Trending Now
Commercial Special Features

Stimulus for The Legal Industry

April 6, 2020

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.

Commercial

View All
Commercial

Litigation Funding Ethics: What Attorneys Must Weigh Before Saying Yes

By John Freund |

Third party litigation funding has evolved from a niche financing option into a mainstream tool for law firms seeking to manage risk and pursue complex or capital intensive cases. As funding becomes more accessible, attorneys are increasingly evaluating whether outside capital can support growth, extend runway, or enable representation of clients who might otherwise lack resources. However, the expansion of litigation finance has also brought renewed scrutiny to the ethical considerations lawyers must address before entering into funding arrangements.

An article in JD Supra outlines several critical issues attorneys should consider when evaluating third party funding. One of the most significant distinctions is between contingent funding arrangements and traditional non recourse loans. In contingent structures, funders receive a percentage of any recovery, which can raise concerns under long standing prohibitions against fee sharing with non lawyers and doctrines such as champerty. While a handful of jurisdictions have relaxed these rules, most states continue to prohibit arrangements that resemble equity participation in legal fees. Attorneys operating across jurisdictions must be particularly cautious to ensure compliance with applicable professional conduct rules.

Even traditional funding structures can present ethical challenges. Although non recourse loans are generally more widely accepted, conflicts can arise if a funder’s financial interests diverge from those of the client. For example, a lender may prefer an earlier settlement that ensures repayment, while a client may wish to pursue prolonged litigation in hopes of a larger recovery. The article emphasizes that lawyers must retain full independence in decision making and ensure that funding agreements do not give funders control over litigation strategy or settlement decisions.

Client consent and transparency are also central considerations. Attorneys should disclose funding arrangements where required, obtain informed client consent before sharing any information with funders, and remain mindful of evolving court disclosure requirements.

Announcements Case Developments Commercial

High Court Refuses BHP Permission to Appeal Landmark Mariana Liability Judgment 

By John Freund |

Pogust Goodhead welcomes the decision of Mrs Justice O’Farrell DBE refusing BHP’s application for permission to appeal the High Court’s judgment on liability in the Mariana disaster litigation. The ruling marks a major step forward in the pursuit of justice for over 620,000 Brazilian claimants affected by the worst environmental disaster in the country’s history. 

The refusal leaves the High Court’s findings undisturbed at first instance: that BHP is liable under Brazilian law for its role in the catastrophic collapse of the Fundão dam in 2015. In a landmark ruling handed down last November, the Court found the collapse was caused by BHP’s negligence, imprudence and/or lack of skill, confirmed that all claimants are in time and stated that municipalities can pursue their claims in England. 

In today’s ruling, following the consequentials hearing held last December, the court concluded that BHP’s proposed grounds of appeal have “no real prospect of success”. 

In her judgment, Mrs Justice O’Farrell stated:  “In summary, despite the clear and careful submissions of Ms Fatima KC, leading counsel for the defendants, the appeal has no real prospect of success. There is no other compelling reason for the appeal to be heard. Although the Judgment may be of interest to other parties in other jurisdictions, it is a decision on issues of Brazilian law established as fact in this jurisdiction, together with factual and expert evidence. For the above reasons, permission to appeal is refused”. 

At the December hearing, the claimants - represented by Pogust Goodhead - argued that BHP’s application was an attempt to overturn detailed findings of fact reached after an extensive five-month trial, by recasting its disagreement with the outcome as alleged procedural flaws. The claimants submitted that appellate courts do not re-try factual findings and that BHP’s approach was, in substance, an attempt to secure a retrial. 

Today’s judgment confirmed that the liability judgment involved findings of Brazilian law as fact, based on extensive expert and factual evidence, and rejected the defendants’ arguments, who now have 28 days to apply to the Court of Appeal.  

Jonathan Wheeler, Partner at Pogust Goodhead and lead of the Mariana litigation, said:  “This is a major step forward. Today’s decision reinforces the strength and robustness of the High Court’s findings and brings hundreds of thousands of claimants a step closer to redress for the immense harm they have suffered.” 

“BHP’s application for permission to appeal shows it continues to treat this as a case to be managed, not a humanitarian and environmental disaster that demands a just outcome. Every further procedural manoeuvre brings more delay, more cost and more harm for people who have already waited more than a decade for proper compensation.” 

Mônica dos Santos, a resident of Bento Rodrigues (a district in Mariana) whose house was buried by the avalanche of tailings, commented:  "This is an important victory. Ten years have passed since the crime, and more than 80 residents of Bento Rodrigues have died without receiving their new homes. Hundreds of us have not received fair compensation for what we have been through. It is unacceptable that, after so much suffering and so many lives interrupted, the company is still trying to delay the process to escape its responsibility." 

Legal costs 

The Court confirmed that the claimants were the successful party and ordered the defendants to pay 90% of the claimants’ Stage 1 Trial costs, subject to detailed assessment, and to make a £43 million payment on account. The Court also made clear that the order relates to Stage 1 Trial costs only; broader case costs will depend on the ultimate outcome of the proceedings. 

The costs award reflects the scale and complexity of the Mariana case and the way PG has conducted this litigation for more than seven years on a no-win, no-fee basis - funding an unprecedented claimant cohort and extensive client-facing infrastructure in Brazil without charging clients. This recovery is separate from any damages award and does not reduce, replace or affect the compensation clients may ultimately receive. 

Case Developments Commercial

Homebuyers Prepare Competition Claims Against Major UK Housebuilders

By John Freund |

A group of UK homebuyers is preparing to bring competition law claims against some of the country’s largest housebuilders, alleging anti competitive conduct that inflated new home prices. The prospective litigation represents another significant test of collective redress mechanisms in the UK and is expected to rely heavily on third party funding to move forward.

An announcement from Hausfeld outlines plans for claims alleging that leading residential developers exchanged commercially sensitive information and coordinated conduct in a way that restricted competition in the housing market. The proposed claims follow an investigation by the UK competition regulator, which raised concerns about how housebuilders may have shared data on pricing, sales rates, and incentives through industry platforms. According to the claimant lawyers, this conduct may have reduced competitive pressure and led to higher prices for consumers.

The claims are being framed as follow on damages actions, allowing homebuyers to rely on regulatory findings as a foundation for civil recovery. The litigation is expected to target multiple large developers and could involve tens of thousands of affected purchasers, given the scale of the UK new build market during the relevant period. While damages per claimant may be relatively modest, the aggregate exposure could be substantial.

From a procedural perspective, the case highlights the continued evolution of collective competition claims in the UK. Bringing complex, multi defendant actions on behalf of large consumer groups requires significant upfront investment, both financially and operationally. Litigation funding is therefore likely to be central, covering legal fees, expert economic analysis, and the administration required to manage large claimant cohorts.