Risk Update

Litigation Finance — Debating Litigation Funding Disclosure Rules, Irish Concerns about Third-party Funding

Litigation Funding’s Influence on Cases Warrants Disclosure Rule” —

  • “Third-party litigation funding, or TPLF, is a multibillion dollar industry of financing lawsuits in exchange for a cut of any judgment or settlement. Leaders of these businesses have disavowed any control over the cases they finance.”
  • “But a recent analysis of their own contracts reveals that funders have significant control over their clients’ litigation, despite their claims to the contrary. To ensure fairness in the legal system, the Advisory Committee on Civil Rules should adopt a rule requiring disclosure of TPLF contracts.”
  • “An executive of Burford Capital, the world’s largest litigation funder, in 2022 told an audience of judges, ‘I don’t know how to say this any more clearly; we don’t control settlement. If we do … I would find it really loathsome to misrepresent that to a court.'”
  • “At around that time, Burford was seeking to enforce its contractual rights to prevent its client, Sysco Corp., from consummating a settlement agreement in a lawsuit that Burford had funded.”
  • “A new analysis based on the limited number of TPLF contracts that have become public shows that such contracts give non-party funders specific mechanisms of control or significant influence over litigation, including the authority to reject settlement terms if funders don’t find their return satisfactory.”
  • “The potency of these hidden control mechanisms may be ‘rather amazing’—as the US Bankruptcy Court of the Northern District of Texas found in In re Fresh Acquisitions, LLC—given funders’ disavowals of control. Generally, courts and litigants have no awareness of such provisions because the funding contracts typically prohibit the plaintiff and counsel from divulging the agreement’s existence or discussing its terms.”
  • “Control by non-party funders matters, because our litigation system is set up to enable parties and their lawyers to resolve disputes based on facts (rather than speculation) with the aid of the court.”
  • “When non-parties dictate or influence crucial decisions such as going to trial, settling, and replacing counsel, it can have a profound or disruptive effect on the litigation. At a minimum, it prevents parties who are unaware of the funding agreements from making a full and fair appraisal of their case—an ability that is fundamental to our legal system.”
  • “Some TPLF contracts expressly give non-party funders complete control over the litigation. Others ensure that funders have indirect (but still powerful) influence by requiring the funded plaintiffs and lawyers to pursue the claims and maximize proceeds, and by allowing funders to stop the cash flow at any time.”
  • “TPLF contracts also may give funders remarkable influence over plaintiffs’ counsel, including the selection and replacement of counsel. Some extend this influence further by obligating the plaintiff to take directions from counsel.”
  • “Provisions of TPLF contracts can shape outcomes and undermine court orders, such as by requiring the plaintiff to pay the funder the monetary value of any injunctive relief or specific performance awarded. This is a strong incentive against non-monetary relief that can skew the remedies presented to, and ultimately ordered by, the court.”
  • “Some TPLF contracts require that the plaintiff and counsel provide all documents obtained in the course of litigation to the funders, a provision likely inconsistent with most protective orders, and which may even risk improper dissemination of intellectual property.”
  • “As more disputes over TPLF contracts come to light, judges are increasingly recognizing the need to know whether non-parties have control over the named parties’ litigation decisions and the ability to influence key decisions in the litigation.”
  • “All courts should understand that when funders are participating in litigation, their involvement and agreements should be disclosed just like all other participants in public litigation, who must identify themselves openly with very limited exceptions.”
  • “The Federal Rules of Civil Procedure require companies to disclose their insurance agreements so that ‘counsel for both sides to make the same realistic appraisal of the case.’ Courts routinely insist that the insurer’s decision-makers participate in key events in the litigation, including pre-trial and settlement conferences.”
  • “Last year, a letter signed by more than 100 companies representing the technology, financial services, health care, transportation and telecommunications industries called for a rule requiring TPLF investors to disclose their contracts.”

Minister ‘very hesitant’ on third-party funding” —

  • “The Minister for Justice has said that he has concerns about the introduction of third-party litigation funding in Ireland.”
  • “Jim O’Callaghan was speaking at a conference on dispute resolution organised by business-law firm Mason Hayes & Curran (MHC).”
  • “The law in Ireland currently prohibits the funding of legal cases by outside parties who do not have a legitimate and independent interest in the dispute, subject to the certain exceptions. The Law Reform Commission (LRC) is looking at the issue and is expected to publish a report by the end of this year.”
  • “Minister O’Callaghan told the MHC event that, while third-party funding offered potential access-to-justice benefits, there was a risk of ‘commodifying justice’.”
  • “He said that he could not ignore the experiences of other countries that provided proof that the ‘big winners’ from third-party litigation funding were lawyers.”
  • “‘I have no interest, in my role as Minister for Justice, in enriching lawyers’, he said, adding that members of the profession could do that themselves by doing a good job and getting paid fairly.”
  • “The minister said that, while he would wait for the LRC report and consider it closely, ‘ultimately, I’m very hesitant about it’.”
  • “In a panel discussion on third-party funding, barrister Emily Egan McGrath SC said that the Irish courts had shown ‘increasing frustration’ about the lack of legislative reform in the area, and had shown a tendency to expand existing exceptions.”
  • “She cited the case of Campbell v O’Doherty [Trading as The Irish Light], where the High Court rejected a challenge to the proceedings based on the fact that the plaintiff benefited from crowdfunding.”
  • “The barrister told the event that the judgment, however, did not engage with the wider issues raised by crowdfunding, such as whether funders could be liable for costs.”
  • “MHC partner Colin Monaghan said that there was now ‘more nervousness’ in Britain, where there had been less regulation in the area, about how the litigation-funding industry had developed.”
  • “The panel also discussed other issues raised by third-party funding, such as whether advice given to clients should also be given to funders.”
  • “MHC partner Rory Kirrane SC told the event that conflicts over the spoils of litigation had led to what he described as an ‘unedifying’ sub-class of litigation between plaintiffs and funders emerging.”
  • “He said that this was ‘an evil that needed to be guarded against’ in any proposed changes.”
  • “Asked about who should regulate any reformed third-party-funding regime, there was broad agreement among the panel that one of the existing regulatory bodies, such as the Central Bank or CCPC, would make more sense than setting up a new watchdog.”
  • “The former chief justice, who is president of the LRC, concluded that the area was ‘a gap that needed to be filled’, but added that it needed to be regulated to genuinely contribute to access to justice.”