Litigation Funding

Funded Litigation settlement participation can result in very large returns for funding pools. Based on the recent Steele mint form lead legal litigation funder; participating clients as part of a private equity pool enjoyed tremendous returns on original pool funding investments

A LARGE CASE SETTLEMENT

Grant & Eisenhofer Announces Fortis Investors to Receive $1.5 Billion in Largest Court-Approved Settlement in a European Securities Case

AMSTERDAM, July 13, 2018 /PR Newswire/ -- Today a Dutch appeals court officially approved the largest securities settlement ever reached in Europe, clearing the way for international insurance company Ageas N.V./S.A. to begin payment of $1.5 billion (€1.3 billion) to multiple groups of institutional and individual investors from Europe and the United States

Insurance company Ageas (f/k/a Fortis) to pay foundation representing 180+ institutional investors from U.S. and Europe; claims stemmed from Fortis' 2007 acquisition of ABN Amro bank; U.S. law firm Grant & Eisenhofer represents pension plans and other investors operating as SICAF in milestone settlement. The ruling was issued by the Amsterdam Court of Appeals, following seven years of litigation in the Dutch courts.

The foundation Stichting Investor Claims Against Fortis (SICAF), had over 180 participating institutional investors holding more than 80 million shares. The settlement resolves all claims in connection with the litigation arising out of the 2007 record-breaking acquisition of Dutch bank ABN Amro by Fortis, at the time a Dutch-Belgian financial services company. Although there is no traditional U.S.-style class action mechanism in European courts, the application of the WCAM in the Fortis case resulted in a "class-like settlement" for investors similar to U.S. cases.

All eligible shareholders will be entitled to compensation, and investors who chose to actively pursue litigation, through Grant & Eisenhofer or other organizations, will receive a 25% premium over absent class members. Noteworthy is also that in addition to the litigating shareholders "absent" Fortis shareholders who did not participate will still receive compensation—a relatively rare achievement in European mass tort litigation.

Current legislative discussions in Australia, UK and the USA surrounds disclosure and transparency concerning the Third Party Funders. Until these discussions, the amount of funding, the origin of the funding and the identities of funders were not required to be reviled. In the above case it is inconceivable that a law firm(s) or the class action plaintiffs would be able to self-fund any case through litigation for 7 years that eventually resulted in a 1.5 Billion Judgement. It’s all relative.

LITIGATION FINANCE CAN BE VERY PROFITABLE

Litigation finance (also called litigation funding) describes the provision of capital to a claimholder in exchange for a portion of the proceeds in a litigation or arbitration where recourse is limited to the proceeds of the litigation or arbitration at issue.

Litigation finance can help claimholders manage the costs and risks associated with bringing or defending a legal action. The capital provided by a litigation funder can be used not only to pay for the attorneys’ fees and expenses associated with prosecuting or defending a legal action, but also for business operations. Litigation funding is typically used by businesses facing one or more of the following challenges:

A lack of financial resources to optimally prosecute or defend a litigation or arbitration; litigation finance affords companies the means to retain top legal talent.
A set of corporate opportunities that dictate that the business allocates its resources to projects other than the maintenance of a meritorious legal claim; litigation finance is a tool that helps businesses efficiently allocate resources to their highest and best use.
The company’s underlying business has been damaged by the wrongdoing of another party; capital is needed to sustain operations and/or growth, but traditional capital sources are unable or unwilling to invest at a proper valuation until the dispute is resolved.

History of Litigation Finance

Litigation Finance in Australia

Litigation funding, in its modern form, originated in Australia in the mid-1990s following the enactment of legislation permitting insolvency practitioners to enter into contracts to finance litigation characterized as company property. In response to this legislation, which recognized legal claims as a corporate asset, litigation funding companies began to spring up to service this new niche market.

The rise of litigation funding in Australia was also spurred on by the legalization of class-action lawsuits, which were introduced into the Australian legal landscape in 1992 as courts recognized the need for an efficient way to deal with group claims. Some litigation funders began to enter the class-action arena, though many were initially hesitant for fear that funding arrangements that did not fall under the specific permissions of the insolvency statute would be struck down.

Those concerns were allayed, and the widespread use of litigation financing enabled, in 2006 when the Australian High Court held that third-party litigation funding arrangements served a legitimate purpose in lawsuits and were not an abuse of process or contrary to public policy. With litigation funding now legitimized and the use of class-action lawsuits on the rise, litigation finance became a useful product. Today, nearly all major class actions in Australia are funded by private litigation finance companies.

The United Kingdom Adopts Litigation Funding

The rise of litigation financing in the United Kingdom occurred around the same period but took a different path following the passage of two significant pieces of legislation. First, the Criminal Law Act of 1967 decriminalized maintenance and champerty—two archaic laws that had long served as legal bars to third-party litigation funding —and did away with tort liability stemming from those legal doctrines.

Second, in 1990, Parliament passed the Courts and Legal Services Act, which made it legal for clients and lawyers to enter into conditional fee agreements (CFAs). Such “no-win, no-fee” arrangements were not previously permitted in the U.K. The removal of the CFA ban implicitly introduced the concept of litigation financing, as lawyers could now technically fund litigations with their time and skill in exchange for a share of the recovery. CFAs allowed clients, previously too cash-strapped to sue, the ability to go forward because a third party was now footing the bill. Together with the abolition of champerty and maintenance, the 1990 act opened the door to what would become modern litigation financing in the U.K.

The widespread rise of litigation financing came after the passage of the Access to Justice Act 1999, which was intended to offer alternatives to the traditional means of litigation funding in the U.K., which at the time were CFAs. It did so in three important ways. First, it excluded personal injury cases from receiving civil legal aid, on the premise that CFAs were a means for these litigants to obtain the third-party funding necessary to bring suit. Second, it allowed successful litigants to pass the success fees and insurance premiums associated with CFAs on to their opponents under the U.K.’s “loser pays” rule, which provides that the losing party must pay the winning party’s attorney’s fees. Third, it introduced After the Event (ATE) insurance, which allowed litigants to insure against the possibility of having to pay their opponent’s legal fees under the “loser pays” rule in the event that a case was unsuccessful. The combination of widespread “no-win, no-fee” arrangements and the ability to pass off an opponent’s legal fees under ATEs meant that litigants could essentially have all aspects of their suits funded by third parties, regardless of whether they won or lost. With these developments, a specialized litigation finance industry began to emerge.

Shortly after the passage of the 1999 Act, the courts all but endorsed litigation financing in a 2002 decision, stating that only funding arrangements meant to “undermine the ends of justice” should be viewed as unlawful. With the door to litigation funding now open, specialized litigation finance companies began to populate what has become a vibrant market for claim funding.

Litigation Financing Develops in the United States

Prior to the mid-2000s, the U.S. litigation financing industry was largely limited to personal injury cases. Specialized commercial litigation funding originated in 2006, when Credit Suisse Securities founded a litigation risk strategies unit (which has since disbanded). In recent years, the commercial litigation finance market has grown significantly and is now used by companies and law firms alike as a means to finance legal claims, raise capital and eliminate risk from the balance sheet.

To date, the law of litigation finance has largely been left to the states; Congress took an interest in early 2015 when it sought information from certain litigation funders, but has not acted since. At the state level, the trend continues to move towards normalizing the use of litigation finance in commercial litigation and arbitration. In states where champerty and maintenance were once utilized doctrines, the trend continues towards limiting their application to commercial funding arrangements, for example, as Delaware did in December of 2015. Courts have also recognized protection from disclosure for communications between funders and litigants and their counsel, most often as an extension of the work product doctrine. For more on these types of ethical issues, read our Ethics Q & A.

More on litigation finance at our FAQ page or visit these additional resources:

State Bar Ethics Opinions:

California Bar

Florida Bar

Illinois Bar

Los Angeles County Bar

New York City Bar

Legal Scholars:

American Bar Association Commission on Ethics 20/20 White Paper on Alternative Litigation Finance

Anthony Sebok, The Inauthentic Claim, Vanderbilt Law Review (2011)

Steven Garber, Alternative Litigation Financing in the United States

Various new websites are also promoting the use of litigation crowdfunding, in which case hundreds or tens of thousands of individuals can help to pay for a legal dispute, either investing in a case in return for part of a contingent fee, or offering donations to support a legal right that they believe in.

Litigation funding can be broadly split into 4 different forms in the UK:

Conditional fee agreements,
Damages Based Agreements,
Fixed Fees and
Third Party Funding.

Litigation funding is not a new concept. It has been permitted in England and Wales since 1967. Modern commercial litigation funding arose in Australia in the late 1990s, with IMF Bentham becoming the world’s first publicly listed litigation funder (ASX: IMF) in 2001.

Since then, funding has spread around the globe. From Australia, where funding first gained wide acceptance after judges lifted restrictions that previously forbade it UK, US, Canada and Asia, commercial litigation funding supports litigants seeking access to justice.

The rise of litigation funding in Australia was also spurred on by the legalization of class-action lawsuits, which were introduced into the Australian legal landscape in 1992 as courts recognized the need for an efficient way to deal with group claims

Concerns were allayed, and the widespread use of litigation financing enabled, in 2006 when the Australian High Court held that third-party litigation funding arrangements served a legitimate purpose in lawsuits and were not an abuse of process or contrary to public policy.

The United Kingdom Adopts Litigation Funding

Litigation Financing Develops in the United States

In recent years, the commercial litigation finance market has grown significantly and is now used by companies and law firms alike as a means to finance legal claims, raise capital and eliminate risk from the balance sheet. to date, the law of litigation finance has largely been left to the states.

Litigation Funding (Finance)is now viewed as an alternative asset class that provides finance to individuals or companies, who wish to take legal action against another individual or company, and who, though they may have a very strong case, lack the necessary finance to undertake litigation.

If the legal case is won, investors funding the legal cost take a share of the proceeds.

Roswell Brinkman & Partners through its Legal Practitioner Specialist in the field who act as funding managers, locates opportunities in the Third Party Litigation Funding sector:

above average returns
low, managed risk profile

With the recent desire for asset cases as non-correlative to equities and bonds even so-called 'alternative assets' (including hedge funds, private equity and real estate) have demonstrated an inextricable link or 'correlation' to the stock market.

We believe that true 'alternative assets' are not tied to the stock market but perform independently - incurring no market volatility (and therefore significantly reduced risk).

Roswell Brinkman provides its clients access to this true non-correlative alternative asset class in a global multi-billion dollar growth industry - Third Party Litigation Funding.

In today's declining market amid rising insolvencies, investors are inevitably paying attention to the uncorrelated returns offered by litigation financing. It is a new alternative asset class rapidly gaining attention for its ability to deliver exceptional returns that are not correlated with the stock market.

Litigation is big business - an industry expected to exceed $400 billion annually in the near future. The barrier of 'cost' in pursuing litigation has been somewhat removed with the advent of Litigation Funding.

'Third Party' Litigation Funding involves an outside party offering financial support to a plaintiff in return for a share of the settlement monies. Essentially, a 'plaintiff' can accept financial help to pursue an action - agreeing to share a predetermined proportion of the settlement with the funder(s).

Benefits to the Plaintiff

Access to justice
A level playing field
Managed costs and risks

Benefits to the 'funder(s)'

Exceptional Returns
No market correlation
Defined time frame for ROI

Funders get to share in a substantial portion of the settlement. With access to leading Litigation Funding networks in Australia and the UK, we offer qualified clients a unique opportunity to capitalize on returns that, put simply - are not being realized anywhere else on the asset horizon.

Cases undergo extensive due diligence with only those offering a 70% or greater chance of success being funded. Legal fees are negotiated and capped with insurances taken to protect clients from potential adverse costs.

On average, 60-80% of matters are settled out of court with settlement taking only 9 to 18 months.

Returns on Third Party Litigation funding are typically much faster than other asset classes.

Structures have been created to offer principal protection for investors for the duration of the investment commitment as derived from contingent insurability of most aspects of the specific case litigation itself.

We invite you to take a look at some of the structures to be offered that can take the forms of outright investment in the stock of companies that are the now major players in the industry which include insurance companies and hedge funds to Private Placements offerings (PPMs), Guaranteed Principal Protected Notes, IPOs and Pre IPO opportunities.

This is a rapidly changing market with new participation approaches coming on stream. If Litigation Funding is something that excites you as much as it does us, then we encourage your enquiry.

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