Francesco D’Addario, Manuel Caccone and Giovanni Latorre.
Announcements Commercial People Moves

Therium Adds Four Investment Managers To Its Transatlantic Investment Team In London And New York

Therium Capital Management, the world’s leading global provider of legal finance, today announced that it has added four investment managers to its transatlantic investment team, Chris Wilkins and Charlie Temperley in London and Corey Banks and Joshua Card in New York.

Neil Purslow, Founder and Chief Investment Officer at Therium said: “We are delighted to welcome these four investment managers to our transatlantic investment team. Their strong legal know-how and experience of high-value litigation and arbitration across jurisdictions will add to our high-calibre investment team, as we continue to invest in a broad range of cases across the legal sector.

Alongside our investment team, they will work on cases right through from origination to completion. This unique approach allows our investment managers to build strong and enduring relationships with clients,get under the skin of the complex matters, be incredibly responsive and deliver top quality execution.”

Therium has now added five investment managers to date this year, including Fred Bowman who joined in January. The new investment managers will provide legal finance to meritorious cases, law firms and corporates through a range of innovative financing structures.

Corey Banks who will be based in New York has over five years’ experience as a commercial disputes associate at prominent New York law firm Wachtell, Lipton, Rosen & Katz, where he worked on a broad range of funded commercial disputes, including corporate and financial matters, breach of contract, antitrust/ competition and bankruptcy litigation. Previous roles include clerking at a US District Court and the Second Circuit US Court of Appeals. Corey also worked as an Associate at Clearly Gottlieb Steen & Hamilton. He graduated magna cum laude from Harvard Law School and holds a BA in International Relations and Japanese from Tufts University, Massachusetts.

Joshua Card, also based in New York joins from Sidley Austin’s where he was a senior managing associate in the Commercial Litigation and Disputes and Securities and Shareholder Litigation practices. Prior to this, Josh worked at Wachtell, Lipton, Rosen & Katz. He has experience of M&A cases, corporate governance litigation, white collar criminal matters and other corporate and securities matters, including commercial arbitration. Josh has also been a law clerk at a US District Court and the Second Circuit US Court of Appeals. He holds a BA in Political Science from Amherst College and obtained a Juris Doctor, magna cum laude from Brooklyn Law School.

Charlie Temperley, based in London, previously worked at Michelmores and Womble Bond Dickinson, where his practice encompassed a broad range of commercial litigation including high value, multi-jurisdictional disputes and enforcement actions. He has experience working on commercial contract claims, group actions, civil fraud and asset tracing, trusts and probate disputes, shareholder disputes, professional negligence, property litigation and joint venture breakdowns. Charlie holds a First-Class Joint Honours degree in Mathematics and Philosophy from the University of Nottingham and an MPhil in Philosophy from the University of Cambridge. He completed a Graduate Diploma in Law and Legal Practice Course at the University of Law, Guildford.

Chris Wilkins, also based in London, joins after nine years as a solicitor at Slaughter and May. In the Disputes and Investigations Group, his practice focused on resolving large-scale, complex and often multi-jurisdictional disputes for large corporates, including FTSE 100 companies, across a wide range of industry sectors. He has advised on cases in the High Court and Competition Appeal Tribunal, as well as international arbitrations. Chris holds a First Class Honours degree in History from King’s College London and a Master’s degree with Distinction in International Relations from the London School of Economics. Chris completed a Graduate LLB at the University of London and a Legal Practice Course at BPP Law School.

 About Therium Capital Management:

Therium is a leading provider of investment capital to the legal industry and one of the largest, having raised over $1bn since 2009. With investment teams in the UK, USA, Australia, Germany and Norway, Therium has funded litigation and arbitration claims exceeding $40 billion, including many of the largest and most high profile funded cases in the UK and internationally and arbitrations under rules of the LCIA, ICC, UNCITRAL, LMAA, AAA, CIETAC, ICSID, Stockholm Chamber of Commerce and the Energy Charter Treaty. Therium has been Top Ranked by Chambers and Partners and Leaders League with investment officers across the UK, Europe, USA and Asia Pacific recognised as leading individuals in litigation finance.

To mark the firm’s tenth anniversary, Therium Access was launched in 2019 as a not-for-profit venture to fund a wide range of access to justice projects and cases – supporting the most vulnerable in our society and helping to bridge the widening justice gap. With its own board composed of eminent figures from the legal community and a dedicated grants officer, Therium Access has made over £1.3 m in financial commitments over the last 18 months to over 26 different organisations. As the first initiative of its kind, Therium has been shortlisted for several awards for launching this ground-breaking initiative, including the FT Innovative Lawyer Awards 2019, The Lawyer Awards 2021 and the Lexis Nexis Awards 2020 and 2022.

Therium also invests in AI and software projects to accelerate the advancement of the industry. As a founding member of ALF, ILFA and the Litigation Funding Working Group, Therium is also committed to shaping the future of legal finance and setting high standards for the industry.

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Commercial Special Features

Key Takeaways from LFJs Special Event: How Investors Approach Litigation Finance

On Thursday, July 14th, Litigation Finance Journal hosted a digital event, “How Investors Approach Litigation Finance.” The event featured a unique cross-section of investor types, including David Gallagher, Co-Head of Litigation Investing at The D.E. Shaw Group, CJ Wei, Vice President of Private Credit at Northleaf Capital, Benjamin Blum, Managing Director at Flexpoint Ford, LLC, David Demeter, Director of Investment at Davidson College, and Kendra Corbett, Partner at Cloverlay. The event was moderated by Ed Truant, Founder of Slingshot Capital. Below are some key highlights from the discussion: ET: How did you start investing in Litigation Finance? What types of results did you focus on, and how has your strategy changed over time? DG: It takes time to obtain a meaningful number of results from litigation finance investments, and you can learn a lot along the way, even before the results come in. And because you invest in such a small proportion of the opportunities you look at, you try to learn from the investments you don’t make, as well as the investments you do make. And one of the lessons I’ve learned as it relates to deployment strategy, is that good deals are so hard to come by, and are a product of so many variables outside of your control, that it’s better to be responsive to the opportunity set in front of you, than to be wedded to the abstract ideas of portfolio construction or deal structuring. I think adaptiveness is key. KC: We’ve been active in deploying capital in litigation finance for over six years now, and I wouldn’t say our approach has changed dramatically. We’ve been laser-focused on maintaining diversification across cases to avoid binary risks, and finding alignment across all of the involved parties. I think we’ve looked for market specialists, and we haven’t necessarily tried to find litigation finance beta, and instead we’ve looked for partners with a demonstrable value-add and strategic advantage. ET:  For those panelists more interested in credit opportunities in the legal finance space, why did you decide to focus on credit? DG: At the D.E. Shaw Group, the litigation investing team works closely with the Private Credit group, which I like to think broadens the types of deals we do. So, in addition to investing in litigation finance deals with a more typical risk/reward profile, we also invest in less volatile opportunities that are less about litigation risk, and more about timing risk and basic credit risk. BB: There are a few ways to create a credit-like opportunity in litigation finance. In addition, the way David was describing, the other way is to create a credit-like product by lending against a diverse portfolio of individual case fundings. So the asset is a little bit less credit-like, but the investment structure creates a credit-like investment. Both areas are of interest to us, especially when there is strong alignment with the borrower and downside protection through underwriting, to justify accepting a return profile that is either capped or has limited upside. CW: At Northleaf, we have many different funds with many different return hurdles, so we view ourselves as a capital solutions provider to litigation finance businesses. That being said, our thesis around the asset class is akin to a type of Private Credit approach strategy. Principal protection is our priority. We not only have asset coverage of the legal assets, but additional covenants and protections, and bespoke structures where we have guardrails against any downside scenario. ET: From an equity perspective, how is litigation finance the same as, or different from, other equity assets in which you invest? DD: If you suspend disbelief a bit, I would equate it with early venture investing. Liquidity cycles tend to be uncorrelated in the long run, you’re generally creating milestones for capital, outcomes can be pretty skewed, where large winners make up the majority of profit (although it’s certainly more skewed in venture than in litigation finance), and the investment strategy isn’t all that scalable—managers have to be cognizant of all that they’re trying to deploy. DG: I’ll focus on some of the differences. First, a litigation finance investor has no control over the litigation, while an equity investor or investors that own the majority of the company—they do control the company. So the closest analogy is to a class of shares that has no voting rights. Second, LitFin investments are typically illiquid. Equity investments are typically liquid. Another difference is that case outcomes are typically more binary than business outcomes.  And one last difference is that a company you might invest in can pivot and respond as needed to market opportunities, a case you invest in—it pretty much is what it is, and there’s only so much that even the most talented lawyers can do, with the facts and the law involved. ET: One of the common criticisms I hear from fund managers, at least early on in the life cycle, is that investors are not willing to pay management fees to fund their operations. How does the panel respond to this criticism, given that the average litigation finance claim is small—around $3-5MM—and there is a lot of relatively sophisticated operations needed to be conducted by investment managers?   DD: I think there are ways of paying someone a full fee and making sure deployment is there. And that is my primary concern, and I think most LPs primary concern, when it comes to paying a management fee. We’re also concerned about misalignment. At the fund level, people should really be making a large amount of their compensation from performance fees, not salary. KC: It’s definitely a difficult issue. The fee drag that comes with charging investors on committed capital becomes pretty untenable when you’re comparing gross returns to net returns. So from our perspective, at a minimum, fees need to be on an as-committed basis. We’ve also seen scenarios where there is a lower management fee on committed capital that steps up once it’s drawn. It’s just really difficult with some of the commercial litigation strategies to have a full freight fee—2%--committed from investors.
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Commercial Deals

European Funding Predicted To Account for 15% Of Global Market By 2025

While the US and UK are most often in the news for their high profile litigation funding cases, the European continent is seeing an equally impressive rise in the number of funding agreements, and there is plenty of reason to expect this upward momentum to continue. New research and analysis from Deminor, the global litigation funder, suggests that in the next five years, the European market alone could see annual growth of 8.3% and account for 16% of the world’s litigation funding market by 2025. In a feature for The Global Legal Post, Erik Bomans, the CEO of Deminor, speculated that this rise would be driven by a combination of factors including economic instability, a rise in shareholders holding companies to account over ESG targets, and human rights violation claims. Going beyond the growth in funding itself, Mr Bomans argues that this increased volume in the number of cases will likely be accompanied by a more significant proportion of successful claims by litigants, as the breadth of legal advice available is widened. In addition to this booming market share, it is also expected that we may see a broadening of the number of jurisdictions in Europe that will see an increased uptake in third-party funding. Lianne Craig, the managing partner of law firm Hausfeld’s London office, highlights that the firm has seen real interest and engagement from funders towards participating in previously underserved markets such as Italy, Portugal and Spain.
Commercial

Clarion Remains on Top for Litigation Costs Services

UK law firm Clarion is riding high in 2022, after being placed in the top tier of legal cost services by Chambers & Partners for a third year in a row. Having been highlighted for their breadth of knowledge, pragmatic approach and praised by clients for their responsive services; the firm remains a UK leader in the field of costs services and litigation funding. Speaking with Business Up North, Andrew McAulay, the partner at Clarion in charge of this practice area, highlighted the firm’s nationwide approach, and ability to work with London firms, as well as being able to assist on cases with a global scope. Mr McAulay’s team are regularly engaged by parties on either side of cost disputes, and have an experienced bench of professionals with expertise working alongside both small and large business entities, as well as lay clients. Mr McAulay and his colleague, Stephanie Kaye, were also both listed by Chambers & Partners in the top band for individual practitioners for Costs Lawyers, with McAulay having been recognised as such for three years consecutively.
Commercial

Claimant And Enforcement Require Equal Appraisal, Says Top Funder

When evaluating the potential of entering into a funding agreement with a prospective client, funders must weigh a number of factors, when evaluating the merit of a case and what any potential outcome could entail, whether that be financial return or loss. In the latest of a series of analysis, Glyn Rees of Augusta Ventures, has provided two new articles with insights into how funders should evaluate both a claimant’s legitimacy and what enforcement factors could affect the funder’s return on investment. When analysing the potential client’s merit, Mr Rees argues that any prospective funder should first consider whether the claimant has experience in pursuing proceedings, and if so, what their motivations are for this latest claim. Additionally, it is worth assessing the claimant’s financial situation in case there is a risk of insolvency, which could affect proceedings and what their expectations are for any final settlement. On the enforcement side, Mr Rees primarily focuses on the point that no funder should engage in a case where success would come with only symbolic return, rather than financial gain. Moreover, he highlights the need to undertake detailed inspection of the defendant’s resources and consider where the seat of arbitration is, as this may be the biggest factor in determining how enforceable any settlement is.
Case Developments Commercial

Therium Funds High-Profile Claim By Malaysian Royal Heirs

A litigation funding giant has found itself in opposition to the Malaysian government, by funding a lawsuit by the heirs to the Sultanate of Sulu, in a claim valued at $14.92 billion. Whilst high-profile cases are not foreign to the world of litigation finance, it is certainly a unique position for a funder to be involved in a dispute between a country’s royal family and the state’s government. Profiled in an in-depth feature by The Edge Markets, the claim by the heirs of the late Sultan Jamalul Kiram II comes as a result of an arbitration judgement by a French court, which ruled the Malaysian government was required to pay the nearly $15 billion in damages. This was a result of the state failing to make an annual payment agreed to in an 1878 accord over sovereign land rights, which the government ceased paying in 2013 due to armed militants occupying the area. When the government refused to compensate the heirs of the Sultan for those stated damages, bailiffs working on instruction from the plaintiffs seized two companies belonging to the state-run oil corporation Petroliam Nasional Bhd. While the Paris Court of Appeal has issued a temporary halt on the initial arbitration ruling, the heirs’ legal team led by Paul Cohen, of 4-5 Gray’s Inn Square chambers, have stated that the halt is only enforceable in Paris. While this matter is far from resolved, it is clear there is an appetite among high-profile funders to attach themselves to such cases where the opportunity to gain a significant financial return is available.
Commercial Deals

Top Australian Funder Sees Opportunities in a Post-COVID Market

The impact and the effects of the COVID-19 pandemic are still unfolding across the globe, and its disruption of key industries may result in a follow-on surge in class action cases. Whilst most businesses fought to stay profitable or even afloat, the financial support offered by many governments around the world also helped support businesses that had fundamental flaws or failings pre-pandemic. Interviewed by The Australian Financial Review, the executive chairman of CASL, John Walker, predicts an influx in class actions now that businesses will once again come under tight scrutiny of their activities. This prediction comes with the added weight of CASL building a sizable war chest of $155 million to fund such litigation, with Mr Walker highlighting the area of ESG as a potential firestorm of future claims. Mr Walker also linked the expected rise in claims to the potential for even greater levels of third-party funding due to the continuing increase in inflation, and with investors looking for safer bets than equity investments. Despite regulatory tightening on the funding industry by the previous Australian government, he also expects the new administration to make gradual, if not immediate, changes that will widen access and opportunity for claimants seeking external funding.
Commercial Deals

The Stage Is Set For A Boom In Litigation Funding in Scotland

With instability at the highest levels of government in Westminster, and an economic downturn preoccupying the minds of everyone from Canary Wharf to the small business owner on the high street, flexibility in third-party funding legislation is likely to drive a surge in litigation. This is particularly true in Scotland, where previous regional legislation had prevented a wider adoption of litigation financing. But now local as well as national funders are standing by to support a rise in the number of claims being filed. Writing in The Scotsman, Edward Gratwick, a legal director at Addleshaw Goddard, sees the industry moving in one direction: upward. He notes that since Scotland’s Civil Litigation Act came into law in 2020, the types of litigation finance agreements that have been allowed in this jurisdiction have significantly expanded. As a result, potential claimants who were shut out of the system due to a lack of capital, are now able to seek justice with the help of an enthusiastic cadre of funders. Mr Gratwick also highlights that while under previous regulatory structures, these funding agreements mostly revolved around insolvency cases, we should expect to see a variety of commercial cases take advantage of funding opportunities. This is further reinforced by the growth of new startup funders specifically catering to regional UK markets, as well as London-based firms hoping to find new revenue channels outside the capital.
Commercial Legal Innovation

2022 Thought Leaders in Litigation Finance 

Since 1996, Who's Who Legal has been examining the International legal scene to decipher trends in litigation finance innovation development. In a new research report, WWL Thought Leaders: Third Party Funding 2022 explores the latest cutting edge insights into the global litigation investment marketplace.  WhoseWhoLegal.com features Eric Blìnderman (CEO at Therium Capital Management) and James Little (Principal of Drumcliffe) in Q&A sessions on the evolution of litigation investment. Blinderman and Little are considered LF pioneers, well-regarded within the industry. Click here to read more.
Commercial

Omni Bridgeway on Defense Side Financing

The vulnerabilities of being on the defense side of litigation are immense. According to a new Omni Bridgeway research report, there are opportunities for claimants to leverage world class defense side opportunities as part of portfolio strategies.  Jason Levine (Investment Manager and US Legal Counsel at Omni Bridgeway) highlights that settlement is normally the likely outcome of litigation; funders can express returns in a variety of ways. Shifting upfront litigation exposure to the funders is oftentimes a worthwhile investment for claimants looking to diversify their risk exposure.  Similarly, defense side funding opportunities hedge against abusive litigation from opportunistic adversaries. Check out Omni Bridgeway's conversion on defense side litigation here. 
Case Developments Commercial

Bundled Class Against Apple APP and Google PLAY Stores

Czech-based funder LitFin has announced a bundled action against Google and Apple concerning their application store download purchase agreements. LitFin alleges that Google and Apple have abused their market dominance by inflating in-app commissions at or above 30%.  According to LitFin, Google and Apple have been subject to intense litigation that have assessed billions of dollars in fines and levies against their application store terms and developer revenue share policies.  LitFin suggests that both the Apple APP and Google PLAY stores have engaged in monopolistic behavior. LitFin's class action lawsuit aims to set precedent for more equitable and fair dealing in application design and product innovation.  Click here to find out more. 
Commercial

Ethics and Values Behind Litigation Finance Products and Services 

Above the Law profiles thoughts and ideas behind ethical communication of third party funding products during attorney-client discussion. Marla Decker argues that clients often have a material benefit in engaging legal finance options for strong case claims.  Ms. Decker argues that all attorney-client conversations should embrace ethical duty and care when it comes to financial benefits of litigation finance. Monetization of claim awards is a unique opportunity for many to expand bottom line growth. Therefore, Ms. Decker suggests that it is an ethical imperative for values-focused attorneys to properly discuss third party funding options with clients.  Click here to learn more about Ms. Decker's insights.   
Commercial Regulatory Issues

The Argument Against Forced Legal Finance Agreement Disclosure 

Keith Sharfman (Professor at St. John's University School of Law) has a new feature arguing against mandatory litigation finance agreement disclosure in the 94 New York State Bar Journal 36. Mr. Sharfman's article covers unique approaches to legislation targeted at third party funders and their clients.  Sharfman's research concludes that financial privacy is subject to degradation under forced litigation agreement disclosure rules. Furthermore, Mr. Sharfman alludes to the notion that claimants who have not received funding face discriminatory acts from adversaries who may take advantage of those who have not received funding.  Mr. Sharfman therefore suggests that lawmakers reject mandatory legal funding agreement disclosure. 
Commercial Fundraising

Aristata Capital Drives Meritorious Funding Innovation Banking £40MM Investment 

Aristata Capital is proud to announce a £40MM capital injection to fund a portfolio of impact investments. Such investment will include funding legal expenses for cases involving human rights, equality, indigenous law and ESG litigation.  In a press release, Aristata says the firm seeks to expand its customer base to include claimants who lack access to capital while victims of meritorious claims. Aristata suggests that the global system of commercial litigation has created an enterprise-ready environment for pursuing portfolio impact of this subject matter.  Aristata says the investment builds on years of experience in strategic litigation systems and processes. 
Commercial Deals

Deminor’s Research Reports ESG Bump 

Legal Futures profiles Deminor's ESG insights in a new report. Deminor says that ESG legal investment has a high likelihood of becoming one of the United Kingdom's most investable lines of business for litigation financiers.  Deminor forecasts that litigation funders will experience active upcoming regulatory requirements that should be embraced. Furthermore, Legal Dive highlights that most class actions in the United Kingdom have a litigation financier funding the effort. Trends point to a continuation of favorable circumstances for funded ESG class actions in the UK.  Click here to learn more. 
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Commercial

Litigation Finance as a Revenue Vehicle

In a new article, Legal Dive explores the notion that litigation portfolios can become a revenue driver for legacy gain. According to Legal Dive, investors are 'plowing' funds into legal finance products and services looking to avoid cyclical market events. As a revenue driver, investors are looking at returns up to 4x their contribution.  With such figures, Legal Dive suggests that strategic partnership with legal funders should be a topic for every modern general counsel's office. The growing acceptance of litigation finance is widely considered to be an opportunity for innovators in the legal arena.  Legal Dive also focuses on monetization of potential awards, in that if a general counsel's office is relentless, the firm can profit from various business lines of litigation portfolio case assets. 
Commercial Legal Innovation

Innovative Australian Funder Launches Service With New Approach

The vibrant and growing litigation finance market in Australia continues to expand, with the launch of a new funder in Juel Litigation Finance. With a goal to shake-up the industry, Juel is aiming to operate as a traditional litigation funder, and also bring a more holistic approach to legal financing that considers the individual behind the case as important as the case itself. Speaking with Lawyers Weekly, founder and executive director Mark Paton explained that Juel wants to be a partner to litigants and support them with any costs incurred during litigation – not simply legal fees. Mr Paton stresses that the new funder will not just focus on providing the legal financing, but rebalance the whole equation in favour of individuals and businesses who will already be under immense pressure during the litigation process. This innovative approach will allow Juel to support a wide range of cases, from personal injury disputes to insolvency matters, ensuring that their clients have a partner during proceedings from beginning to end.