News & Insights from Hou Zhu 241028

• Google supports a bill requiring individuals filing lawsuits to disclose the sources of their litigation funding and the beneficiaries. This bill, introduced by California Republican Representative Darrell Issa, mandates that plaintiffs reveal any investors who may profit from the case outcome and disclose the funding agreements between investors and parties involved. Google’s General Counsel, Halimah DeLaine Prado, stated that excessive litigation driven by third-party funding increases costs for American businesses and consumers. The U.S. Chamber of Commerce also backs the legislation, stating that it will “protect the integrity of our judicial system.”

   

• Bloomberg Law columnist Roy Strom analyzes that large law firms are cautious about taking on high-risk cases because they rely on a stable, hourly billing model. Although some major firms, like Kirkland & Ellis, have ventured into plaintiff-side cases to earn substantial victory fees, they generally avoid contingency cases due to the potential for revenue uncertainty and delays. To mitigate these risks, large law firms have increasingly turned to third-party litigation funders, making third-party funding one of the main ways these firms can engage in high-risk litigation.

• The Center on Civil Justice at NYU School of Law will host a one-day conference on October 28, 2024 on the subject of legislative efforts to regulate third-party legal funding with the goal of connecting the debates on key legal funding issues taking place in academia and among practitioners, lobbyists and legislators, in the US and in Europe. The event will also be livestreamed via Zoom.

• Legal Training Consultancy and Apex Litigation Finance are jointly hosting an online Commercial Litigation Finance Conference on November 28. The conference will feature a panel of leading industry experts, who will delve into the most critical aspects of litigation finance today, including analysis of the funding market and funding agreements, the latest trends in ATE insurance, etc.

• Legal Training Consultancy and Apex Litigation Finance are jointly hosting an online Commercial Litigation Finance Conference on November 28. The conference will feature a panel of leading industry experts, who will delve into the most critical aspects of litigation finance today, including analysis of the funding market and funding agreements, the latest trends in ATE insurance, etc.

• The team from Herbert Smith Freehills recently wrote an article (European Law Institute publishes principles governing third party litigation funding) to interpret the Principles Governing the Third Party Funding of Litigation published by the European Law Institute (ELI). The ELI report aims to develop a “guiding, decisive or light-touch regulatory blueprint” for the booming international third-party financing market.

• The report sets out principles which identify and provide guidance on key issues relating to the conduct of funders and funded parties, with the aim of ensuring that the funding market operates fairly and to the benefit of all parties. It stipulates a suggested minimum content for funding agreements and provides sample wording to deal with particular issues. It also includes commentaries discussing the application of the principles in the context of special types of proceedings, such as consumer litigation, arbitration and insolvency proceedings. 

• The principles noted in the report are intended to offer an alternative to both codes of conduct and prescriptive regulation of the funding market. They do not carry any sanction for non-compliance. Individual jurisdictions may wish to incorporate the principles into legislation or regulation to provide the necessary enforcement mechanisms.

• The ELI report identifies four core objectives which it says lie at the heart of the search for the legitimate and effective use of third party funding. These are: facilitating and increasing access to justice, identifying and meeting valid concerns about third party funding, levelling the playing field internationally between the parties, and informing regulatory or legislative responses and assisting courts..

• This article summarizes some of the most important aspects of these principles, including:

• Principle 4: Promotional materials. This principle states that a funder must ensure any promotional materials it provides are “comprehensive, clear and not misleading”. As a minimum, they should include a prominent statement that a party considering entering into a funding agreement should first seek independent legal advice (from a lawyer with no connection to the funder).

• Principle 5: Transparency. This principle concerns transparency towards the funded party, the adversary in the litigation and the court itself. The report sets out the minimum information that should be provided to the funded party before entering into a funding agreement, namely the identity of the funder, the source of funds and details of any conflicts of interest. It further requires proactive disclosure to the court, which is relatively absent from the current ALF Code.

• Principle 6: Conflicts of interest. This principle states that funders should take appropriate measures to ensure conflicts do not arise, and the funding agreement should set out clearly the steps the funder is taking to avoid actual or potential conflicts. The commentary in the report notes that two main areas of concern have been highlighted in relation to conflicts: (i) funder’s conflicts through other business (including, where relevant, the business of the ultimate source of funds); and (ii) the scope for conflicts amongst the legal team.

• Principle 7: Capital adequacy. This principle notes that third party funders have a responsibility to plan and manage their finances effectively so that they are able to meet their financial commitments when they become due and payable. It sets out various approaches that funding agreements may take in relation to capital adequacy, and states that as a minimum all funding agreements should require the funder to maintain the capacity to fund the sum or stages specified in the agreement.

• Principle 10: Case management / control. This principle states that the funded party shall (save in exceptional cases) be the ultimate decision-maker in relation to the funded proceedings, and any derogation from that principle must be clearly stated in the funding agreement. It adds that the funding agreement should specify whether and (if so) how the funder is to be involved in or have control of litigation decisions or be involved in decisions relating to settlements. It should also include a dispute resolution clause for any disputes in respect of the funder's rights to be involved and the acceptability of settlement offers.

• Principle 11: Termination. This principle states that the funding agreement should not give the funder a broad discretionary right to terminate, but any rights to terminate should be clearly set out in the agreement and their consequences explained to the funded party prior to entering into the agreement. This is consistent with the ALF Code. 

[3]参见：Litigation Finance Insider Newsletter

[4]参见：Litigation Finance Insider Newsletter

[5]参见：https://www.tickettailor.com/events/thelegaltrainingconsultancy/1389863

[6]参见：https://www.linkedin.com/posts/daniellittman_newbeginnings-careerjourney-grateful-activity-7251865723717709824-DtUN/

[7]参见：https://www.herbertsmithfreehills.com/notes/litigation/2024-10/european-law-Institute-publishes-principles-governing-third-party-litigation-funding

[8]参见：https://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/ELI_Principles_Governing_the_Third_Party_Funding_of_Litigation.pdf