“Litigation funding needs better oversight” —

• “Profiting from others’ lawsuits makes some feel uneasy. Many countries still prohibit third parties from funding litigation in any way. The UK, for some time, has had no such qualms, allowing for a £2bn litigation-funding market to thrive.”
• “Mishcon de Reya, the London law firm known for its pugnacious litigators and big-ticket divorce cases, has taken the concept one step further and set up a £150m joint venture with one of the biggest third-party funders, Harbour, to back cases taken on by the firm. This raises questions about the management of potential conflicts of interest and whether the wider funding industry needs closer oversight.”
• “Litigation funders — who typically provide a claim’s upfront financing and receive a multiple of those costs as a share of any payout — can provide access to a system that is otherwise expensive and loaded against the underdog: a system where the losing side must pay the other side’s legal costs can be a deterrent to those even with solid claims. The sheer expense of civil litigation — typically running from £2m to even get to trial — not to mention tactics that can draw out proceedings, mean the system is stacked in favour of the deep-pocketed.”
• “Even at arm’s length, the interest of a client, the interest of a firm and the interest of a funder may diverge. Lawyers are expected by their watchdog, the Solicitors Regulation Authority, to manage any conflict appropriately.”
• “Tightening the relationship between funder and firm only makes that more difficult, particularly when it comes to setting up a fund that will expressly back the firm’s own cases. Mishcon is also looking to publicly list by the end of the year, adding shareholders to the mix of groups to which it will have to give due regard.”
• “Another London law firm, Rosenblatt, whose listed parent group RBG also owns a litigation funder, Lionfish, has a prohibition on it funding any Rosenblatt case precisely to avoid potential conflicts.”

“Mishcon sets up £150m litigation arm” —

• “MDR Solutions I will fund litigation and arbitration cases for Mishcon de Reya’s clients, including complex fraud cases, intellectual property disputes, group litigation, and asset recoveries. Harbour – which describes itself as the largest privately-owned litigation and arbitration funder in the world – has committed £150m to the venture, while Mishcon has contributed an undisclosed sum which will be drawn down as needed.”
• “The funding unit will be operationally separate to the law firm itself, and will be responsible for assessing and investing in prospective cases originated by Mishcon de Reya. It will use ‘sophisticated data science’ to help decide which cases to invest in, as well as human analysis.”
• “A number of City firms have established litigation funding units in recent months. In August 2020, DLA Piper teamed up with two third-party funders to help clients pursue cases that would otherwise be too expensive, while PGMBM secured a £45m investment in March from North Wall Capital. In its annual report published this week, listed firm Gateley said it is currently in discussions regarding a litigation funding facility of up to £20m.”
• “However, commentators have raised conflict of interest concerns about exclusive partnerships between law firms and third-party funders, arguing that clients do not have the chance to shop around for the best funding deals.”

“New Litigation Funding Rule: Transparency Boost Or Unnecessary ‘Sideshow’ Risk?”

• “The federal District Court for the District Of New Jersey adopted a new local rule on June 21 that requires the parties to a lawsuit to disclose all third-party litigation funding arrangements within 30 days of an initial pleading or transfer, or whenever the information becomes known.”
• “The federal District Court for the District Of New Jersey adopted a new local rule on June 21 that requires the parties to a lawsuit to disclose all third-party litigation funding arrangements within 30 days of an initial pleading or transfer, or whenever the information becomes known.”
• “The new local rule also requires a brief description of the financial interest the funders stand to gain if things go their way, as well as disclosure of whether the funders’ approval is required for litigation decisions or settlement. Parties may seek additional discovery of the terms of such an agreement ‘upon a showing of good cause that the non-party has authority to make material litigation decisions or settlement decisions, the interests of parties or the class (if applicable) are not being promoted or protected, or conflicts of interest exist,’ the order said.”
• “Proponents of the new local rule believe it is necessary because third-party funding agreements can pose ethical problems… The letter also cited the need for parties to know the identity of their litigation adversaries, to know all information relevant to settlement efforts, and to know who may be exercising control or influence over litigation decisions.
• “[Marla] Decker [managing director of Lake Whillans, litigation finance firm] calls the idea that funders are regularly controlling litigation and not disclosing this to the courts a ‘bogeyman, an imagined problem.'”
• “She noted that claimants are usually very reluctant to give up control regarding litigation strategy or settlements. They have a built-in incentive to maintain control, Decker said: fear that the funders will serve their own interests and not the claimholders’ interests.”
• “The new rule states that requests for further discovery into a litigation financing agreement will be granted when there is ‘good cause,’ but it doesn’t provide any guidance as to what that cause might be, she said.”
• “‘This is why we’d prefer it the way it’s been handled so far — courts taking these discovery requests on an individual basis and crafting an individual order as it would for any question or dispute based on the facts and circumstances,’ Decker added. ‘The scope and regularity of disclosure in cases where it has been sought is simply not consistent and normalized enough to warrant a one-size-fits-all rule.'”