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Key Takeaways from LFJ’s Virtual Town Hall: 2024 Recap & 2025 Outlook

By John Freund |

Key Takeaways from LFJ’s Virtual Town Hall: 2024 Recap & 2025 Outlook

Last week, LFJ hosted its final virtual town hall of the year which covered an array of key developments and trends in the legal fundng sector. Panelists included Tets Ishikawa (TI), Managing Director of LionFish, Boris Ziser (BZ), Co-Head of the Finance Group at Schulte Roth and Zabel, William Marra (WM), Director at Certum Group, and Sarah Johnson (SJ), Head of the Litigation Investing Team at The D.E. Shaw Group. The panel was moderated by Rebecca Berrebi (RB), Founder and CEO of Avenue 33, LLC.

Below are the key takeaways from the event.

RB: What are the key changes that have effected the regulatory landscape of litigation finance in 2024, and how do you think those changes have affected deals in the industry this year?

TI: There’s been quite a few symbolic moments over the past two years. There was a proposal [The Voss Report] saying that litigation funding should be regulated and there should be a cap on fees. In the UK, there as a Supreme Court decision in the case of PACCAR that considered litigation funding agreements to be damages-based agreements, basically making a lot of litigation funding agreements unenforceable. And that has triggered an industry-wide review of the litigation funding industry in the UK by the Civil Justice Council. And that is ongoing, with a report expected next year, and the government may act on those recommendations and enact legislation.

In addition to all of that, there was a report written by the European Law Institute, which is probably the most interesting thing to focus on. Rather than the usual high level narratives of what’s good and bad about litigation funding, it actually proposed principles on the back of research and feedback that it got on all sides of the argument. And it was written by some really highly regarded judges and academics. And the report was quite balanced. But what was really interesting about the report was that it set a tone for the direction of how the UK should really be thinking about litigation funding. The key themes coming out of it are that 1) there is no one size fits all solution-litigation funding has many different parts to it, and 2) that regulation is not just something one does, but there needs to be a real identifiable problem that regulation resolves, otherwise there could be a lot of adverse consequences, and that recognition is key. There is also the recognition that funders do run commercial businesses, so there has to be an economically viable solution.

RB: Deal structures evolve as time goes on, and certainly have evolved in our industry. Boris, can you speak to any particular deal structures that have become less popular this year than they were before, or have started to fall by the wayside?

BZ: I wouldn’t say any have fallen by the wayside, I think that there has been a little bit of a shift – if you go back a number of years, you would see there were more debt deals than equity deals, and that was for various reasons, some of it was preference, some was tax-driven, some was based on an analysis of whether you would be splitting legal fees and things like that – and I think over the last couple of years, you have seen more of a shift where more parties are comfortable with equity deals, particularly with the introduction of alternative business structures in Arizona and Utah. So I don’t think that anything has gone by the wayside, but there has been more comfort and more development on the equity side of the business.

RB: Will, do you see that too? What do you think about that?

WM: Yeah I think that’s right. What’s interesting is, there hasn’t been that much development on the question of which provisions in litigation funding contracts may or may not be enforceable, or the big question of tax clarity. I think Boris makes a very good point about Rule 5.4, the debate around that has largely settled. So you do see an increase around law firm deals. I think this question is also tied up with the increasing diversification of products available, and if you start too think about insurance, and insurance-backed debt, and debt plus equity in these deals, we’re seeing a lot of that. We’re also seeing an increase in acquisitions to the extent that claims are alienable and can be acquired. I think that a lot of claim holders are seeing a lot of benefits entering into those sorts of arrangements.

RB: Sarah, what deal structures do you think are growing in popularity, and why do you think that is happening?

SJ: We’ve seen something similar in the shift from debt to equity. I might characterize it though as a move away from debt to law firms, where your collateral is a lot of cases. I think we’ve seen those deals – especially the ones that happened before Covid – there were a lot of different risks that were introduced rather than just the underlying litigation. The amount of OpEx that the law firm needed to survive, and when you’re debt financing for the whole firm, it gets very complicated. So we’ve seen a shift away more to – I won’t say single cases – but perhaps smaller portfolios with a law firm, so you can target your exposure and share more of the risk and OpEx with the law firms themselves.

We’ve also seen a bifurcation in terms of the size of deals. We’re seeing some more very large deals, like $100MM+ deals, and also small single cases, than perhaps we saw in previous years. We’re just seeing a lot of one-off single case deals where funders can share the risk, vs. entire portfolio monetizations.

To view the entire discussion, join the event page on LinkedIn (you must register for the event to view).

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John Freund

John Freund

Commercial

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Shine Justice Marks 50 Years as Mass Tort Expansion Leans on Litigation Funding

ASX-listed Shine Justice has marked its 50th year with a return to profitability and an international mass torts strategy that depends heavily on third-party litigation funding.

As reported by TipRanks, the firm now operates across Australia, New Zealand, Thailand and the United States, with practice concentrations in personal injury, class actions and international mass torts.

Results presented on August 28 showed adjusted revenue up 7.8% to A$220.4 million and adjusted EBITDA up 13.9% to A$44.7 million. Net profit after tax attributable to members reached A$9.3 million, up from A$0.6 million, while operating cash flow held steady at A$19 million. Net work in progress rose 0.9% to A$366.6 million, and the company declared a fully franked dividend of A$0.04 per share. Offsetting that, Shine booked an A$11.2 million provision following an adverse U.S. court decision in a legacy class action now under appeal, and reported six in-principle settlement agreements worth more than A$219 million.

The company describes a hub-and-spoke model in which a U.S. hub sources large mass tort cases and exports them to spokes in Australia, New Zealand and Asia, with balance sheet risk minimised through litigation funding. Shine has secured up to A$40 million for talcum powder litigation and expects further backing for comparable claims in New Zealand and Thailand.

Simon Morrison has moved from managing director to a senior role focused on international mass torts, with Carolyn Barker taking over as group chief executive. Chief financial officer Marc Devine guided to high single-digit personal injury revenue growth of about 8% in FY27.

Fair-Value Accounting Is Amplifying Case Losses at Listed Litigation Funders

Listed litigation funders are facing renewed scrutiny as fair-value accounting pushes losses from adverse court and arbitration outcomes into earnings well before any cash changes hands.

As reported by Traders Union, reversals at Burford Capital, Litigation Capital Management and others have intensified questions about valuation models that treat lawsuits as financial assets.

One recent flashpoint was a Paris-based ICC tribunal's dismissal of a $680 million claim against Nigeria that Burford had funded. The claim, brought by Sunrise Power, concerned a 2020 settlement the tribunal found had been signed by ministers who lacked authority to bind the state without presidential approval. Recoverability concerns were compounded by Sunrise Power's minimal assets and by cost penalties. Burford has separately absorbed the reversal of a $16.1 billion YPF judgment and a $2.4 billion write-down, while LCM has recorded a High Court loss alongside a 99% decline in its share price.

Under IFRS 9 and ASC 820, model-based unrealised gains and losses flow directly into reported earnings, tying marks to share prices, compensation and debt capacity. Net asset value therefore rests on probability-weighted assessments over which management retains significant discretion.

The scrutiny is not new. Muddy Waters alleged in 2019 that Burford "manipulates its performance metrics and abuses the latitude afforded it under fair value accounting," and the company later restated results for FY2019 through FY2022 following an SEC initiative. Burford has also reported a material weakness in internal controls affecting fair value measurement of capital provision assets, though it has pointed to $518.3 million in cash realizations year to date as evidence that timing, not deterioration, drives the volatility.

Apple Moves to Overturn Record $5.7 Billion Patent Verdict Tied to Litigation Funding

Apple has asked a federal court in San Diego to overturn or retry the largest patent verdict on record in the United States, a $5,721,961,750 award that carries a substantial litigation funding stake.

As reported by PYMNTS, a jury found on September 25 that the Taptic Engine used in iPhones and Apple Watches infringes two haptics patents held by Taction Technology. Apple is asking U.S. District Judge Todd W. Robinson to set aside the findings or order a new trial, and could then take the dispute to the Federal Circuit.

Taction sued in 2021 over patents describing tactile transducers that produce bass frequency vibrations. Apple had the case dismissed in 2023, but the Federal Circuit revived it last year after finding the dismissal rested on an unwritten requirement that improperly prevented Taction from relying on certain expert testimony. Apple maintains that the Taptic Engine is "fundamentally different from Taction's technology." Jurors found the infringement was not willful, removing the basis for treble damages.

Burford Capital is entitled to roughly a quarter of the award, or about $1.4 billion, split roughly evenly between its balance sheet and its investment funds. Burford has cautioned that the figure is likely to be altered in post-trial proceedings and that the parties could settle for considerably less. Gronostaj Investments LLC and Kenosha Investments LP were identified as funders in the proceedings. Apple sought unsuccessfully during the case to compel disclosure of the funding arrangements — an issue a federal rules committee is scheduled to take up on October 21.