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

On Wednesday, November 10th, Litigation Finance Journal hosted a special digital conference titled Innovations in Litigation Funding. The event featured a panel discussion on disruptive technologies within Litigation Finance, including blockchain, AI and crowdfunding platforms. Panelists included Curtis Smolar (CS), General Counsel of Legalist, David Kay (DK), Executive Chairman and Chief Investment Officer of Liti Capital, Cormac Leech (CL), CEO of AxiaFunder, and Noah Axler (NA) Co-founder and CEO of LawCoin. The panel was moderated by Stephen Embry (SE), founder of Legal Tech blog TechLaw Crossroads. 

Below are some key takeaways from the panel discussion:

SE: All of you seem to have an interest in taking litigation funding out of the back rooms and making it more mainstream so that anyone can invest. I want to ask each of you to briefly explain your specific approaches in trying to accomplish this goal.

CS: Basically, what Legalist does, is we use artificial intelligence and machine learning to reduce the potential for adverse selection and hazards that may exist in the Litigation Finance field. By reaching out to those who have valuable claims, we’re able to select the cases we want, versus simply having cases presented to us and sold to us. This has been extremely valuable to us, as we get to really pick the best cases based on criteria that we are selecting.

DK: I think we’re getting pretty close to it already being in the mainstream. I think adoption has grown a lot over the last ten years. In terms of moving it forward, our view on it at Liti Capital is that we are trying to democratize the availability of Litigation Finance both from the people who finance it and the people who have access to it.

CL: What I really see AxiaFunder doing is connecting investors with a new asset class, and at the same time, providing claimants with a new source of flexible funding. AxiaFunder in a nutshell is a funding platform that connects investors with carefully vetted litigation investment opportunities on a case by case basis. The capital is put to work immediately, and then when the case (hopefully) resolves positively, we return the capital with a return. So there’s little or no cash drag. We see it as an obvious win-win.

NA: What we’re seeking to do is open Litigation Finance, like some of the other folks on the panel, beyond the institutional space into individual accredited investors and also to retail investors. The additional value add we have, is that we fractionalize the investments as digital assets, or what are sometimes called tokens, using the Ethereum blockchain. We think ultimately that by doing that, we can bring liquidity to the Litigation Finance space and beyond Litigation Finance as well. We’re not the only ones securing this in the private security space.

SE: One of the questions we often see with cryptocurrency, whether it’s right or wrong, is that it’s used to hide who is paying what to whom. How does that concept square with the growing concern of many investors (and to some extent, the judiciary) about transparency in terms of funding agreements and the identity of funders?

DK: I think the key here is consistency, which is to say ‘who is the funder?’ and I think that’s an important distinction that gets a short shrift from a lot of these discussions. To put it another way, if Liti Capital is the funder, then it’s obviously very important to know who Liti Capital is, and who are any majority or control holders within Liti Capital. And we, like other companies on the blockchain, are still required to do KYC and other rules with our investors to ensure that we’re compliant with domestic and international law. So I think that piece is much ado about nothing. But what I will add, is that I do think litigation funders should be held to the same standard as companies, and whether or not an arbitrator has an investment in our company is important to know, or a decision maker has an investment in our company is important to know. And disclosures in the same way that’s required in US Federal Court makes perfect sense. This is not a new issue. I think where we fall prey to the people that are against litigation funding…we’re falling prey to this argument that somehow everything and everyone must be known—or it’s evil. Access to justice is not evil. Being able to compete with people with large amounts of capital is not evil.

NA: I second a lot of the things David said. At LawCoin, we’re selling securities. We’re very upfront about that. That’s a hot button issue in crypto, whether or not a particular token is a security. We have a separate white list that exists off of the blockchain, which might in some cryptocurrency circles lead to criticism that we’re not a decentralized operation in the way that a lot of cryptocurrency evangelists argue that cryptocurrency is most suited for. We embrace the obligations that go with issuing securities, so as a result…there’s no issue with respect to our platform with having anonymous investors that haven’t gone through a KYCAML process.

SE: Given the volatility of cryptocurrencies that we’ve all seen…how do you mitigate against a severe price drop or price increase, and what do you tell investors in that regard?

DK: How does Blackstone or Apollo mitigate against market crashes or change in the underlying value of their equity? Volatility and movement in price just exist—in terms of value of the corporation. In terms of funding the cases, we’re not funding cases in Bitcoin or Ethereum. We’re not a cryptocurrency, we’re a company that’s listed on the blockchain. Our token trades on the blockchain, but our token represents the underlying equity of the company. The money that we raise, 90% of it is dollars, some small percent is in Ethereum, but…our expenses are paid in dollars, we raise money in dollars, our revenue comes in dollars. There is some currency risk in anything we would keep in Ethereum, but we manage it. … You really just have to be aware and manage the fact that you’re operating in two currencies.

SE: Given the way litigation sometimes drags on, especially in the US, given the unexpected twists and turns—what happens when you have to go back to your investor pool and say, ‘we need some more money?’ How do you manage that and how are the terms structured?

CL: There are two aspects to it. First of all, before we actually issue a claim, there’s no adverse cost risk for the claimants or our investors. But once you issue the claim, you potentially have adverse costs risk for the claimants. If the claimants can’t pay, our investors could potentially be liable for the adverse costs risk, which we’re obviously not comfortable with. Before we will fund a case where the claim is going to be issued, we basically get a cost budget through trial, and make sure we have enough money to see the case through to the end of trial. Having said that, the cost-budget is always an estimate. So sometimes you need to come back and get more capital from investors.

Litigation Finance Journal produces numerous digital events throughout the year. Please subscribe to our free weekly newsletter to stay informed about future events. 

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Commercial Regulatory Issues

Burford Capital CEO: Government Inaction on PACCAR is Harming London Market

By Harry Moran |

As we approach the beginning of summer, the litigation funding industry is growing impatient in waiting for the outcome of the Civil Justice Council’s (CJC) review of litigation funding, with funders anxious to see the government provide a solution to the uncertainty created by the Supreme Court’s ruling in PACCAR.

An article in The Law Society Gazette provides an overview of an interview with Christopher Bogart, CEO of Burford Capital; who spoke at length about the ongoing impact of the UK government’s failure to introduce legislation to solve issues created by the PACCAR ruling. Bogart highlighted the key correlation between funders’ reluctance to allocate more capital to the London legal market and “the government non-response” to find a quick and effective solution to PACCAR.

Comparing the similarities in effect of the government inaction over funding legislation to the Trump administration’s tariff policy, Bogart said simply, “markets and businesses don’t like such uncertainty.” He went on to describe the London market as “not as healthy as you would like it to be”, pointing to statistics showing a decrease in capital allocation and the examples of major funders like Therium making job cuts.

One particular pain point that Bogart pointed to was Burford’s newfound hesitancy to name London as an arbitral seat and choose English law for international contracts, saying that the company has moved those contracts to jurisdictions including Singapore, Paris or New York. Bogart said that it was “unfortunate because this is one of the major global centres for litigation and arbitration”, but argued that the strategic jurisdictional shift was a result of having “a less predictable dynamic here in this market”.

As for what Bogart would like to see from the upcoming CJC’s review of litigation funding, the Burford CEO emphasised the longstanding view of the funding industry that there is “no need for a big regulatory apparatus here.” Instead, Bogart suggested that an ideal outcome would be for the CJC to encourage Westminster “to restore a degree of predictability and stability into the market.”

Commercial Deals

Insurance CEO Ceases Trading with Firms Linked to Litigation Finance

By Harry Moran |

The tensions between the insurance industry and litigation finance are well established, with insurance industry groups often at the forefront of lobbying efforts calling for tighter regulations of third-party funding. In one of the most significant examples of this tension, the CEO of a speciality insurance company has declared that his company will cease doing business with any firm that is linked to litigation funding activity.

An article in Insurance Business highlights recent comments made by Andrew Robinson, chairman and CEO of Skyward Specialty Insurance Group, where he said that the company would no longer do business with companies who have any ties to litigation finance. Citing the uptick in the use of third-party funding as one of the primary contributors to social inflation, increasing product costs and reduced availability; Robinson declared that Skyward are “not going to trade with anybody who's involved in this”.

According to the article, Robinson’s decision was triggered by the company’s discovery that an asset manager it worked with was involved in litigation funding. Skyward then “shut off” its business relationship with the asset manager and is in the process of redeeming any remaining assets with the firm. Robinson said that the idea of Skyward having ties to firms involved with litigation finance “is wrong at all levels”, saying that he told his executive leadership team that “we can’t have that anywhere near us”.

Aside from the asset manager, Skyward was trading with a company involved in contingent insurance whose work included litigation finance, but Robinson stated that the unnamed company is reducing its already minor presence in the funding space.

Despite targeting his ire primarily at litigation funding, Robinson suggested that the wider issue stems from a “broken” tort system and that “you have to get to the root cause and toward reform”.  

Commercial Regulatory Issues

Bell Gully Report: New Zealand Courts are “Enablers of Litigation Funding”

By Harry Moran |

Following a 2022 report from New Zealand’s Law Commission, there has been a distinct lack of action by successive governments to introduce a Class Actions Act or any forms of oversight for the use of third-party funding in large group claims.

A new report released by Bell Gully looks at the current state of class actions in New Zealand, examining the rise of large group claims  and the role of litigation funding as a key driver. In ‘The Big Picture: Class Actions’, Bell Gully says that “in the past five years class actions have moved from being a threat on the horizon to a regular feature in New Zealand’s courts”. 

The introduction to the report appears to paint litigation funders as the prime moving force behind this trend, saying that the swell in class actions is “being driven by the availability of third-party litigation funding rather than a groundswell of consumer action.” Identifying the most prominent funders at work in New Zealand, Bell Gully points to LPF Group as the dominant local funder, Omni Bridgeway for its strong market reach from Australia, and Harbour for its global strength across litigation and arbitration funding. 

Without any legislative measures regulating funding and with no established industry association like Australia’s AALF, Bell Gully highlights the courts as the main mechanism of control over funding activity. The report goes further and suggests that “funder-friendly court decisions have contributed to the growing influence of litigation funders in New Zealand”, noting the admission of opt-out class actions and courts’ willingness to make common fund orders.

In its review of the need for a Class Actions Act in New Zealand, Bell Gully argues that the current lack of oversight on funding has led to a situation where the courts are acting as “enablers of litigation funding” rather than regulators of the practice.

The full report can be accessed here.