Key Highlights from LFJ’s “Investor Insights into Litigation Funding” Digital Event

The following is a contributed piece by Tom Webster, Chief Commercial Officer at Sentry Funding.

Reform is on its way for the UK’s litigation funding sector, with the Civil Justice Council firing the starting gun on its review of litigation funding on 23 April.

The advisory body set out the terms of reference for its review, commissioned by lord chancellor Alex Chalk, and revealed the members of its core working group.

The review is working to an ambitious timetable with the aim of publishing an interim report by this summer, and a full report by summer 2025. It will be based on the CJC’s function of making civil justice ‘more accessible, fair and efficient’.

The CJC said it will set out ‘clear recommendations’ for reform in some areas. This includes consideration of a number of issues that could prove very significant for funders and clients. These include:

• Whether the sector should be regulated, and if so, how and by whom;
• Whether funders’ returns should be subject to a cap; and if so, to what extent;
• The relationship between third party funding and litigation costs;
• The court’s role in controlling the conduct of funded litigation, including the protection of claimants and ‘the interaction between pre-action and post-commencement funding of disputes’;
• Duties relating to the provision of funding, including potential conflicts of interest between funders, lawyers and clients;
• Whether funding encourages ‘specific litigation behaviour’ such as collective action.

The review’s core working group will be co-chaired by CJC members Mr Justice Simon Picken, a Commercial Court judge, and barrister Dr John Sorabji. The four other members are:

• High Court judge Mrs Justice Sara Cockerill, who was judge in charge of the commercial court 2020 – 2022, and who is currently involved in a project on third party funding for the European Law Institute;
• Academic and former City lawyer Prof Chris Hodges, chair of independent body the Regulatory Horizons Council which was set up to ensure that UK regulation keeps pace with innovation;
• Lucy Castledine, Director of Consumer Investments at the Financial Conduct Authority; and
• Nick Bacon KC, a prominent barrister and funding expert who acts for both claimants and defendants

The CJC had said that it may also bring in a consumer representative, as well as a solicitor experienced in group litigation.

In a sign that the review seeks to be informed by a wide range of views, the CJC has also extended an invitation for experts to join a broader consultation group, which will directly inform the work of the review and provide a larger forum for expert discussion. Meanwhile the advisory body has said there will also be further chance ‘for all to engage formally with this review’ later this year.

Given the broad remit of the review and significant impact that its recommendations may have on the litigation funding industry, litigation funders, lawyers and clients would be well advised to make the most of these opportunities to contribute to the review.

The following is a contributed piece by Jeff Manley, Chief Operating Officer of Armadillo Litigation Funding.

The allure of substantial returns from mass tort litigation has historically tempted law firms and their third-party financiers to commit resources to speculative cases. While investing strongly in speculative torts certainly has its time and place, prevailing trends highlight the necessity of certain risk management practices. The unpredictable outcomes of high-profile cases, like the Camp LeJeune water contamination lawsuits, accentuate the imperative for a discerning approach to case selection and the strategic diversification of portfolios.

Balancing Opportunity and Prudence in Speculative Torts

Early-stage speculative torts like the Zantac litigation represent a blend of potential and caution. (In re Zantac (Ranitidine) Products Liability Litigation, 2021). Initially, Zantac cases drew significant attention from law firms with projections of substantial compensation figures. However, the legal complexities and subsequent valuation adjustments highlighted the disparity between initial projections and actual compensation figures realized, reinforcing the need for meticulous risk assessment in speculative torts. While similar cases have captivated law firms and financiers with their substantial projections, they also underscore the importance of an exhaustive risk assessment—demonstrating how initial excitement must be tempered with diligent legal analysis and realistic valuation adjustments.

Navigating the Complex Terrain of Camp Lejeune Litigation

The Camp Lejeune water contamination lawsuits represent promising ventures for financiers and mass tort firms to affirm their moral duty by advocating for those who served our country. However, these cases also carry lessons on the pitfalls of overzealous investment without careful scrutiny. The drawn-out nature of the litigation serves as a reminder that while the pursuit of justice is noble, it must be balanced with sound risk management to ensure long term firm stability.

Endurance in Talc Litigation: A Testament to Long-Term Vision

The protracted legal battles surrounding talcum powder’s health risks underscore the necessity for long-term strategic planning in mass tort litigation. Firms must factor in the operational demands and the financial foresight to manage compounded interest on borrowed capital over extensive periods. Simultaneously, it’s critical to sustain investment in new torts, ensuring a balanced portfolio that accommodates both ongoing cases and emerging opportunities. This balanced approach underpins the stamina needed to endure through a decade-long commitment, as exemplified by the talc litigation.

Understanding Returns in the 3M Earplug Litigation

The 3M earplug litigation concluded within a standard timeframe, yet the distribution of settlements spans several years, offering more modest financial returns than many anticipated. This outcome serves as a pragmatic reminder of the nuanced nature of mass tort settlements, where significant payouts are not always immediate or as substantial as predicted. Nonetheless, this reinforces the value of prudent risk management strategies that account for longer payout terms, ensuring a stable financial forecast and the firm's resilience in the face of lower-than-expected returns.

Strategic Portfolio Diversification

Given these varied experiences, it is imperative that law firm owners and financial backers craft a robust case portfolio strategy. By balancing the mix of cases from speculative to those with a more established settlement trajectory, firms can better manage risk and ensure operational stability. Strategic diversification is not just wise—it’s a vital tactic to maintain resilience in the evolving landscape of the mass tort industry.

The Value of Expert Financial Partnerships

Choosing a reputable and experienced litigation finance partner is essential for law firms aiming to effectively balance their case portfolios. A seasoned funding partner provides invaluable guidance in evaluating potential cases, assessing financial risks, and optimizing investment strategies. Their expertise in navigating the nuanced terrain of litigation finance is a critical asset.

Adopting a balanced portfolio strategy—carefully curated to include a variety of torts at different development stages—provides a more stable foundation than pursuing an "all-in" strategy on a single high-potential tort. This method not only reduces dependency on the success of any single case but also positions the firm more favorably in the eyes of prudent lenders.

Recent high-profile cases in the mass tort arena, like those mentioned above, serve as potent reminders of the inherent uncertainties in litigation finance. For law firm owners and their financial backers, the path forward demands a nuanced view of risk, underscored by strategic portfolio diversification and the cultivation of partnerships with experienced financing entities. By adopting these principles, stakeholders can safeguard their investments against the capricious nature of mass litigation, securing a resilient and prosperous future in the challenging yet rewarding domain of legal finance.