As Christmas approaches, we take the opportunity to look back over some of the key changes in the litigation funding sector.
1. No refunds for broken DBAs
It’s not often that we get a stocking filler from the MOJ, but when we do it is invariably disappointing and/or broken. DBAs were introduced in April 2013 but the uptake remains very low, largely due to the question of whether “hybrid” or partial DBAs are permitted.
It was welcome news, then, when the MOJ announced recently that it had tasked the CJC with setting up a working party to recommend “technical revisions” to the regulations. But the festive joy was short lived, as the MOJ has “ruled out” any possibility of allowing hybrid DBAs.
2. Welcome relief from Mitchell
Andrew Mitchell must be glad to see the back of 2014 – after losing his libel case, he now faces a reported £3m legal bill. But, we wonder whether he knows that in litigation circles, his name has taken on a meaning of its own. Being “Mitchell’ed” does not mean being abused by someone riding a bicycle, but instead has come to mean being penalised by heavy handed court sanctions for minor procedural errors.
In this respect at least, Andrew Mitchell can see the memory of 2014 start to fade, following the judgement in Caliendo and Barnaby Holdings LLC v Mishcon de Reya , in which relief from sanctions was granted despite a 3.5 month delay in serving notice of funding with no good reason.
3. Pink lingerie for Christmas
As we enter the last weeks of Christmas shopping, it seems apt to mention a case involving two retailers going head to head in the High Court, as well as on the high street, Thomas Pink Limited v Victoria’s Secret UK Ltd .
The case concerned Thomas Pinks’ registered trademark PINK, which it successfully argued was infringed by Victoria Secret’s Pink clothing line. However, in making an order for an interim costs payment to Thomas Pink, Birss J has potentially set a very important, but not yet widely noticed, precedent in how the courts will approach the assessment of costs under the new costs budgeting regime by awarding 90% of the budgeted costs by way of interim payment on account of costs, representing the “irreducible minimum” amount of costs to be recovered.
Birss J acknowledged that under previous authority such as Mars v Teknowledge , the “irreducible minimum” might have been a figure in the region of 50% of the amount claimed. However, he concluded that the “impact of costs budgeting on the determination of a sum for a payment on account of costs is very significant” and that “unless there is good reason to depart from the budget, the budget will not be departed from”.
This judgement could have potentially significant ramifications if followed, both for the courts approach to the interim payments on account of costs and potentially security for costs. Look out for our article in January discussing this in more detail.
4. Excalibur cost implication
The notorious loss of Excalibur Ventures v Keystone et al  EWHC 3436 (Comm), was of grave consequence to the numerous third party funders backing the case. However, by the end of the year the funders’ loss wasn’t quite as frightful as legal press had speculated. The costs ruling in October upheld the Arkin cap (Arkin v Borchard Lines  EWCA Civ 655) – meaning that the funders’ adverse costs exposure was capped at the amount they had funded.
The funders won’t exactly be brimming with festive cheer though; the court applied its own interpretation of the Arkin principle and held that the funders cost exposure was calculated not only by legal costs funded but also any sums funded to pay security for costs. As a result we may see funders being nervous to provide large sums for security for costs in 2015 – watch this space.
5. Due diligence free funding via Sprint
‘Tis the season to be jolly, so this December TheJudge and Burford have teamed up to launch a funding product which doesn’t involve the usual lengthy due diligence and which specifically focuses on cases requiring £25,000-£500,000 of funding. Wrapping up the funding with ATE insurance for the funded disbursements/own costs as well as adverse costs means that Burford allow the insurer to do all the due diligence, provided the case falls within their eligibility criteria:
- Damages to budget ratio of at least 4 to 1
- More than 6 months to substantive hearing
- English and Welsh jurisdiction and law
The launch of Sprint has already received a great deal of interest from clients and law firms. The product provides an opportunity to proceed with litigation that would have been unaffordable to the client without external funding – one more thing to cross off the Christmas wish list!
6. Funders exits and entrants:
One funder took an all mighty off-piste sleigh ride in 2014 that lead them out of the litigation funding market. Argentum Litigation Funding – a former member of the Association of Litigation Funders – exited the market amidst various allegations surrounding the source and structure of its capital pool, including allegations that some of its feeder funds were in effect operating a Ponzi scheme. New Years resolution number 1 – know your funder.
However, 2014 also saw a number of new funder entrants, including the launch of Australian based funder IMF’s European funding launch via a joint venture company, Bentham Europe Ltd, who look set to become a big player here in London for 2015.
We’ve also had a number of established funders confirm they have successfully completed additional capital raises. It is widely believed there is now over $1billion of available capital in the global market to support litigation disputes. A number of new entrants are expected to launch during 2015 with what is believed to be an additional $500m of capital, proving the litigation funding market is still rapidly growing.
It looks as though early stage exclusivity agreements have nearly become a thing of the past, with only a few funders still applying that model. Market competition on funders has continued to put pressure on funder’s pricing models; as a result we have seen an improvement in early settlement discounts and some funders even capping their success fee. This should raise the Christmas spirit, as clients can liaise with multiple funders until they have the confidence that their preferred funder will ultimately deliver on their indication of terms.
7. ATE insurance 2014 – Exits and Entrants
2014 saw two A-rated legal expenses insurers exit from the market. While these exits have made little impact to the market, TheJudge have we been working hard to bring new insurers into the market ready for 2015 to ensure that even the largest of cases have the full insurance capacity they need available.
Deferred and contingent insurance premiums live on, despite some forecasters believing that following the Jackson reforms they premiums would cease to exist we’re pleased this has proven not to be the case. At TheJudge we continue to use our bargaining power to ensure that fully contingent premium options remain available to our clients in addition to other available options including blended, upfront, damages based and super success kickers – a selection box of premiums so to speak.
8. Another plentiful year for TheJudge
In 2014 we further reinforced our position as the leading broker for arranging the largest ATE insurance policies in the market. In 2014, amongst hundreds of successful insurance and funding placements, we brokered the ATE insurance for the Lloyds Action Group in its claim against Lloyds Plc with regards its takeover of HBOS. This follows our successful placement of the insurance for the shareholders suing RBS in respect of RBS’s 2007 rights issue. The current claim against RBS stands at over £3 billion. Herbert Smith are instructed for RBS and have stated their anticipated fees are likely to exceed £40m.
Arranging the insurance for these large disputes often involves a syndication of insurers, as the indemnities are typically too large for any one insurer. Reflecting our experience in broking these big ticket cases, TheJudge has also recently been engaged to arrange capacity in a number of new actions against various UK banks and investment banks, with each case requiring in excess of £20m of adverse costs coverage. In 2014 we’ve been engaged to broker over £100m of insurance capacity in addition to over £50m of third party funding.
In addition to broking funding and insurance for commercial litigation, we also doubled the volume of international arbitration cases we handled by comparison to 2013. While there is no public information to corroborate, we are confident we are engaged in more investment treaty arbitration than any other company in the market. This area has seen a number of product developments across both the funding and insurance market. We’ve also seen a marked increase in the volume of law firms instructed on alternative fee arrangements in this sector.