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Clarifying the Ethics and Responsibilities Inherent in Litigation Funding

Clarifying the Ethics and Responsibilities Inherent in Litigation Funding

The following is a contributed piece from Nick Rowles-Davies, Executive Vice Chairman of Litigation Capital Management. Along with Andrew Saker, CEO of Omni Bridgeway, and Neil Purslow, Co-Founder of Therium, Nick will be a panelist on LFJ’s upcoming special digital conference — an industry roundup of the major events impacting commercial litigation funding in 2020, and what to expect in 2021.  Recently, there has been a lot of discussion around litigation finance. This is generally a good thing, as although litigation finance is no longer an unknown dark art, the industry still benefits from a heightened profile as it progresses on the journey from obscure to mainstream. That said, recent theoretical musings have concerned the ethics surrounding a funder’s involvement in a case, some funders’ closer associations with law firms and the duties of the lawyers running funded cases. These are important issues that should be discussed and debated openly, albeit more usefully by practitioners and funders who have real experience of such matters in jurisdictions where funding is permitted, so as to avoid naïve commentary that betrays a lack of practical knowledge and understanding of how these matters actually work. One issue raised recently is the concern that using funding can create a conflict between the duties of the lawyer to their client and any duty to the funder. There is a suggestion that in this regard, funders create a ‘practical difficulty’ for lawyers, who are torn between protecting the interests of their clients and pleasing investors. The only duty of the lawyers in a matter which is financed by a third-party funder is always the one to their client. Professional funders invariably include a provision within their funding agreements that requires the lawyers to act in accordance with their professional duties and any regulatory requirements. That said, the practical reality is that any professional funder will wish to ensure that the interests of the client and the funder are entirely aligned. No funder wants to create a situation where the client has little or nothing to gain from the outcome of the case. The simple reason for this is that the funder does not influence or control the decision making in the litigation or arbitration. They cannot, and attempting to do so would put the funder’s investment at risk. Funders provide passive capital and once they have decided to invest in a case there are only certain circumstances where a withdrawal from the case is permitted. In reality, given the experience of the established professional funding cohort, most clients are keen to discuss their case with the funder in a way that seeks out the funder’s views and gives the client the benefit of the many years of experience that the funders have gained. Despite the suggested concerns, funders do only have a limited and pre-agreed role in any decision making, and the funding agreements reflect that position. It has also been suggested that clients should seek independent advice on the terms of the funding agreement, namely alternative advice from the lawyers running the actual case. That does happen, although it is not mandatory given that the parties are commercial entities seeking to enter into a commercial agreement, but then neither is it mandatory for a client entering into a DBA/contingency fee agreement with their lawyers in England and Wales. It has been observed that there are law firms who are forging closer links or associations with funders and whether that, also, raises questions of duty or loyalty. The commentary above is equally applicable to this. Lawyers know where their duty lies, and professional funders have no interest in interfering in that. Perhaps a more pertinent question is to ask why these associations are happening. Since the last financial crisis, the law firm model has been changing with corporate clients insisting on higher value and better predictability on fees. In a downward trend since 2008, law firms have been losing out on collections on billable time. Moreover, the most important issue and the area that in house legal teams believe needs the most attention is the provision of more creative and alternative billing solutions.[1] One way in which law firms can offer an alternative is by the provision of litigation finance. Law firms that are forging closer associations with funders are showing that they understand their clients’ needs and are reacting to their clients’ requests by offering an alternative. The legal market is extremely competitive. It should be assumed that all the lawyers pitching commercial clients for work are very good lawyers. Law firms, particularly in the current financial climate, not only have to address the requirements of those commercial and corporate clients, but they need to set themselves apart from the competition. They need to change the narrative and distinguish themselves in a crowded market. The firms that have made such arrangements are benefitting from the ability to do this and are gaining more work from existing clients and winning new clients with the benefit of their associations with litigation funders. Used intelligently, litigation finance is an excellent business development tool for law firms. However, these associations go much further than simply being a response to in house corporate demands or the business development needs of law firms. The benefits to the law firms and to their clients are numerous, as they are of course to the funders. Nothing in these arrangements is, should be, or indeed could be, exclusive. The law firm should always act in the client’s best interests. Whilst the funder may see all of a firm’s potential funding opportunities, it is incumbent on the funder to create an arrangement that is always going to be competitive for the law firm’s clients. That is a significant benefit to all parties. The established professional funders consider every case on its own merit and risk profile and could not guarantee that they will always offer the cheapest terms – to do so would undermine one of the cardinal rules practiced by real funders, namely the pricing of risk. Accordingly, there will be occasions where the funder with whom the firm has an association cannot provide terms that meet the client’s demands for a particular case. Whilst the regular referral of cases is a benefit to the funder, there is real value to both funder and law firm in the knowledge and experience gained by working closely together, understanding the methodology and then adopting the processes and the thinking undertaken by the funders, even using similar terminology and document precedents. This exchange of information means that the law firm really understands what it takes to obtain approval for funding. That leads to a better result for clients. There is no time and money wasted in hopeless applications and cases that can be funded are executed more swiftly whilst those that cannot be funded rejected swiftly, or do not make it past the law firm’s triage process which has been honed by continued education from the funder. It is incumbent on any new industry to listen to concerns, ethical or otherwise, and respond with appropriate understanding and professionalism to address those concerns. All of the issues raised recently have been asked and answered many times before. The litigation finance industry has matured significantly in the last 10 years and is now treated, rightly, as a useful and often necessary tool in any disputes lawyer’s toolbox. The general international trend is one of growing acceptance, increasing adoption of, and accelerated adaptation to, litigation finance—particularly in sophisticated international hubs for dispute resolution.   [1] (2019 Report on the State Of The Legal Market by the Georgetown University Law Centre and Thomson Reuters Legal Executive Institute & Peer Monitor)
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Harris Pogust Joins Bryant Park Capital as Senior Advisor

By John Freund |

Bryant Park Capital (“BPC”) a leading middle market investment bank and market leader in the litigation finance sector, is pleased to announce that Harris Pogust has joined the firm as a Senior Advisor.  Harris (Mr. Pogust) is one of the best known and prominent attorneys in the mass tort and class action fields, he was the founding partner and Chairman of Pogust Goodhead worldwide until early 2024 and is currently working with Trial Lawyers for a Better Tomorrow, a charity Harris founded, to help children reach their educational potential all over the world.  Harris’ life work has been to deliver justice for those who have been damaged or injured through the negligence or bad faith of others.

“We are thrilled to have Harris as part of our team.  His knowledge, experience and relationships in the litigation finance sector are of great value to Bryant Park and our clients.  As the litigation finance world becomes more competitive, complex and challenging, having an expert like Harris on our team is invaluable,” said Joel Magerman, Managing Partner of Bryant Park.

Harris’ efforts, in conjunction with Bryant Park will focus on assisting law firms and funders in developing strategies to more efficiently fund their operations and cases and assist them in establishing the right relationships for future growth.  Harris commented, “I have been fortunate to have been a practicing attorney and partner in law firms for over 35 years focused on building and growing a worldwide book of business in the class action/mass tort field.  That required significant capital and throughout my career I have raised over $1 billion for my firms.  I have learned what works and what doesn’t.  I have seen both the risks and rewards in this industry.  I look forward to being able to work with law firms and funders to assist them in putting the right strategies in place with Bryant Park and bringing capital and liquidity to help them grow and flourish.”

About Bryant Park Capital

Bryant Park Capital is an investment bank providing capital raising, M&A and corporate finance advisory services to emerging growth and middle market public and private companies. BPC has deep expertise and a diversified, well-founded breadth of experience in a number of sectors, including specialty finance & financial services. BPC has raised various forms of credit, growth equity, and assisted in mergers and acquisitions for its clients. Our professionals have completed more than 400 assignments representing an aggregate transaction value of over $30 billion.

For more information about Bryant Park Capital, please visit www.bryantparkcapital.com.

20 Legal Firms and Groups Calling on UK Government for Urgent Legislation to Reverse PACCAR

Despite a government-commissioned independent review recommending priority standalone legislation to reverse PACCAR, the Government has failed to act, the letter to the Lord Chancellor says.

“As a highly respected member of the legal community, the Prime Minister rightly often speaks of ‘following the evidence’.

“The independent experts have provided the evidence that this issue needs fixing, yet this Government refuses to act, delaying justice for some and denying justice for future claimants.

“We call on the Government to act swiftly and legislate for the sake of claimants and the reputation of the UK’s justice system.”

The letter follows earlier calls on the Government from claimants to reverse PACCAR urgently, including from Sir Alan Bates , truck hauliers and the lead claimant in a mass action case against six water suppliers for alleged customer overcharging.

This comes amid a drop off in collective proceeding cases in the Competition Appeal Tribunal this year according to Solomonic, as reported in the Financial Times this morning (link). 

Neil Purslow, Chairman of the Executive Committee of ILFA, said:

“We’ve been warning successive governments for more than two years about the potential impact this uncertainty will have on consumers and small businesses’ ability to access justice.

“These figures show that stark reality. Meritorious claims are going unfunded, alleged wrongdoers are unchallenged and competition - one of the great drivers of growth - is not being enforced.

“The Government must act before this small trickle of cases dries up altogether.”

Martyn Day, co-founder of Leigh Day and co-president of the Collective Redress Lawyers Association (CORLA) which signed the letter, said: 

“This issue has created a great deal of uncertainty that is blocking access to justice for ordinary people taking on powerful corporations accused of wrongdoing. 

“The system simply cannot work without litigation funding, and this is a timely reminder to government to fix this issue, and urgently.”

In July 2023, the Supreme Court ruled in the PACCAR judgment that litigation finance agreements were unenforceable unless they met the requirements of Damages-Based Agreements, rendering many ongoing cases invalid and causing delays in the pursuit of justice for millions of claimants. 

The Civil Justice Council (CJC) concluded its comprehensive review of the funding sector four months ago, after the Government had promised to review what legislation might be needed to address PACCAR once the review was complete. The CJC’s review urged priority standalone legislation to reverse the damaging effects of PACCAR. Yet, despite earlier promises, the Government has said the review would merely “help to inform the approach to potential reforms” in “due course”. 

The letter highlights how the Government’s continued inaction contradicts the Prime Minister's own commitment to "following the evidence”.

The signatories, representing firms including Mishcon de Reya, Stewarts, Freeths, and Scott+Scott UK, highlight the “pivotal role” of group actions. They call on the Government to “act swiftly” to adopt the CJC’s recommendation to reverse PACCAR to protect the reputation of the UK’s justice system. The firms also include those who have provided legal representation for Sir Alan Bates, hauliers ripped off by truck manufacturers (link), and leaseholders fighting secret insurance charges (link).

Since the ruling, crucial investment into the UK economy is rapidly being lost. Litigation funders like Burford Capital are taking their funds elsewhere, with CEO Chris Bogart, stating his firm has begun ‘migrating some dispute resolution away from London’, following PACCAR. 

Litigation funding enables claimants with limited means to access justice, enabling landmark cases including those brought by the subpostmasters, retail workers, and small business owners, to hold multinational corporations accused of serious wrongdoing to account, while promoting fair, competitive markets and securing investment into the UK.

--

Below is the letter to the Lord Chancellor, in its entirety:

Rt Hon David Lammy MP
Lord Chancellor and Secretary of State for Justice
Ministry of Justice
102 Petty France
London
SW1H 9AJ

Dear Lord Chancellor,

Congratulations on your new role as Lord Chancellor and Justice Secretary. While we recognise the many challenges you'll face stepping into this role, we wanted to highlight a critical issue that is undermining access to justice and stifling investment in the UK's legal system. But it's an issue with a quick and simple fix.

Group actions in the UK play a pivotal role in enabling individuals to come together to bring claims against those accused of wrongdoing - often multinational corporations with significant resources. It has helped claimants like the subpostmasters, shopworkers, retail investors, and small business owners access justice.

The regime is underpinned by claimants’ abilities to access finance - often through litigation funding where funders provide financial backing for an agreed return of any settlement. However, as you know, the future of this mechanism and the regime is under threat thanks to the disruptive effects of the 2023 PACCAR judgment, and subsequent challenges to the enforceability of funding arrangements.

Claimants with limited means are struggling to access funding to bring their cases, and investment from funders is draining away from the UK legal system.

The Government promised to review what legislation might be needed to address PACCAR once the Civil Justice Council’s review had concluded. 

The CJC reported back 4 months ago with a thorough and nuanced perspective on the funding sector. As members of the legal community, we are sympathetic to sensible reforms and are reassured that the Government is considering these carefully. 

But one unequivocal and pressing recommendation from the CJC was for urgent standalone legislation to reverse the effects of PACCAR to end the uncertainty damaging access to justice. Disappointingly, the Government has so far failed to hear that call, saying only that the review would “help to inform the approach to potential reforms” in “due course”, despite its previous promises.

As a highly respected member of the legal community, the Prime Minister rightly often speaks of “following the evidence”. The independent experts have provided the evidence that this issue needs fixing, yet this Government refuses to act, delaying justice for some and denying justice for future claimants. 

We call on the Government to act swiftly and legislate for the sake of claimants and the reputation of the UK’s justice system.

Signed

The Collective Redress Lawyers Association (CORLA).
Stewarts
Group Actions & Competition, Stephenson Harwood
Scott+Scott UK LLP
Backhouse Jones
Freeths 
Humphries Kerstetter LLP
Mishcon de Reya LLP
Velitor Law
Milberg London LLP
Fladgate LLP
Geradin Partners
Harcus Parker
Tim Constable, Bates Wells
Phi Finney McDonald
Keidan Harrison LLP
Asserson
Leigh Day
Cooke, Young & Keidan LLP
KP Law

Shai Silverman Departs CAC Specialty, Joins Litica as U.S. Head of Underwriting

By John Freund |

After four years helping to build CAC Specialty’s contingent risk insurance practice from the ground up, Shai Silverman is departing the firm to join litigation risk insurer Litica as its Head of Underwriting – U.S.

In a LinkedIn post, Silverman reflected on his time at CAC, where he joined in the early days of the firm’s efforts to turn contingent risk insurance into a mainstream product. Alongside colleagues Andrew Mutter, Michael B. Wakefield, and David Barnes, Silverman helped develop insurance solutions for a wide array of legal risks, crafted bespoke products for hundreds of clients, and played a key role in launching the first-ever contingent risk insurance conference.

Silverman now moves to Litica, a UK-headquartered specialist insurer focused on litigation and contingent risks, to lead its U.S. underwriting function. His move signals not just a personal transition but also the growing transatlantic ambitions of insurers operating in this once-niche corner of legal risk.

Silverman’s departure marks a broader inflection point for contingent risk insurance—a sector now poised for significant expansion. As underwriting talent like Silverman shifts into leadership roles at specialist firms, questions emerge around how traditional insurers will respond, and whether contingent risk insurance will continue its trajectory toward becoming a standard risk-transfer tool for litigation and arbitration.