Expert Talk Quarterly Training Series

Exploring Trends, Challenges, and Ethical Considerations

Under the banner of Expert Talk, Singularity has been organising a quarterly training series on “Navigating Complex Disputes” in collaboration with ThoughtLeaders4. This series seeks to explore the current landscape of buzzing areas in dispute resolution. The first of these was “Digital Asset Disputes Demystified”.

On 17 August 2023, Singularity conducted the second training series on the topic “Litigation Finance Unlocked”.

Litigation finance has emerged as a dynamic industry, transforming the landscape of legal proceedings and providing opportunities for litigants to access justice. The webinar brought together industry experts and thought leaders, to provide a comprehensive understanding of the nuances within the litigation finance industry, while shedding light on trends, ethical considerations, and its impact on the legal landscape. The panellists delved into the intricacies of litigation finance – examining key issues across various dimensions and exploring unique challenges faced in the industry and practical solutions to tackle them. Over 400 professionals across various industries registered for the event.

The discussion was moderated by Mr. Prateek Bagaria (Partner, Singularity Legal) and the panel comprised a never-before-seen collective of the most relevant names in the litigation finance market.

• Alain Grec - Director & Head of Quantum Analysis, Profile Investment
• Ayse Yazir - Global Head of Origination, Bench Walk Advisors
• Edward Yell - Head of Scheme Underwriting, Litica
• Kanika Sharma - Managing Director, Fulcrum Capital
• Quentin Pak - Director, Burford Capital
• Roger Milburn - Investment Manager (APAC), LCM Finance
• Tom Glasgow - Managing Director and Chief Investment Officer (APAC), Omni Bridgeway

Mr. Bagaria opened the discussion by explaining how litigation finance is the most important tool for access to justice in the 21^st century, providing businesses the ability to hedge against risks by using various products such as dispute management, insurance and working capital support. The collective insight of the panel provided a deep dive into how a litigation financier thinks and works. The conversation was centred around 5 themes.

1. Structuring
2. Products
3. Funders’ investment and return
4. Disclosure, confidentiality, privilege, ethics and obligations
5. Conflicts of interest

 

Structuring litigation finance agreements

Mr. Bagaria commenced the discussion by inviting Mr. Pak to delve into the complex dynamics between parties in a funding arrangement (viz. claimants, law firms, and funders). Mr. Pak noted that meticulous due diligence and transparent communication is instrumental in resolving unique challenges like flow of money and regulatory compliance requirements arising across various jurisdictions. Mr. Pak explained that the core rationale of risk profiling is risk identification. He also drew an interesting comparison between litigation finance and private equity funding, which other panellists also agreed with.

Mr. Bagaria then requested Mr. Grec to take the audience through some unique pricing strategy structures that he may have worked with. Mr. Grec brought forth the significance of dynamic pricing strategies in a global context. His vivid description of handling clients from diverse geographies, along with dynamic pricing models, offered a glimpse into the art of tailoring strategies to meet the varied needs of stakeholders. He explained that a clear understanding of the quantum, recovery timelines and the clients’ behaviour is essential in the investment decision. Mr. Grec also noted that funders provide a slightly higher profitability than a private equity portfolio.

Mr. Bagaria then asked Mr. Milburn to address legal concerns and optimising structures for litigation finance agreements. Mr. Milburn picked out certain issues, such as due diligence and regulatory environment, which touch on structuring and their outcomes. He also gave an interesting example of how his organisation prepared and kept specific procedures in place for a market like Singapore even before it opened its doors towards funding in domestic arbitrations. Mr. Milburn also agreed to the comparison of litigation financing and private equity funding but pointed out that in litigation financing there is no fixed rate card; all the risks are required to be considered before taking a decision.

Innovative litigation finance products and their impact on litigation landscape

To kick off the discussion under this theme, Mr. Bagaria invited Ms. Sharma to throw some light on the demand and use of litigation finance in the Middle East. The exchange with Ms. Sharma was enlightening, as she discussed the Middle East’s growing demand for litigation finance. Her insights resonated deeply, as she highlighted that the reach of litigation finance extended beyond impecunious parties to encompass large corporations and banks, a trend indicative of the market’s potential.

Continuing from Ms. Sharma’s thought, Mr. Bagaria posed a question to Mr. Pak on how regulations in newer markets that allow lawyers to use outcome-based/conditional fee structures impacted third-party funding arrangements, and whether this could open a discussion on law firm financing in emerging markets. Mr. Pak stated that he hoped for the introduction of risk-based fee structures in Asian jurisdictions as seen in Australia, Singapore and now Hong Kong, as it gives the users more choices. Further, effectively in the long run, such fee structures reduce the cost of litigation.

Mr. Bagaria followed up by asking Mr. Pak whether lawyers taking risks would lead to the “cannibalisation” of the funders’ market. Mr. Pak was of the view that law firms are not set up to take on risks in cases since the prolongation of cases leads to a cash flow crunch. However, he observed that there is scope for funders to work with law firms to take the fee risk off their hand. In such arrangements, lawyers are able to provide risk-based fees to the clients, and that risk could be backed-up by funders.  

Mr. Bagaria then invited Mr. Glasgow to elaborate on some innovative products and markets he had come across recently. Mr. Glasgow pointed out that the emerging enforcement industry in Asia was intriguing for funders, with domestic markets like Singapore and Hong Kong showing potential, and India remaining as a key focus. He also noticed financing opportunities in South America and Canada. Mr. Glasgow’s perspective added a global dimension, underscoring engagement in secondary markets and emerging regions.

Referring to the risks elaborated on by Mr. Pak and the growing secondary markets mentioned by Mr. Glasgow, Mr. Bagaria asked whether Mr. Glasgow could foresee a secondary market where funders invest in rounds like in the private equity market, such as series A / B / C funding. Mr. Glasgow saw no reason why investors could not come in at different stages, de-risk that stage and pass it on to another investor.

Identifying & mitigating investment risks and maximising returns

Mr. Bagaria then steered the conversation to the legal expenses insurance specialist on the panel – Mr. Yell, requesting him to take the audience through various products available to mitigate investment risks in litigation finance transactions and strategies to maximise returns. Mr. Yell brought to light the role of insurance solutions in mitigating risks for both litigants and funders. He highlighted the interesting relationship between the insurers and funders, further noting that since there has been a significant growth in funding markets internationally, insurance has been a bit slow to keep up. He provided a comprehensive overview of insurance products available to manage these risks, discussing how these products have evolved over the past few years and become more diverse. In addition, Mr. Yell highlighted developments in security for costs, particularly in cases involving group claims or claims by companies in administration. He also explained cases of judgment preservation insurance, that has become a popular product amongst both corporates and litigation funders. He then moved on to the final area, which is portfolio solutions for a group of cases, and insurance policies that cover adverse cost liability across all those cases.

Taking on from Mr. Yell’s observation of insurers following funders into different markets, Mr. Bagaria probed as to which emerging markets we could expect to see insurers coming entering. Mr. Yell observed that the major arbitration centres are already insurable and that there is active involvement in those markets. In response to a question on insuring non-payment and whether funders could be permitted to fund subrogated claims, Mr. Yell highlighted the sophistication of the approach taken by investigation funders; the track records of major funders have been very impressive and insurers have taken comfort from that.

After this, Mr. Bagaria moved on to Mr. Milburn and asked him to discuss how in his experience, judgment preservation and political risk insurance can help mitigate investment risks, and also how secondary litigation markets may be used to mitigate risks.  Mr. Milburn’s view was that secondary market deals are a common practice in Asia, with judgment preservation insurance being a popular product which mitigates risk and benefits clients. Mr. Milburn concluded his thoughts noting that litigation finance would become more accessible and predictable by using insurance, keeping in mind the unique nature of the situations discussed.

Continuing with the theme of risk, Mr. Bagaria highlighted that after the recent judgment of the UK Court of Appeal in Paccar Inc v Road Haulage Association Ltd. (“Paccar v. RHAL”), the concept of risk got turned on its head in the UK, which has always been considered a predictable jurisdiction. Mr. Bagaria invited Ms. Yazir to share her approaches and strategies to English litigation after this. Ms. Yazir’s delved into the intriguing interplay of legal decisions and financial strategies, analysing how Paccar v. RHAL showcased the ongoing evolution in structuring returns in English disputes. She explained how the approach needs to be changed by moving on to multipliers instead of using a percentage DBA structure. Mr. Bagaria followed up on whether it will only be a change for financial structures or if market focus would also change to emerging markets. In this regard, Mr. Bagaria and Ms. Yazir discussed other jurisdictions such as India, UAE and Singapore. The conversation illustrated that innovation and adaptation are essential to seize the most favourable returns while remaining in step with legal precedents.

Disclosure, confidentiality and ethics

The complexity of disclosure, confidentiality, and ethical considerations formed the core of the fourth theme. The question put forth by Mr. Bagaria to Mr. Grec was what ethical considerations should funders have in mind and how can the industry excel in responsible decision-making.

Mr. Grec described justice as a milestone in the construction of society. He further noted that what funders do when funding a dispute is form a unique crossroads between finance and justice. Ethics for him is thus an extremely delicate issue since the neighbourhood between monies and justice makes it essential for the sustainability of funding strategies. On the funding side, it is necessary to ensure that the origin of monies is clean and free from conflict of interest.

When asked about complexity of sharing information and maintaining confidentiality, Mr. Glasgow explained that it was central to everything. Having secure document management procedures, IT systems and regular training of employees were some key processes and systems to protect client information. Mr. Glasgow’s insights into the challenges of information sharing in a global context highlighted the vital balance between transparency and confidentiality.

Mr. Bagaria then went on to ask Mr. Yell how insurers work to protect confidentiality, and how do they deal with disclosure requests and waiver of privilege arguments for documents provided to them during investment assessment. Mr. Yell says that the underwriting process which insurers follow is secondary when they are working with litigation funders as they piggyback on the due diligence undertaken by the funders to some extent. An average funder would fund a smaller number of cases than an insurer in a year. He also mentioned that the type of disclosure an insurer would face is governed by the type of insurance they offer. Where the process differs is that there is a much greater chance of an insurer ending up on both sides of the dispute because a lot of participants in the investment market would also have professional indemnity insurance arms. Because of this, he believes insurers have to have a very rigorous conflict checking system. He furthers moved to the point of requests of disclosure and stated that insurers usually don’t really see requests from defendants to see any of the source materials except for the insurance policy which comes up in the context of security for costs. This segment illuminated the significance of maintaining the highest ethical standards while navigating the intricate paths of litigation finance.

Managing conflict of interest

The crescendo was reached with an exploration of strategies to manage conflicts of interest. Mr. Bagaria asked Ms. Sharma to share a situation faced by her team on conflict of interest, and tell the audience why it was unique and how it was addressed. Ms. Sharma’s real-world anecdotes offered a glimpse into the real challenges faced in this arena, underscoring the need for adaptive strategies. She shared an experience of a peculiar case wherein after running the conflict of interest, they realised they did not have a conflict of interest with any of the parties but with the law firm of the other side itself. However, she also emphasised on how professional communication can resolve such matters with ease. Her experiences painted a vivid picture of the delicate balancing act inherent in conflict resolution.

Mr. Bagaria then proceeded to ask Ms. Yazir to share how her team manages conflicts involving counsel, arbitrators, and opposing parties. Ms. Yazir, in her analysis of cases addressing conflicts in the US and UK, described them as very straightforward procedures and illustrated the global nature of these challenges.

Mr. Bagaria then concluded the discussion on a positive note observing that litigation finance is only growing in new directions – with new innovations, in the coming years, we will see it accepted in many other jurisdictions, and with insurers likely to follow.

Stay tuned for the next webinars in the Expert Talk training series which will be held on:

·       Offshore Recovery Strategies

·       Managing Construction Disputes