Lawyers and funders join forces to standardise documentation

Rey: Flood of new funders

A host of well-known litigation funders have signed up to an industry wide initiative to develop model funding documentation, launched by the London office of US law firm Brown Rudnick.

The output will be freely available and aims to support the continued growth of the litigation funding market.

Major funders and institutional claimants signed up so far are Affiniti Finance, Arrowhead Capital, Augusta Ventures, BDO Global, Bench Walk Advisors, Deminor Recovery Services, Galion Capital, Grant Thornton, King Street, LionFish Litigation Finance, LCM, North Wall Capital, Omni Bridgeway and Therium Capital Management.

Insurers include AmTrust Financial, Litica, Marsh and QLCC, while on the legal side Freshfields and group action specialist Hausfeld are on board so far.

Brown Rudnick partner Elena Rey said the litigation funding working group would build on the firm’s experience of working with major litigation funders to prepare model funding documentation for the US market, as well as working with the Loan Market Association over the last decade to do the same for the real estate finance market and secondary trading.

Ms Rey said model documentation would improve the speed of execution and streamline the negotiation process, reduce risk and disputes from poorly constructed contracts, and “provide a platform for the development of secondary market transactions by way of novation, participation, assignment or other risk transfer arrangement”.

It would also improve protections for market participants and provide a benchmark for the judiciary – she is working to have some judges joint the group.

Brown Rudnick said the model documentation would be produced after extensive consultation with the members of the working group and the wider market “and will represent an agreed common wording and structure, so that users and providers of litigation funding can rely on standardised boiler plate provisions and focus their negotiations on the commercial elements and other specific considerations”.

It would also be subject to regular review.

Ms Rey told Litigation Futures that this move was needed given the growing range of disputes for which funding was being used, along with a “flood” of new funders, such as traditional distressed funds and family offices.

At a time of financial uncertainty, the fact that litigation risk is uncorrelated to what is going on in the wider economy makes it attractive.

Newcomers can sometimes “paper their agreements on the back of a napkin”, Ms Rey observed, and if things go wrong, they can “cast a shadow over whole market”.

She said Brown Rudnick was well placed to lead the process, as its experience with the Loan Market Association meant it understood how to draft the documentation and how to manage the process.

She said she hoped to work with the Association of Litigation Funders and the recently launched International Legal Finance Association, noting that several of their members were members of the working group.

There will be more lawyers added to the group – both law firms and chambers – but Ms Rey said she wanted a cross-section of firms, rather than all of those with an interest, so as to keep its size manageable.

The initiative might also hold at bay questions over whether litigation funders should be regulated –since August, for example, litigation funders in Australia now have to hold a financial services licence and comply with the managed investment scheme regime.

Ms Rey suggested that the group’s work would increase the understanding and efficiency of the industry.

“I don’t think overregulation is always necessary if the market operates professionally and properly,” she said.

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