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Commercial Legal Innovation

LegalPay Aims to Democratize Litigation Finance

Legal Pay is a standout across India, championing the goal of access to litigation finance tools and services. Traditionally, many in India were forced to rely on friends, relatives and/or personal loans to fund litigation if they did not have access to adequate capital. Today, Legal Pay is not only spearheading litigation funding, but also bespoke insolvency products.  Recently, Asia Tech Journal’s Ashu Agrawai (AA) sat down with Kashish Grover (KG), Legal Pay’s Chief Investment Officer, for a video interview on the future of litigation finance in India. Here some key takeaways from the conversation:  AA: What is the construct of Legal Pay? What kind of products are you doing? You basically rate and assess the quality of an asset and open it up for people to invest, right?  KG: You have actually summarized what we are doing in a very plain way. I think that the vision or idea is to help structure the entire litigation finance funding market to help plaintiffs who do not have money… You create wealth and diversify.   AA: What is the role that you play?  KG: It can take ages for cases [to mature]. That is where our filtering criteria comes into play… We only take a cut or receive any money once you win a case or receive the money. The idea is pretty simple, but we have our own proprietary algorithm that rates each case on scoring criteria.  AA: Is the money coming from your coffers? Is the money coming from partners? Because financial institutions have continued to stay away from [litigation finance].  KG: Imagine this: We have a pool or different basket of funds. If this case fits in, we allocate the case. We have investors who can invest $20,000 - $25,000. Basically, digitizing a VC model.  The interview with Legal Pay extends nearly an hour. Follow the link above to check out the entire video. 
Commercial

Texas Wrestles with Backlog as Energy Market Bounces Back

It’s estimated that the state of Texas will be dealing with case backlogs for the next 3-5 years—particularly for in-person jury trials. Before COVID, Texas saw more than 10,000 jury trials per year. In 2020, jury trials numbered 222. While the energy market is bouncing back, it will take a long time before it reaches pre-COVID levels. With all that in mind, litigation funding can offer low-risk solutions that can be highly profitable and beneficial. Validity Finance explains that as of June 2020, COVID created a bleak landscape, especially with regard to key industries. At that time, the price of oil was below the zero mark, unemployment hovered around 13%, and revenue losses were plaguing the healthcare system. Months later, bankruptcies were piling up at an alarming rate—with the energy sector being among the hardest hit. At the same time, the Texas court system ground to a halt. In 2019, it was common to have an average of 186 jury trials per week. Between March–December 2020, that number fell to just four trials a week. COVID continues to negatively impact the global economy, causing rampant uncertainty as to when, if ever, things will return to normal. Legal services, however, have enjoyed boom times during the pandemic. Legal funding in particular has grown by leaps and bounds. COVID has inspired creativity and adaptability in the legal field, while third-party legal funders are managing record sums of cash from investors clamoring for uncorrelated assets with the potential for high returns. Legal firms and clients alike are making use of Litigation Finance to share risk, bring in revenue, and pursue cases that would otherwise not be economically feasible. Legal funding also allows firms to engage in alternative fee agreements, providing greater flexibility to clients. As the world continues to address the impacts of COVID, litigation funding stands by to assist.
Commercial Regulatory Issues

Tribunal Award for Costs Upheld by English High Court

Is an award for costs of legal funding an excess of power? Not according to the English High Court. The High Court recently affirmed that tribunals may award costs for litigation funding. This is the second High Court ruling rejecting challenges to an award of funding costs. Burford Capital explains that “other costs,” as defined by section 68 of the English Arbitration Act, can indeed include costs associated with obtaining legal funding from a third party. The first case to affirm this was Essar Oilfields Services v Norscot Rig Management. Earlier this month, the issue of arbitrators awarding funding costs was affirmed in Tenke Fungurume Mining SA v Katanga Contracting Services. Both cases confirmed that awards for funding costs cannot be challenged under section 68. The challenge from TFM asserted several grounds of irregularity that impacted the proceedings in an unfair way. Ultimately, TFM argued that awarding funding costs was an excess of power—but was not able to demonstrate that the tribunal exercised a power it did not have. Thus, the argument was dismissed. TFM further argued that the award of funding was inappropriate under public policy grounds—owing to the established public policy in favor of award enforcement. Unsurprisingly, third-party legal funders found this ruling welcome. It appears to foreshadow the widespread acceptance of allowing parties to recover the costs of obtaining third-party funding. It’s also probable that more cases have contained similar rulings—but aren’t known publicly, as they are confidential. Arbitrators have long had the authority to award “other costs” associated with a case—and therefore awarding costs associated with legal funding cannot be an excessive use of power. English courts have long supported litigants recovering costs they undertake to defend their rights. This could apply not just to funders, but to expert witnesses, research, and other costs associated with a case.
Commercial Regulatory Issues

Litigation Finance a ‘Sleeping Beauty’ in Germany

Access to justice in Germany is awakening a ‘Sleeping Beauty’ (that being litigation finance), according to a new report. Heavy hitters such as Roland, Foris, Allianz and Legial dominated the German litigation finance market for well over a decade. Now, new opportunities are sprouting up across Germany, as tech-savvy investors help claimants ‘beat Goliath.’  The German publication Deutscheranwaltspiegel.de released a new essay outlining litigation finance as one of the most discussed legal instruments in German civil law. The report highlights a mood of accommodation to litigation finance as an import of ‘American Conditions.’  Litigation finance in Germany is being sought as a tool of opportunity to tackle thorny insurance cases. According to the report, one German hotel proprietor purchased business interruption insurance before COVID-19, only to be left empty-handed when the insurance company ran out of cash. He turned to a litigation finance investor to help save his hotel business from ruin.  Deutscheranwaltspiegel.de shares that regulation is coming into focus, as one-off litigation wins can cost consumers more than they bargained for. Similarly, some critics speculate that savvy litigation financiers could extort frivolous lawsuits.  Germany appears to be evolving from the ‘rights of the fittest,’ to justice for all. As such, the German litigation finance market will be one to watch over the coming year.
Commercial Deals

Frozen Accounts Seek Litigation Funding

Business professionals sometimes find themselves in a situation where their operating account has been frozen due to an unforgiving legal circumstance. Evolving past this scenario can be painful, especially with no access to capital.  The Canadian publication Alllaboutestates.ca, shares that litigation funding is a smart decision when funds are tied up, regardless of the reason. For example, estate litigation often yields situations where property and other assets are haggled over before the ultimate decision of ownership is reached.  With competing claims on capital or property, whoever feels they are the rightful owner may find his or herself with no cash on hand to take sophisticated legal action. Claims of fraud are one such instance, according to the report. Other scenarios include multiple parties claiming various percentages of a pot of money. What is the most efficient way to litigate success in such instances? Alllaboutestates.ca highlights that litigation funding is emerging as a strong option in various instances when accounts/assets are frozen, with claimants forced to wrestle up cash in order to properly pursue a legal argument. 
Commercial

Litigation Finance Predictions for 2022

Litigation Finance has enjoyed a successful 2021. More players entered the funding space, funds were raised at a rapid clip, and more capital was deployed than in any previous year. Overall, there’s a general recognition that litigation funding brings fairness to the legal system.

Validity Finance’s Ralph Sutton has four predictions for Litigation Finance in the new year. He believes that the public’s understanding of third-party funding will increase, expanding the idea that it is a net gain for society. A recent survey showed that nearly 90% of attorneys who have used litigation funding affirm that it gives clients greater access to justice. That bodes well for the continued growth of the industry.

Third-party funders are beginning to recognize their place in the sociopolitical ecosystem. Funders are taking steps to advance initiatives related to the environment, social justice, and governance. So-called ESG goals are inspiring funders to give grants and zero-profit loans to worthy entities like the Innocence Project. A roundtable held earlier this year consisted of academics, funders, and judges to consider starting a social impact litigation fund to provide capital for worthy causes.

Offsetting risk via insurance is expected to grow in popularity. ATE (after the event) insurance is not a new product, but it’s being used in new ways to mitigate risk in funded cases. Ultimately, this type of insurance allows fund managers to keep more awards and settlements. While expensive, insurance for cases or portfolios can protect principal amounts—sharing risk between funders and insurers.

Changes in rules regarding ownership of law firms by non-lawyers could lead to sweeping, industry-wide changes. Exceptions to ethical Rule 5.4 may offer firms the ability to raise capital like any other business. This, in turn, allows law firms to recruit new talent or take more risk. Many states have or are considering this rule change, including California, Florida, New York, Illinois, and Texas.

Commercial Fundraising

The Impact of COVID on Litigation Funding

While many industries suffered during the pandemic, Litigation Finance has flourished. Most industry professionals believe the growth and maturation of third-party legal funding will continue into the new year and beyond. Bloomberg Law details that in the first nine months of this year, law firm revenues increased an average of 14%. In some AMLaw 100 firms, per partner profits have reached an all-time high. The introduction of regulations impacting legal funding, along with the founding of multiple professional organizations has led to changes within the industry. Economic factors alter the ways some cases are vetted for funding. For example, assessing a defendant’s ability to pay an award or judgment. Because of this, it can be more difficult for plaintiffs to get backing from a litigation funder. Meanwhile, business interruption claims against insurers are plentiful, but insurers are successfully getting cases dismissed more often than not. It’s likely that in the coming months, funders will flock to complex cases with the potential for high payouts. Cross-border breach of contract cases covering manufacturing and logistical failures, or delays in delivery are the most common. Inflation rates and competition for legal talent are expected to accelerate the rise in prices for legal services. Fortunately, the funding market has no shortage of capital, and that is expected to continue as investors seek out uncorrelated investments. Changes in law firm ownership rules are pending in multiple jurisdictions. This change is expected to result in third-party funders buying into big firms, altering some dynamics while offering clients more creative and flexible pricing options. The discussion over disclosure of funding agreements will continue until or unless a consensus is reached. While some jurisdictions are passing regulations requiring disclosure, others have determined that the source of funding is rarely relevant to the facts of a case.
Commercial Deals

Litigation Funding Gaining Popularity in Poland

Polish attorneys are navigating the lack of congruence in the country's emerging third party litigation funding space. Many claimants are not aware of the benefits of third party funding, and the different aspects of how investments of this nature can benefit their bottom line.  RP.pl reports positive structural shifts taking shape, rallying popularity in third party litigation finance. Many international investors have entered the Polish market looking for returns. RP notes that in terms of arbitration proceedings, third party funding has now become a permanent fixture in Poland.  The RP feature outlines several visionary funding scenarios for claimants and plaintiffs to consider. One unique instance applies to both parties participating in third party funding, for example related to a counterclaim. RP shares that this feature is extremely risk-focused, in that the funder would habitually require a high degree of certainty as to the counterclaim’s success.  The success of Poland’s third party litigation funding market hinges on overall public awareness. Many individuals are looking to attorneys to promote and inform awareness associated with features of third party funding. 
Commercial

Longford Capital’s Justin Maleson is Bullish on Litigation Finance

Big Law’s acceptance and public embrace of litigation finance is a major milestone, says Justin Maleson of Longford Capital. As one of the first litigation funders in the United States, Longford sports a rich history of litigation finance innovation.  LawDragon.com recently profiled Maleson in a broad discussion spanning Longford’s pioneering start, to how the funder is developing and driving creativity in litigation finance. Maleson underscores that the versatility of litigation finance is similar to a Swiss Army knife, allowing for different use case tools to fit unique situations.  Longford rejects most litigation finance cases presented for evaluation. Hence, Maleson highlights his career as a defense attorney as prime background for assessing the best cases for investment. Maleson also notes that the litigation funding space will continue exponential success, with the right marketing propelling top tier investors.   Maleson attributes Longford’s success to a novel, modern approach to litigation investment. The firm initially sprouted via single claim funding. Today, Longford monetization techniques include sophisticated portfolio products, inventive business development facilities and original defense solutions.  The people behind Longford are what Maleson values most. He claims that if not for the close connections between his peers, the entire innovation and pioneering spirit at the company would be muted. 
Commercial

Litigation Finance Transaction Attorney One Sheet

Why should non-litigators be aware of litigation funding? Transaction attorneys are well positioned to glean knowledge of funding opportunities to better serve their clients and gain overall firm market share and partnerships.  Austin, Texas-based DealLawyers compiled a one sheet with tips for transaction attorneys as they navigate and educate their clients on litigation finance possibilities. Claims of all shapes and sizes should be considered monetizable assets. Litigation funding should be considered a tool to maximize asset potential, according to DealLawyers.  Universities are one such example of organizations naturally averse to public litigation, yet who can leverage funding opportunities to protect intellectual property rights. With a litigation funding investment’s clear differentiation from a traditional loan, clients of every size can benefit from zero capital investment, while sharing in the upside of only successful claims.  The EBITDA value is tremendous for traditional firms not privy to litigation finance. Most importantly, litigation funding investors are passive participants in proceedings. Clients and their respective attorneys are in complete control without a proverbial backseat driver.   Read DealLawyer’s one sheet provides an expanded view of the emerging litigation funding space, and opportunities non-litigators should consider as they look to expand their business.  
Commercial Legal Innovation

How Technology is Reshaping Litigation

The legal landscape has been slower than other industries to embrace technology. Yet e-discovery tools and contract-review software are finally opening the doors to enhanced legal tech. The third-party legal funding market is one industry that’s making use of available tech to predict outcomes, source cases, and clarify costs.

Canadian Law Review’s National Magazine’s new interview with Amanda Chaboryk, Disputes and Litigation Data Lead at Norton Rose Fulbright, talks about her role in advancing tech in law. Below are some notable comments from Chaboryk:

  • "In general, the last decade has seen a lot of changes in the law. We’ve seen increasingly innovative forms of alternative pricing arrangements and insurance products. So in the UK, success fee arrangements include conditional fee arrangements and damage based agreements—which of course are subject to certain conditions."
  • "Just as a whole, the insurance market has developed, with some insurers offering dispute resolution and after the event insurance solutions for both litigation and arbitration. The increase of risk transfer insurance and the sophistication of the market has just been huge for litigation funding and insuring cases as a whole."
  • "If I had to divide the case types into the most common, I would say meritorious claims for damages whether through court or contract—some will be brought by single claimants, some through group actions. The scope is very large, I’ve even seen now some funders funding defamation, divorce and personal injury claims. Years ago I wouldn’t have thought that was possible."
  • "In terms of data stewards, I’ve noticed over the past few years that sometimes law firms will hire consultants or people with different data-related skill sets—especially if you think about different sources of data that law firms have."
  • "Looking at a judgement or a decision—look at all the data points you can, as well as the causative actions and the data that was cited. There’s a lot of publicly available data, and that’s why tools like Lex Machina have been transformational."
Commercial Regulatory Issues

Litigation Finance in Arbitration: Current Trends

The mainstreaming of Litigation Finance is expected to continue long after COVID. The practice's use in arbitration has become increasingly common, despite an overall dearth of legislation to regulate it. Stockholm Chamber of Commerce Arbitration Institute details that while third-party legal funding is no longer a new industry, the number of cases in which parties disclose funding agreements is rising. In the early days of funding, such disclosures were left up to individual courts to order, or not. Another initial source of contention was the recoverability of costs paid to funders by clients. The question of whether funders should be limited in the fees and percentages they take remains largely unanswered today—as do questions surrounding security for costs in funded cases. Typically, third-party funding is not reason enough to order security for costs. As a rule, arbiters don’t have authority to identify, or request the identity, of a third-party funder. This led to the SCC encouraging disclosure of any parties with a financial interest in the outcome of a dispute. This includes not just funders, but parent companies and owners. Typically, claimants are offered funding for arbitrations, but in rare cases respondents can receive funding as well.
Commercial Deals

How Construction Litigation Funding Can Drive Returns

LF investors are looking to construction and engineering litigation in a bid to diversify earnings. WIth large scale development projects slated for many metropolitan areas, more construction litigation claims are expected in court.  Engineering News Record (ENR) reports that some LF construction portfolios expect to see a 10 to 1 return on investment. Burford is one such firm looking to invest big dollars in construction litigation, noting that construction claims are part of the industry's fabric.  Recently, there have been several LF construction case wins, such as investing $6M in a developer case that saw a settlement of $18M. Another success came by investing $2.1M in a roofing defamation case that saw a $14.5M award. As the real estate and construction LF market matures, large investments are being made in Canada, Australia and the United States. But not everyone is thrilled about the increasing potential of construction LF. Some point out that construction, real estate and engineering fields may become a target for unnecessary legal disputes that only seek to take advantage of once negotiable claims. Others counter that the LF market is too ripe to invest in shaky claims. The premise of LF is to seek quality claims for investment, as the antithesis would drive funders out of business. 
Announcements Commercial People Moves

Former NPR General Counsel and CEO of Texas Public Radio Joyce Slocum Joins Board of Directors of Validity Finance

Litigation funder Validity Finance has announced that Joyce D. Slocum, currently President and CEO of Texas Public Radio, has joined its board of directors. Ms. Slocum began her career practicing law with prominent law firms based in Dallas, Texas.  She soon moved into an in-house practice, spending almost 10 years at The Southland Corporation, and later serving for more than 14 years as general counsel and head of global legal and business affairs for HIT Entertainment.  She joined NPR as General Counsel in 2008, continuing in that role until being appointed Interim President and CEO in 2011.  She culminated her time at NPR as Chief Administrative Officer from 2012 through 2013. Slocum has served President and CEO of Texas Public Radio for eight years.  Shortly after assuming that role, she was elected to the NPR Board of Directors, including as the chair of its Audit Committee, which oversees the company’s litigation and risk management matters. “I have known Joyce for over 25 years, and have observed her business acumen and innovation in all of her many legal and management roles.  She brings to Validity a keen understanding of how in-house counsel view litigation strategy, planning and budgeting.  Her views will be a valuable complement to the perspective of retained counsel that Allen Fagin, former managing partner of Proskauer Rose, brings to the board,” said Validity CEO Ralph Sutton. “Litigation finance is a significant tool to help increase access to the courts for companies that seek to bring affirmative litigation, in addition to dealing with matters they are obligated to defend,” Ms. Slocum commented.  “The mitigation of risk and additional control over budget and timing of expense can be immensely helpful to in-house counsel in crafting and obtaining management buy-in to a strategic plan to protect a company’s assets. I’m pleased to join the Validity board because I believe their client-centric approach to the opportunities provided by this emerging industry will appeal to in-house practitioners.” Ms. Slocum’s appointment to the Validity board followed shortly after its announcement that it has raised a new managed fund of $70 million – the firm’s second “sidecar fund – alongside its permanent capital. In addition to Slocum and Fagin, Validity’s board is comprised of Jonathan Bilzin, Co-President, managing director of TowerBrook Capital Partners; Michael Carpenter, former chair/CEO of Citigroup Alternative Investments; Dewey Shay, CEO/founder, Unison Site Management; and Ralph Sutton, CEO, Validity Finance.
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Commercial Regulatory Issues

Hong Kong Commission Recommends Outcome-Related Fee Structures

A long-awaited report from the Law Reform Commission of Hong Kong was published. On the topic of outcome-related fee structures in arbitration, it recommends that prohibitions on ORFSs be lifted. By allowing outcome-related fee structures, Hong Kong will align more closely with other global arbitration destinations. Burford Capital explains the specific recommendations of the commission, which reflect the growing acceptance of ORFSs around the globe. At present, lawyers cannot legally enter ORFSs for arbitration or litigation proceedings. According to the commission, there are restrictions on three specific types of arrangements that should be lifted:
  • CFAs. Conditional fee arrangements involve a lawyer and client agreeing on a success fee when a case ends in an outcome favorable to the client.
  • DBAs. Damages-based agreements occur when a lawyer only receives payment when they obtain a financial benefit for their client. That payment is typically calculated as a percentage of a settlement or award.
  • Hybrid DBAs. A hybrid damages-based agreement involves paying a fee (often discounted) for legal services, in addition to a percentage of any award or settlement.
It’s largely agreed that allowing for more fee structure options is beneficial for clients and legal firms.
Commercial

Litigation Finance as a Creative Bankruptcy Solution

Since the start of 2020, the pandemic has wrought havoc on the business world. According to S&P, 630 public companies have gone bankrupt, an increase from 578 in 2019.   Above the Law explains that the ravages of COVID happened simultaneously as Litigation Finance began mainstreaming. While traditional investments lagged, and financial turmoil ensued, third-party legal funding became the solution to an economy that was essentially stopped in its tracks. How does Litigation Finance help? When we talk about financing litigation, we aren’t just talking about class action lawsuits or conflicts between two distinct parties. In a bankruptcy situation, legal funding can enable recoveries, preserve assets, enforce judgments, and assure that ongoing claims are processed. In fact, there are many common situations where Litigation Finance can make a profound difference:
  • Increase Cash Reserves. For companies in distress, monetizing existing legal assets can increase cash reserves, offering a financial cushion.
  • DIP Financing. Sometimes, a company or estate’s most valuable assets are in the form of legal claims. In these instances, courts have been more open to approving funding agreements—finding that they best serve both debtors and creditors.
  • Financing Creditors. An estate may provide funding to creditors to pursue litigation. In some cases, funding agreements can also resolve claims between funders and debtors.
  • Sale of Legal Assets. An estate may sell off its stake in existing litigation like any other asset in the liquidation process. This may happen to accelerate impending recoveries, offset expenses, or reduce risk.
  • Liquidation or Litigation Trusts. Litigation trusts are sometimes used by unsecured creditors who may not benefit from bankruptcy proceedings. Such trusts allow for the confirmation of a plan to reorganize. Trusts may get seed funding or may rely on contingency agreements.
As more bankruptcy professionals become aware of the benefits of legal funding, its use and potential for adaptability will only increase.
Commercial

Questions You Should Be Asking ATE Insurers

The importance of finding the right funding partner when you need one the most is critical. Risk-sharing can be more important than ever in the current financial climate. With major legal funders exiting the market, some lawyers are getting nervous. Not all of the funding solutions presented seem palatable. Legal Futures details that alternatives to legal funding include potentially costly and unreliable deferments, and on-balance-sheet lending, which can be an increasingly large financial burden over time. Matthew Best, senior underwriter for Temple Legal Protection, recommends a CCA agreement option. The Consumer Credit Act is often thought of as adding complications to client/lawyer agreements. But many who work with law firms in the UK, find the process to be straightforward and fairly simple. Best suggests asking about five specific issues when speaking to an ATE insurance provider:
  • Will I have to obtain approval for disbursements?
  • Will approval be needed after a specific amount?
  • Will I be tied to a particular service provider?
  • Must I obtain approval to issue proceedings?
  • Is approval needed to reject a Part 36 offer?
Asking the right questions up front can help avoid stress and major headaches later on.
Commercial People Moves

LCM Ousts Executive Vice-Chair for Alleged Financial Misconduct

Nick Rowles-Davies, the former executive vice-chairman of LCM, has been dismissed by the company on the grounds of ‘gross misconduct.’ The alleged misconduct occurred in relation to expense claims. Global Legal Post details that CFO Mary Gangemi announced the removal in a statement to the London Stock Exchange. She stated that some expense claims were made that were not in accordance with LCM’s Global Expense Guidelines and Policy. Rowles-Davies has been removed from his board of directors position, effective immediately. Rowles-Davies is a highly respected member of the litigation funding community. His previous experience includes co-founder of Vannin Capital and managing director of Burford Capital. Currently, Rowles Davies serves as the chair of the Commercial Litigation Association, and on the board of CourtCorrect.
Commercial Special Features

Key Takeaways from LFJ’s Special Digital Event: Insights from New Entrants into Litigation Funding

On Wednesday, December 15th, Litigation Finance Journal hosted a special digital event featuring insights from new entrants into litigation funding. A panel featuring Charles Schmerler (CS), Senior Managing Director of Pretium Partners, Zachary Krug (ZK), Director of Signal Capital Partners, and Mark Wells (MW), Co-Founder of Almatura, discussed deal sourcing fundraising and hiring from a new entrant's perspective.  Below are some key takeaways from the panel discussion, which was moderated by Ed Truant, founder of Slingshot Capital: Broadly speaking, how do you view the current investor landscape for fundraising in the jurisdiction in which you’re involved? Also, what sort of goals do LPs have when approaching the litigation finance space, and how should new entrants into the space prepare when speaking to prospective investors? MW: Our first fundraise really was a slow burn between 2008 – 2010 when we closed the first fund. You’ll remember when we arrived in the market then, pretty much everyone was a first time manager. There was very little in the way of seasoned product, or to say nothing of the type fund 2 fund 3 type of opportunities. So the investors who were attracted in those days were the pioneering investors and they really had no choice but to commit themselves to first time managers. I think if we fast forward to 2021, it’s a much more mixed environment. There’s a lot more players. My experience is mainly on the European side, but I understand this is also true on the west side. And a number of the players have now matured and are on fund 3, fund 4, fund 5, so investors are presented with a more complete offering ranging from first time managers all the way through to repeat managers. ZK: In some respects, I think the high returns that are uncorrelated to the market remains, and is even a stronger factor in terms of investor appetite, particularly when you look at a landscape where many asset classes are at historically high valuations and it’s difficult to achieve the kind of multiple style returns that you can potentially achieve in litigation funding. So I think that attraction remains there and is quite strong. I think the difficulty for anyone who’s trying to raise money, there’s certainly a lot of money out there, and interest—but the difficulty is, if you’re a new entrant without a track record, you may be an excellent litigator with a long track record of trial victories, but I think without a track record of successful realizations, it can be difficult. Given the asset class and how it performs, it takes a while to develop a track record that’s worth anything because of the long tail risk in these assets. CS: My advice at first was ‘don’t try to raise a lot of money at the beginning of a global pandemic.’ But once you get past that, I think these are key points. Mark touched on something important in that there’s been a significant change in the way investors are able to approach the asset class from the way it was ten years ago. There’s much more data available right now. It’s not a mature industry yet, but there is empirical data out there. So investors are able to diligence this very carefully and they have a number of choices, there are a lot of players as Mark and Zach said. So I think anyone who is looking to raise capital has to be extremely well prepared. Let’s turn our attention toward deal sourcing. Where are you currently originating deals from, and to the extent that you’re willing and able to respond—what methods have you tried and what have yielded the best and worst results? MW: I think we’d say probably four channels of deal flow, the most important deals are from lawyers, and then the other sources would be claimants coming to us direct typically via advertising, LinkedIn, Google, media mentions, stuff like that. And then brokers and intermediaries; both specialist brokers and some of the ad hoc intermediaries. ZK: Mark hit on the key channels from my perspective. I do think it remains very much a relationship driven business, and in terms of what works and what doesn’t work. There is, I think in terms of the lawyers and even the brokers and intermediaries, and I suppose with the funders as well, an aspect where there’s a fair amount of relationship building, business development, what have you, that’s important to maintain those relationships. Let’s shift into a different topic: Hiring. How do you think about organizational design for your firms in terms of a combination of finance, legal, quants type of expertise. Mark, how do you tackle that, historically? MW: Yeah, that’s interesting how you list the financing and the legal and quantitative skills. I think I’d add one more characteristic which can really cut across all those disciplines—and that’s factual curiosity and factual inspection. In our experience over the years, when we look back and look very long and hard about why we lose cases., often it’s singular one-off factors. Something that we get a few times is that we lost the case because the facts that were eventually found deviated from what we’d assume when we were underwriting the case. I think really probing the facts and thinking about what can fill in any blanks in the claimant’s narrative is a really important part of the picture that needs to apply to everyone involved in underwriting the cases. ZK: It’s an interesting question, one that I’m grappling with as we speak, as a relatively new strategy within what is otherwise a very quantitative and numbers-driven organization. My experience is that most litigation funders are staffed by ex-litigators or have many lawyers on staff. They tend to bring that litigation mindset with them, which obviously is important from an underwriting and diligence perspective. But often when you put a bunch of litigators into a room to discuss a case, we can be very good at identifying the risks of what could go wrong, but less good at being creative about how to structure for those risks or to price for those risks, or be willing to take those risks. So my sense in terms of organization and hiring is—it’ll be more important to find folks who are creative about deal structuring and pricing more than simply smart lawyers. It’s more important to have that commercial acumen. Charles, can you comment about what the market for talent is like at the moment and what’s the general professional background that you’re seeing from some of your hires? CS: This feeds off the discussion you were just having with Mark and Zach. The market is good, there is always opportunity to find smart capable lawyers. We have a lot of analysts and quantitative people at the firm already. So we are less in need of hiring those. But I think you already touched on what is the ongoing debate—which is, where should you focus your energies? Should it be on the analytical side, the financial analytical side, or the legal side? We find that you can hire—but the question is: What’s the best way to go about hiring? So for us, we are looking more for people who are not just creative in structuring, but who understand how to recognize value. And that can mean different things in different contexts. For example, we have a particularly strong patent team. Between our two senior-most people, only one is a lawyer. Both have extensive experience monetizing patents over decades, and they understand how to assess the value of a portfolio in ways that most other people cannot.
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Commercial Regulatory Issues

The Debate Over TPF Costs

Traditionally, English courts are reluctant to interfere with decisions relating to arbitration proceedings. Arbitrators are given broad discretion to manage cases as they see fit. Courts therefore seldom get involved unless the conduct of an arbitration is so egregious that the situation demands an intervention.  JD Supra explains that the case of Tenke Fungurume SA v Katanga Contracting Services SAS, was just such a situation. It revolved around a mining operation in the Republic of Congo. At one point, a request to adjourn the arbitration to allow for an inspection of facilities was denied. Later, an adjournment was requested due to illness. Again, it was denied. When this was challenged, Justice Moulder ruled that the arbitrator’s decision was reasonable. When costs were submitted, Katanga revealed the existence of a third-party legal funding agreement from a funder controlled by a Katanga shareholder. Katanga was not cross-examined about the details of the agreement, and awarded over $1 million in costs relating to the funding agreement. Tenke labelled the disallowing of cross-examination a procedural error. Judges examined both the type of funding and the amount—which was determined to be reasonable. It was also probably necessary, as Katanga was unlikely to have obtained funding from another source. Still, Tenke challenged the award for costs based on the idea that it was unforeseen that the costs would include fees to litigation funders. Yet Section 61 of the Arbitration Act does allow for awards allocating “costs of arbitration” including “legal or other costs.” Certainly that would apply to funders. Justice Moulder dismissed Tenke’s challenge, determining that the tribunal did not exceed its powers under Section 68. It’s been noted that this decision illustrates that the threshold to challenge an award under Section 68 is a high one. It’s also noteworthy that Justice Moulder declined to say whether TPF costs should be recoverable expenses as a matter of law.
Commercial

The Burford Quarterly (Q4-21)

Burford has released its Q4 2021 report, which contains exciting insights into the evolution of the legal finance marketplace. Two new products adorn the LF space: Affirmative recoveries and litigation insurance policies. These new sectors are dominated by the same large insurance firms that have offered complimentary insurance and liability products over the last decade.   Burford’s research explains that the new LF-focused features cover the top tier of the industry, representing 10-20% of overall value. Between judgment preservation and affirmative recovery, policy holders are secure with features that represent similar characteristics of traditional insurance. The holder pays a regular premium (monthly, quarterly) to secure coverage. What is keenly interesting is that many policyholders have backdoor participation clauses if a claim were to be executed and ultimately prove successful.     The bundling of the LF product portfolio extends the reach of the emerging marketplace, allowing firms to “goose” (to increase the activity, speed, power, intensity, or amount of) cash value of a claim; a thrilling concept in reality. Download the Buford Quarterly for in-depth analysis of how the LF market is ushering in insurance and asset recovery as avantgarde industry supplements.
Commercial Legal Innovation

Liti Capital to Attend Metaverse in Decentraland Convention

The Global Family Office will host Swiss litigation funding cryptocurrency and blockchain trailblazer, Liti Capital, at the immersive Metaverse in Decentraland’s Crypto Convention Centre.   Liti Capital reports that the crypto-funder is currently a pioneer in the emerging LF token and blockchain technology ecosystem. With such innovation, more investment is pouring into the rapidly-appreciating LF asset marketplace. Benefits include the support of collapsing legacy systems and processes, transformation of access and increase of appeal to sophisticated investor audiences.  Metaverse Decentraland is Europe's prime exploration of future technologies staged to disrupt the future of humanity. Liti Capital scored strategic investment from GDA Capital to spawn user growth, and help lead innovation research across the global LF marketplace.   The first Metaverse in Decentraland, held in 2020, attracted European private wealth executives who look to the Global Family Office for other networking events such as the NFT Summit, the Asia Disruptive Summit and Europe’s Disruptive Investment Summit.
Commercial Regulatory Issues

Are Group Costs Orders Becoming the New Norm?

A recent Victorian Supreme Court decision represents the first Australian ruling for an application seeking a group costs order. The case, Fox v Westpac Banking Corporation, Crawford v Australia, and New Zealand Banking Group Limited, relied on the provision of “the Act” which permits solicitors to be paid with a percentage of a court-ordered settlement or award. Lexology explains that the group costs order application was adjourned, rather than dismissed. This means the plaintiffs could reapply at a later time. Plaintiffs sought group costs plus 25% of an award or settlement be paid to the plaintiffs' legal team. Concerns over ‘flex commission’ arrangements arose in the case with regard to consumers purchasing cars. Because of this, plaintiffs alleged that car dealers had the power to set their own interest rates. Plaintiffs argued that these undisclosed arrangements (there was no legal requirement for disclosure) encouraged dealers to set higher interest rates than those of traditional bank loans. The Court ultimately determined that there are multiple factors to consider when deciding the necessity of a group costs order. In this instance, the plaintiffs did not establish that a group costs order was an improvement over the funding agreement already in place. The best interests of the group members is the standard by which the courts determine group costs orders. This case punctuates the importance of plaintiffs taking the time to closely vet funding agreements and assess whether class members would be better off with a group costs order. The issue of group costs orders isn’t going away. Relevant legislation is almost certainly on the horizon and will present new challenges to plaintiffs and the funders that support them.
Commercial

Money&Co Losses Deemed “Excellent Result”

Despite a loss of GBP 200,000, Money&Co chief executive Nicola Horlick is still hopeful. She remains confident that the firm will turn a profit by March of next year. Peer2Peer Finance News explains that the firm anticipates a “substantial expansion” of the lending book, according to Horlick. The company’s 2021 assets were GBP 777,767 compared to GBP 73,448 in 2020. Money&Co offers secured loans for legal finance and music rights.
Commercial Regulatory Issues

Calls for Europe to Regulate LF Marketplace

With the exponential rise in funded claims across Europe, calls for further regulation abound. Similar to what we’re seeing in the US and Australia, many on the continent want to see added transparency and regulatory control in the nascent industry.  The Parliament Magazine’s Axel Voss argues preserving the purity of justice is key to avoiding the limbo of a profit-focused legal system. The LF industry is generally an unregulated sphere across Europe, which prompts Voss to warn that a lack of transparency and regulation standards could fuel abuse across the industry. The funding industry’s prized pitch is offering litigation access to those normally unable to afford justice. However, oftentimes, successful funders target top dollar cases, and pass over smaller, less profitable ones. With the global LF scene staking $45b-$90b a year currently, Voss urges the European justice system to act on “common sense regulation and transparency.”  While some consider tackling regulation a radical venture, Voss hints at proposed standards which he claims are common sense. A study of over 5,000 respondents spanning Poland, Spain, France and Germany found that 83% of Europeans want LF regulatory standards in place. Similarly, only 31% embraced the idea of the LF marketplace being self-regulated.  Voss notes that LF revenues will likely increase exponentially year-over-year and that it is “crystal clear” Europe should innovate in cultivating common standards, beyond today’s loose regulatory arbitrage wild west. Adding that the market sees some instances of 500% return on investments, claimants sometimes lose out on fair compensation, according to Voss.  Voss says it is now up to members of the European Parliament to work with the Commission to usher in a modern generation of regulatory standards.
Consumer

Advocate Capital Scores Top Texas LF Prize

Texas Lawyer Magazine crowned Advocate Capital one of the top three Consumer Litigation Funding Providers across two of Texas’s major metropolitan areas for 2021.    Texas Lawyer recognized Advocate Capital, Inc’s legal professionals, and showcased the firm’s products in the publication’s annual year-end edition. The Texas Magazine heralds Advocate’s standout attorneys, replete with the essentials they require to compete in today’s legal market. Advocate is planning for a successful 2022 as a leading plaintiff injury practice, with attorneys staffed across Texas and the United States.  
Commercial Legal Innovation Special Features

Key Takeaways from LFJ’s Podcast with Steve Shinn

On the latest episode of the LFJ Podcast, Steven Shinn, founder of FinLegal, described the solutions his platform provides for both funders and lawyers, and explains his company's points of differentiation with other third party platform providers.

Q: Why move into litigation funding and after-the-event insurance? Can you explain how FinLegal’s offerings are different than those of traditional funders?

A: Absolutely. I think one of the challenges is that the litigation funding market could grow a great deal. But there are challenges where lawyers don’t necessarily understand litigation funding, and there are a lot more funders that you can go to. So you want to help educate people who are new to litigation funding and ATE about how to access it and how it works.

There are more funders joining, which is increasing the number of claims that get funded. So whereas before you might have only had funders looking to deploy $5 million to a claim, you now find situations where there are funders who want to deploy as little as $100,000 or less. So there’s a much broader range of funders...and it’s hard to go to all of them individually and it’s hard to know who’s in the market.

We thought, let’s build a sticky platform which provides the law firm with visibility and control over those funding requests, and let’s give them an online process (to write the best possible funding request) in terms of how it’s positioned to the funders so that it does get funding. With lots of funders to navigate, let’s build a platform to help lawyers navigate them, help them understand it—and let’s help them put forward the request with the best possible positioning.

Q: You mentioned getting involved in group actions (the UK version of US-style class actions). What got you interested in that space particularly, and does your technology background in any way penetrate that space?

A: Definitely. It started out as me seeing the VW group claim, and also seeing cartel claims, price-fixing on football shirts, and things like this. With my technology background, I thought ‘Well, how are law firms doing this?’

I saw that they had a lot of off-line case management platforms, they use a lot of spreadsheets. You know these systems didn’t talk to each other. There’s a lot of manual effort and no mobile interfaces for claimants to interact with the law firm. So I thought, ‘We can build a platform that will enable that.’ Essentially, we’d be taking a completely fresh look at it. With a technology and software development background and a product development background. How do we build/provide something that enables lawyers to spend the least time possible working with each claim. We know that’s important to the economics of the claim—not having to spend a lot of manual effort on each claim.

So that’s what we produced, a solution that works on a management by exception basis, so essentially the claimant goes through an automated set of steps. And where they fall out of those steps or where they don’t meet certain criteria, only then do they need to get picked up by the law firm.

Q: I know you offer a claim automation solution, can you explain what this solution does?

A: The main benefit of the solution is that it increases the volume of clients. So what you tend to find, is if there’s a bad claimant experience, people fall out of the process. You’ve spent money on acquiring that claimant, you spend advertising pounds or dollars to get them into your funnel, to start working with them. But they become disenfranchised from your process, right? Or they don’t like getting a lot of phone calls, or they feel like the process is insecure and it happens via Email without clear instruction. So if you have a good online process, it increases the volume of clients. That’s the first thing.

And it reduces the amount of time spent per client also, because...the law firm is only working with clients who fall out of the automated process. It’s also plug-n-play, so if you want to start work on a new type of matter it might be that this week you’re building a book of emissions claimants, and the following week you want to launch a shareholder claim.

You can launch that from the platform in a matter of days and start book building. You’re not having to have lots of different contractors and different systems that you have to modify to start doing something new or different. You talk to us, we set it up for you, and then you manage it through an interface that you’re very familiar with.

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Commercial

Social Inflation Meets Litigation Finance

Social inflation is a significant factor impacting the future of the litigation finance (LF) industry, detailed in a new report released by Swiss Re. With LF investment increasing to $17B in 2020, the market saw a 16% increase year over year, highlighting a greater need for transparency and disclosure standards across the industry.   The Insurer notes the global LF industry is forecasted to reach $30B+ by 2028, with the United States leading with over half of overall investment. LF investment is also allegedly contributing to social inflation across the industry, with the report estimating that 57 percent of LF investment is earmarked for legal expenses, compared to 45 percent, historically.  Regulatory arbitrage could be a significant factor for LF investors to consider over the next decade. Swiss Re highlights that LF regulation is emerging with no real common regulatory standard across the global marketplace. With this trend, transparency is a factor that claimants should consider, as LF investors may choose to operate under opaque regulatory circumstances.  Swiss Re suggests the LF industry adopt compulsory standards of disclosure of investment arrangements to all parties. These disclosures are a bid to usher in transparency and ensure overall consumer protection. Swiss Re forecasts a continued disparity between sophisticated LF investors assessing social inflation costs that will generally affect net proceeds to client plaintiffs. Finally, the report suggests that large corporations may seek investment in “legal expense insurance policies” that may serve as a buffer and/or alternative to the LF marketplace. 
Commercial Fundraising

Alt Investment Platform LegalPay Raises Funding

Venture capitalists and Amity Technology Incubator are leading the funding of LegalPay, an Indian investment platform democratizing investment in third-party legal funding and tangential services like insolvency financing. LegalPay specializes in legal financing products backed by assets. These investments have potentially lucrative IRRs, often as high as 30%. Economic Times details that New Delhi-based fintech invites investors at all levels. This includes family offices, retail investors, international funders, and others. Investment in this type of alternative asset class is an excellent means of diversifying a portfolio while instilling the benefits and discipline of long-term investing. This, aside from the obvious benefits of potentially high returns in an asset not connected to the global market. Founder and CEO Kundan Shahi explains that LegalPay opens LitFin investment to those who had been shut out of legal finance since its inception. Now, everyday investors have access to assets that were only available to the mega-rich--even as recently as last year. Among its other products, LegalPay offers short-term interim finance for distressed businesses. This is obviously an important service in the time of COVID when many businesses continue to struggle. LegalPay has also launched technology products to meet the needs of insolvency professionals including banks, resolution specialists, ARCs and other creditors. By offering an efficient and seamless process, more parties in need have access to help. Ultimately, LegalPay will enable customers to use AI and other tech to effectively invest in this alternative asset class.
Commercial Regulatory Issues

On ATE Insurance as Security for Costs

Article 6 of the European Convention on Human Rights states that every citizen has the right to unimpeded access to the courts. Citizens of modest means who cannot afford an attorney might say that principle falls short in practice. Legal Futures explains that the insurance market and third-party legal funding both have a crucial role to play in collective actions, and for individuals who cannot afford to pursue their claims. Yet, there’s an imbalance between access to justice and cost protection. This imbalance has led to claimants, particularly those in class actions, feeling frustrated. After-the-event insurance is typically used as protection against an adverse costs order, but can also be deployed for the defendant’s costs. But ATE may not always be enough to cover security for costs. So, who bears the financial risk when a David takes on a Goliath? Do the courts ultimately favor the clients with the biggest war chest? What happens when securities for costs are ordered against a third-party funder? In the so-called Ingenious litigation, a funded case with over 500 claimants sought to recover losses. Defendants filed for security against a litigation funder, requiring that Justice Nugee revisit specific legal points. He ultimately found that ATE policies, in this case, did not provide sufficient protection. Is the only option for claimants to purchase an anti-avoidance endorsement so that insurers cannot void or terminate a policy? Some say so, despite the significant financial outlay for such an endorsement. Such an expense would ultimately be counted against any future recovery.