What’s the connection between Litigation Finance and cryptocurrency? David Kay, CIO of crypto litigation finance entity, Liti Capital, says that the overlap between these two topics is an increasingly popular discussion in the digital assets theatre.
Despite evidence to the contrary, some still insist that third-party litigation funding is a greed-fest for the already wealthy. In reality, the practice allows increased access to justice for those who can afford it least. But all that non-recourse funding comes at a steep price.
As Litigation Finance makes its way around the world, some jurisdictions struggle with the finer points. Typically businesses in places like Singapore and Hong Kong have a corporate structure that encompasses entities incorporated in their own jurisdiction, as well as offshore locales like BVI, Cayman Islands, or Bermuda.
The following article was contributed by John J. Hanley, Partner at Rimon Law.
Litigation financing is on the rise in the United States and provides some claimants a valuable means for paying the costs of pursuing a legal claim. Lawyer involvement in litigation financing transactions raises many ethical issues for a lawyer such as competence, duty of loyalty, the potential waiver of privilege and interference by a third party, to name a few.
Two barristers and two solicitors are under fire for allegedly misappropriating at least $19 million in fees relating to the Banksia class action. Barristers Norman O’Bryan and Michael Symons will be permanently banned from practicing law. Solicitors Anthony Zita and Alex Elliot will be required to show cause for why they too should not be banned from the practice of law.
Over the last decade, third-party litigation funding has been increasingly popular as a means of increasing access to justice. At its core, TPF is a way to put investor money toward meritorious legal cases (often, but not always, class actions) in exchange for a share of the award or settlement it generates. As the cost of litigation increases, the need for legal funding grows.
The LF Dealmakers conference kicked off this morning with a keynote address from Judge Shira A. Scheindlin. The address was titled “Litigation Finance: Survey of a Shifting Landscape,” and covered four main issues: ethics, fee sharing, disclosure regulations and privileged communications between funder and attorneys.
Australia’s requirement for third-party legal funders to hold an Australian Financial Services License took effect in August of last year. From that point forward, funders were subject to rules regarding managed investment schemes under the Corporations Act.
Last year, London saw an unprecedented 1,775 maritime arbitration cases. As the city is the accepted center for this type of dispute, that number indicates that maritime arbitration is on the rise around the globe. Arbitration can take years to resolve—allowing time for debtors to move assets around and make eventual enforcement more difficult. With arbitration funding and the expertise that accompanies it, arbitration can be the best option.
It stands to reason that litigation funders and big corporations would be at odds over class actions. After all, it’s often funding that makes pursuing these cases possible. Third-party funding provides the tools needed for people harmed by companies or governments to seek restitution. These large entities, and those who insure them, may not be used to this kind of accountability–and blame funders for increasing access to justice.
This past June, the European Parliament’s Legal Affairs Committee published recommendations for the European Commission. This draft report is being discussed and debated by the Economic Affairs Committee before being discussed in Parliament in November. If Parliament adopts the draft report, the next step would be for the European Commission to draft new legislative proposals.
Litigation funding existed for more than a decade before anyone thought to question whether disclosure mandates were needed. After Gawker was driven into bankruptcy by a single lawsuit, legal professionals and even the media began discussing whether disclosure rules were needed.
The Southern District in New York has unsealed indictments against several doctors and attorneys accused of engaging in fraudulent conduct. The defendants have been charged with mail and wire fraud in connection with a plot to gain fraudulent insurance reimbursements.
What can we expect in the coming months in offshore markets? John O’Driscoll, leader of the Insolvency and Dispute Resolution team at Walkers, had much to say on the subject. Litigators, financial professionals, and insolvency practitioners should pay close attention to legal developments in offshore markets.
This past year has seen multiple judgments supporting the validity of class actions—once thought ‘too American’ for many jurisdictions. London courts in particular have paved the way for collective actions against big businesses. Litigation funding has proliferated, and is spurring access for justice to parties who would otherwise be left out in the cold.
In recent years, Kosovo has taken a number of steps to promote foreign investments. Among these is the ratification of bilateral investment treaties with Switzerland, Luxembourg, Austria, and Belgium, among others. In 2014, a Law on Foreign Investment was adopted, which outlines the use of arbitration for investor-related disputes.
It cannot be denied that third-party litigation funding is a boon to justice. In many instances, it’s the only way that impecunious plaintiffs can have their day in court. At the same time, legal funding is a business that depends on ROI for investors. That’s why funders have a lot to say about a proposed new regulation in Australia, legislating a standard minimum return to class members in funded class actions. Some have suggested this guaranteed percentage be as high as 70%. Is that reasonable?
While class action attorneys and litigation funders are fuming, publicly-listed companies in Australia are breathing easier after continuous disclosure laws were relaxed. This move is expected to protect company officers against liability for deceptive, misleading, or incomplete disclosure to stockholders—unless fault is proven affirmatively.
Canada has joined the US, UK, EU, Singapore, and Australia (and now many others) in having fully embraced third-party legal funding. Courts are seeing the value in the practice and are ruling accordingly. Combined with the increase in contingency fee arrangements—Canadian plaintiffs are seeing access to justice increase.
The International Legal Finance Association (ILFA), founded in 2020, is a global association of third-party legal funders committed to self-regulation and promoting high industry standards. The ILFA has provided commentary on the proposed new regulation, as well as context around the concerns purportedly being addressed.
Claimants were shocked and upset recently when a settlement ended a class action lawsuit against James Hardie—leaving potential claimants without any compensation. One such claimant, Leslie Wheatley, stated that she and other claimants believed they had a strong case. Allegedly defective cladding systems caused their homes to leak, necessitating significant and expensive repairs.
One Florida committee has suggested changes to its policies on law firm ownership. So far, lawyers are sharply divided. While the Florida committee does acknowledge that many lawyers are resisting reforms in this area, that hasn’t dissuaded them from pursuing it.
Litigation Finance powerhouse Woodsford has submitted its response to the Secretariat’s initial draft on the regulation of third-party funding. The proposed reforms include addressing concerns about conflicts of interest, security for costs, or that funders may exert undue influence over decision making or cost-related decisions about the cases they fund.
There’s been a lot of talk about how well-funded collective actions are driving up the price of liability insurance, particularly for directors in corporate settings. Furthermore, one of the ways to address this issue seems to be increased regulation and more stringent disclosure requirements. But is this an accurate representation of the facts? Andrew Saker, Managing Director & CEO of Omni Bridgeway doesn’t think so.
As Litigation Finance regulations evolve, those involved in active cases may change their tactics. On July 19th, a motion to dismiss a pending appeal was filed by the parties in Sax v Fast Track Investments. In this case, legal finance agreements affirm that New York laws apply to the question of whether or not the funding was a loan.
It’s been said that non-pharma-related patent litigation tends to focus on a few big companies. Most are consumer-facing brands with their own retail outlets, though certainly not all. Those who make a career out of being a non-practicing entity (NPE) know who they are and how to target them.
It’s no secret that litigation funding has its share of detractors. Some are still suspicious of the increasingly regulated practice, despite evidence that it’s a net gain for clients, legal teams, investors, and those who have been harmed by a well-monied entity.
