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Commercial Special Features

Stimulus for The Legal Industry

The following piece was contributed by Louis Young, Managing Director of Augusta Ventures. 

The Legal Services industry, like many others, is today racing to come to terms with the implications of coronavirus. A range of impacts have been felt to date, including cases being put on hold, staffing concerns and critically, cash flow issues. With clients under pressure, bills aren’t being paid and pipeline looks increasingly uncertain. Alongside this, law firms have high fixed costs, particularly staff, so income is urgently needed.

Whilst well-managed firms will have a limited cash buffer, leaders now need to look at all sources of finance. There are three challenges: Firstly, they will want to identify the best way to keep firms afloat in the short term of the lock-down without taking on crippling long-term debts. Secondly, they will want to ensure whatever action they take does not damage client relationships. And thirdly, they will want to position for growth for when the crisis eventually subsides. Litigation funding could be the solution that many law firms seek to all three challenges.

In all likelihood, the greatest fall in law firm revenues will be in their corporate and commercial practices. These businesses are usually the mainstay of a firm – offering steady, regular income. In normal times, this reliable revenue streams helps to subsidise more volatile practices including disputes. One option for corporate teams is to seek payment of outstanding invoices. The challenge here is that clients are themselves under pressure. Partners will, therefore, be reluctant to squeeze long time clients in such difficult circumstances, when it has taken many years to cultivate these relationships. Another source of funds may naturally be preferable.

Today, the signs are that disputes work is increasing in importance for many firms as a source of income for partnerships as a whole. The challenge however is the lumpy, often delayed nature of revenue from litigation work. Third-party funding offers a solution to this challenge. Law firms may consider introducing a funder to their key clients to seek funding of the corporate’s portfolio of cases. This would allow the client to move forward with cases that might otherwise be on hold for cash flow reasons. It could also allow the firm to pick up work that wouldn’t normally come their way. And it would ensure that the law firm gets paid today, rather than many months down the line, thereby avoiding taking on external debt or damaging precious relationships.

A key difference between such third-party funding and traditional bank finance is the impact on the client’s balance sheet. Bank loans are liabilities requiring repayment by the client in any eventuality. Litigation finance on the other hand is non-recourse. Whatever the outcome of a case, the lawyers’ fees are paid by the funder and can include both costs incurred to date, and time yet to be recorded. Should a case be lost, the client does not bear any liability for the law firm’s fees. And when a case is won (70%+ of funded cases usually are), the client receives a substantial return. In this way, lawsuits can be converted by clients from an onerous liability, into a potentially valuable asset. And the client is likely to thank the law firm for introducing this solution, providing the choice of funder is appropriate.

Established litigation funders have effective case management processes in place. Often combining analytical and legal skill, they assess cases on a variety of bases including not only the legal merits, but also the financial dynamics of the claim and the defendant’s ability to pay. And well-managed funders participate in the self-regulatory body ALF – the Association of Litigation Funders. Here they undertake to act transparently, fairly and to ensure appropriate returns for claimants. ALF membership demonstrates a commitment to good governance and fair businesses practices akin to established insurers. Law firms will want to protect their reputations and client relationships in selecting funders to introduce.

The time for law firm leaders to act is now. As businesses of all types seek to mitigate the impact of the coronavirus, many investments and activities will be put on hold. Such decisions around legal cases may however be reversed if corporate leaders were able to obtain third-party funding that would not strain their balance sheets. Lawyers who are able to introduce such an option now, would not only win valuable guaranteed fees today, but cement or even develop new client relationships for the long term. When the turmoil of COVID-19 subsides, hopefully sooner rather than later, the law firms best positioned for growth will be those who provided value to their clients through the lock-down.

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Case Developments Commercial

CAT Finds in Favour of Professor Andreas Stephan in Amazon Claims

By Harry Moran |

Whilst last week saw a flurry of activity in the Competition Appeal Tribunal (CAT) as trials began in multiple collective proceedings, this week has seen the Tribunal hand down a ruling in a carriage dispute between two claims both targeting Amazon for allegations of anticompetitive behaviour.

A press release from Geradin Partners highlights the judgment from the CAT in a carriage dispute, which saw the Tribunal find in favour of Professor Andreas Stephan in collective proceedings being brought against Amazon. The carriage dispute related to the parallel claims brought by Professor Stephan and by the British Independent Retailers Association (BIRA), over allegations that Amazon engaged in anticompetitive practices that harmed third-party sellers on the online marketplace. Professor Stephan’s proceedings had instructed Geradin Partners and secured litigation funding from Innsworth, whilst BIRA had instructed Willkie Farr & Gallagher and agreed to funding from Litigation Capital Management (LCM).

In its ruling, the CAT found that whilst BIRA had an advantage in its suitability to act as the class representative, “this was clearly outweighed by the factors which favour Prof Stephan”, which it identified as “the scope of the claims and the expert methodology.” Although the CAT highlighted that the breadth of Professor Stephan’s claims “would no doubt enlarge the scope of a trial and therefore make it more complicated”, the ruling cited case law in emphasising that his claims “more consistent with the goals of access to justice by capturing more viable claims”.

The published judgment also shed light on the details of the funding arrangements in the claims. Professor Stephan’s litigation funding agreement (LFA) with Innsworth committed a maximum of £32.9 million to cover costs and expenses, with an additional commitment “to pay adverse costs of £5 million until the grant or refusal of a CPO and of £20 million thereafter.” As to the returns outlined in the funding agreement, Professor Stephan’s LFA with Innsworth “provides for a total multiple rising from 4 up to 10 (if the recovery is after the commencement of the substantive trial).” The CAT noted that the returns from Professor Stephan’s LFA were higher than for the funder in the BIRA claim, in the conclusion of its examination the Tribunal noted that “the funding arrangements of the two applications are a neutral factor in choosing between them.”

The CAT’s full judgment in the carriage dispute can be read here.

Additional analysis of the CAT’s ruling and its implications for future carriage disputes for funded proceedings can be found in a LinkedIn post from Matthew Lo, director at Exton Advisors.

Commercial People Moves

Ayse Yazir Appointed Managing Director at Bench Walk Advisors

By Harry Moran |

Ayse Yazir has started a new position as Managing Director at Bench Walk Advisors. This latest promotion comes in the seventh year of Yazir’s tenure at the market-leading litigation funder, having joined the firm in 2018 as a Vice President and most recently having served as Global Head of Origination.

In a post on LinkedIn, Yazir reveals that her work at Bench Walk Advisors incorporates a wide range of matters across the litigation funding industry including international and commercial arbitration, insolvency, class actions and global litigation matters as well as law firm and corporate portfolio arrangements and defense funding.

Yazir also expressed her delight at starting the new role and thanked her fellow Bench Walk Advisors’ managing directors Stuart Grant and Adrian Chopin for the opportunity.

Case Developments Commercial

Judge Preska Orders Argentina to Comply with Burford Discovery Request

By Harry Moran |

As we enter yet another year in the story of the $16.1 billion award in the case funded by Burford Capital against the YPF oil and gas company, a US judge has ordered the Argentine government to provide additional information about the country’s financial assets to the funder as part of its efforts to collect on the award.

An article in the Buenos Aires Herald provides an update on the ongoing fight to recover the $16.1 billion award in the YPF lawsuit, as a New York judge ordered Argentina to comply with a discovery request for information around the Argentine Central Bank’s gold reserves. The order handed down by Judge Loretta Preska followed the request made by Burford Capital in October of last year, with the litigation funder citing media reports that Argentina’s Central Bank had moved a portion of its gold reserves overseas.

Lawyers for Argentina’s government had submitted a letter last week arguing against the discovery request on the grounds that the Argentine Republic and Central Bank are legally separate entities, and that any such gold reserves have “special protection from execution under [United States’ Foreign Sovereign Immunities Act] and UK law.” Responding to these arguments in her order, Judge Preska stated plainly that “regardless of whether the gold reserves are held by [the Central Bank], the Republic shall produce its own documents concerning the reserves.”

Judge Preska also ordered the Argentine government to provide additional information concerning its SWIFT data on its overseas accounts and for documents from another lawsuit brought against the Republic, saying that all this information could “lead to other executable assets.”