Australia has been one of the most accepting markets for litigation funding since its inception. It was one of the first territories to embrace the industry, and for those involved, it has been quite lucrative. An article in Bloomberg Businessweek recently stated that litigation funders in Australia have reported record profits. Yet even with this tremendous growth, many in the third party financing space feel they are just scratching the surface.
On April 28th, The Wall Street Journal did a story about possible state legislation that may impact what the author referred to as the “payday lawsuit lending” industry. According to the story, there are several states looking to cap the rates certain companies charge when they provide funding to plaintiffs (commonly referred to as pre-settlement plaintiff financing). *
In reading the article, it seems that many of the legislators quoted do not understand the basics of lawsuit funding. Legal finance companies take on significant risks, as the funding they provide is generally non-recourse. This means that if the plaintiff’s lawsuit does not result in a favorable outcome, the plaintiff owes the funding company nothing. Furthermore, pre-settlement funding is not a loan as the article describes, but an advance against future proceeds of a lawsuit.
In the past, there has been legislation against legal funding. The practice was even temporarily banned in certain states, including Ohio and North Carolina. Currently, lawsuit lending is legal in all 50 states. The United States Chamber of Commerce has been pushing for legislation to again ban the practice or cap the rates funding companies are allowed to charge. Supporters of legal finance say this would severely harm the industry.
*DISCLAIMER: RD Legal exclusively focuses on post-settlement funding and does not support nor endorse the pre-settlement finance industry.
Written by Lulaine Compere
As litigation funding continues to grow, many in the mainstream media are starting to cover the industry. These are just the latest examples of the increasing coverage the industry is receiving. There has been a constant and very active disinformation campaign against the industry to besmirch its reputation. Below are the latest stories of litigation funding in the news.
The National Law Journal reported the birth of a new litigation funding company, Gerchen Keller Capital LLC. According to the article, the Chicago-based company plans on financing both plaintiffs and defendants. This is a new occurrence because most legal funding companies fund only the plaintiffs. The Wall Street Journal also reported on this story.
The world-renowned magazine The Economist recently did a story about legal funding. The legal finance industry or what’s commonly known as the third-party funding industry is getting an increasing amount of press coverage. The profitability of certain companies, the emergence of new corporations, and the overview of what the industry is and where it may expand has been the subject of many stories. The Economist’s story focused on the definition of the industry.
The usual scenario of a person seeking legal funding would involve them calling a litigation funding company, either seeking money to help them fight a case or to obtain a post-settlement advance. The company would use its own evaluation tools to determine if it’s a good investment. There are a variety of ways companies do these evaluations, but a determination can be made where the person seeking the funding is denied.
There are numerous benefits of legal funding. It is a free-market solution to a problem that plagues most legal systems globally. The problem is the lack of access to justice by regular people, who need the system to deliver on its promise. Litigation funding is going to continue to grow in size and in practice for regular people who need it and attorneys who face similar financial problems.
However, even with all the social benefits the industry provides, litigation funding is still a business, and it is important for people to understand the criteria for getting funding prior to signing on the dotted line. The industry is still very new and it can be quite confusing for anybody who might be planning to use the services of a legal funding company. The Centre for Socio-Legal Studies in the University of Oxford and The University of Lincoln published a report about litigation funding. The report, titled Litigation Funding: Status and Issues, gives a comprehensive view of the litigation funding industry. One of the sections in the report explains why claims get denied.
- Liability evidence is irremediably too weak, too dependent on oral evidence, or requires a factually-rich and complex forensic inquiry.
- The claim is made up of too many small claims.
- The likely cost is too large.
- The defendant is unlikely to be able to meet any judgment.
Litigation funding can provide a helping hand to people, but it is also a business. For a business to work and continue to grow, they must adhere to certain rules and standards. The critics of litigation funding would like to see the industry become a pariah and vilified. Organizations like the Chamber of Commerce would like to see litigation funding become persona non grata in the finance and legal communities because it benefits their members, which are huge corporations.
Written by Lulaine Compere
TheLawyer.com published a very detailed story on the changing issues the legal world is going to have to face. The story, which polled attorneys across the United Kingdom, asked them questions on issues like litigation funding, contingency fees, the billing of clients, and reducing overall costs. The story even got the lawyers’ opinion on the future of technology and how it might affect the courtroom and certain procedures in court.
Secondly, the University of New South Wales’ Centre for Law, Markets & Regulation, which is based in Australia, published an article on litigation funding which stated that litigation funding companies do not need an Australian Financial Services License (AFSL) to operate. The exception was granted in part because of the judicial decision International Litigation Partners Pte Ltd v. Chameleon Mining NL. The case made headlines in Australia because it exempted litigation funding companies from getting the AFSL, which other sectors that offer financial products are required to obtain. This exception allows anyone to fund litigation in Australia.
Finally, The Financial Times reported a story about a new investor jumping into the litigation funding sector in the United Kingdom. Jon Moulton is one of the best known private equity investors to have invested in Manolete Partners, a litigation funding company. The litigation finance arena has been growing steadily for over a decade, and it’s starting to breakthrough that it’s a worthwhile investment. The United Kingdom, the United States, and Australia are some of the biggest markets for the sector. Investors are flocking to this field because of its potential return on investment.
Written by Lulaine Compere
The Global Legal Post published a blog post by the President of United States Chamber Institute for Legal Reform about the ills of litigation funding. She explains what is litigation funding or third-party litigation financing and questions why it remains unregulated.
Rickard calls for regulation of the industry, which is something of shock given many business interests are pro-deregulation because it would damage the growth or the profitability of business. She mentions the code of conduct that some litigation funding companies abide by as not being strict enough.
Rickard’s arguments are not new. Many in the business community fear third-party litigation financing because it gives plaintiffs more of a fair shot when they are fighting against large corporations. Big businesses often have the upper hand when it comes to winning lawsuits, but the tide may be turning with litigation funding.
Written by Lulaine Compere
In the UK there is a nascent litigation funding market which has, to date, been fairly unknown since most cases are high value commercial cases. That’s until now.
Litigation funding was involved recently in a very high profile and high value case between 2 expat Russian oligarchs living in the UK, Roman Abramovich and Boris Beresovsky.
Aside from the sheer value of the case, in the region of $6.5 billion, the case received a lot of coverage because of apparent political machinations. Mr. Abramovich, the defendant, is still believed to be on good terms with the Russian Government whereas Mr. Beresovsky is persona non grata.
As regards the litigation funding aspects of the case, it seems that Mr. Beresovsky’s legal team from Addleshaw Goddards, a large and highly respected firm, agreed to represent him on a partial contingency fee basis. Mr. Beresovsky lost the case and the trial judge was highly critical of him as a witness.
The case is noteworthy for many reasons including:
- Whilst Addleshaw Goddard have been pilloried in some legal publications, their willingness to be adaptable and to consider flexible forms of funding whilst still apparently protecting a base level of costs may well be to their advantage in that many businesses will respect the fact the firm has a progressive approach to litigation funding. Many businesses now look at ways of hedging risk and will also expect a law firm to back its judgment by being prepared to at least consider a risk element.
- It seems that Mr. Bersovsky was able to secure an After the Event legal expenses insurance policy to protect his position on adverse costs. It is understood that the premium for the policy may have cost as much as £20 million for £50 million of cover. Aside from this aspect, it will be interesting to see if the insurers might seek to avoid or partially defray cover on the grounds that Mr. Beresovsky was found to be a highly unreliable witness by the trial judge.
- As with many complex and high value disputes, in this case, as the claim progressed, a number of additional defendants were joined into the proceedings. Given the extremely high level of costs involved in the case, it is unclear whether the after the vent policy may have included the possibility of additional claims and possible counterclaims in the proceedings.
This high profile case shows how complex the litigation funding matrix can be, even in a case where outside funding for own costs or the ATE premium does not appear to have been sought from outside investors. It also indicates that even the richest businessmen are now seeking to hedge against litigation risk. The market for litigation funding is likely to get bigger and ever more sophisticated but it is not for the faint hearted and requires business acumen from all involved.
The above analysis was provided by Professor David Rosen, head of litigation at Darlingtons Solicitors.
The Yale Law Journal published an article about mandatory arbitration. The article, written by Miles B. Farmer, discusses issues like judicial review, legal standard, and expanded judicial review. Also, other subjects discussed include the ethics of arbitration providers and self-regulation.
There has been talk by some in the litigation funding community about making funds available for those people and attorneys in arbitration. There has been some movement in the area by litigation funding companies in the United Kingdom and Australia.
Written by Lulaine Compere.
Litigation funding is a growing sector. It seems like every day there are more ideas as to how to use legal funding in other legal sectors besides personal injury. The latest idea for the use of litigation funding has been for intellectual property. Technology is playing a larger role in society. Various artists, musicians, designers, and investors rely on the protection of their work.
The idea comes from a blog post in the United Kingdom. Many people who depend on intellectual property aren’t rich and they need the protection for their future. If they plan on suing a huge company for their intellectual rights, they likely will not have the money to go against a well-funded corporation and their big time lawyers.
They are going to need people with money, a great pro-bono attorney, or a litigation funding company to have a fighting chance. Already some litigation funding companies in the U.K. are providing intellectual property financing, like Harbour, Therium, Vannin and Woodsford.
Intellectual property can be a win for plaintiffs, attorneys, and litigation funding companies. The plaintiffs have access to capital to fight against huge companies coming for their IP. The attorneys can get funding for the case which allows them to put up a better fight and possibly receive a better settlement. The litigation funding companies have a new sector where they can see real growth, and it helps them move away from the personal injury or even commercial litigation funding market.
Written by Lulaine Compere.
The Law Gazette published a story about the Royal Court of Jersey endorsing litigation funding. According to the story, in a particular case that had Barclays and Equity Trust facing off in court, there were calls by Equity to strike down Barclay’s case because they might benefit from third party financing provided by Harbour Litigation Funding. The issue being the case would be tainted by such an agreement, but the Court struck it down saying such an agreement does not interfere with the process of justice.
The Global Legal Post published a commentary by a lawyer named Nick Rowles-Davies, who is also a consultant to litigation funding company Vannin Capital. The commentary focuses on the new Code of Conduct that litigation funders may have to abide by and the regulation of third party litigation funders in the United Kingdom.
In regards to regulation of litigation funding, the article explains the different agendas groups like the United States Institute for Legal Reform have in terms of how the industry can be regulated in the United Kingdom.
Written by Lulaine Compere.