Third-party Litigation Research Articles

The important role of civil class actions in the enforcement of corporate criminal law

Recent experience in civil litigation, particularly with opt-out class actions against corporations for competition law offences, has highlighted the efficiency of ‘dual enforcement’ as a strategy for fighting corporate crime. The success of the opt-out class action regime has resulted in innovation and developments that have pushed the boundaries of competition law, involving cases that are traditionally considered matters of environmental, data or consumer protection law. However, although private litigation can overcome the deterrence deficit associated with criminal enforcement by deferred prosecution agreement, and is an increasingly important tool in the fight against corporate crime, the Supreme Court’s recent decision in the PACCAR case has created uncertainty in the third-party litigation funding market, upon which these class actions rely. Given the woefully inadequate funding afforded to public enforcement agencies, including the UK’s Serious Fraud Office, there is a clear economic case for the availability of dual enforcement, and thus an urgent need for Parliament to enact amending legislation, with retrospective effect, to reverse the PACCAR decision. Furthermore, the dual enforcement model should be extended to enable individuals to enforce consumer protection law through opt-out class actions. This would avoid the current situation in which claims are being framed as competition law infringements, such that success may well turn on the finest of distinctions. Lacking the various constraints associated with the criminal law, this extension would also enable the private enforcement of various types of corporate misconduct that, viewed through alternative the lens of the criminal law, are tantamount to fraud.

Whose Case is It Anyway?: Proposed Amendments to Indiana's Third-Party Litigation Finance Disclosure Statutes

Whose Case is It Anyway?: Proposed Amendments to Indiana's Third-Party Litigation Finance Disclosure Statutes

‘Written Testimony on Oversight of Third-party Litigation Funding Before the Committee on Oversight and Accountability United State House of Representatives’

‘Written Testimony on Oversight of Third-party Litigation Funding Before the Committee on Oversight and Accountability United State House of Representatives’

Comparative Notes on the use of Commercial Litigation Funding in Insolvency: Australia and South Africa

This article explores the application of third-party litigation funding (TPLF), also referred to as commercial litigation funding, in insolvency litigation by way of a comparison of the legal position in Australia and South Africa. It proposes that TPLF could offer significant benefits by enabling liquidators of insolvent estates to pursue and enforce claims through civil proceedings with the aim of swelling the assets of the insolvent estate, ultimately to the advantage of the creditors. Since both jurisdictions share elements of English law, both were confronted with the English law doctrines of champerty and maintenance initially being regarded as impediments to the development and/or use of TPLF. Currently, and mainly due to developments in terms of case law, the concept of TPLF has in principle been accepted in both jurisdictions. However, in Australia the development originally transpired in the field of insolvency litigation. In South Africa the context was more in the confines of general litigation. It is submitted that the South African system could benefit by considering various aspects of the Australian system regarding the use of TPLF in insolvency litigation. It remains a question whether or not the respective systems would benefit by adopting comprehensive regulatory measures to regulate TPLF.

Auditor Communication Provisions in Private Loan Agreements: Do They Matter?

SUMMARY We examine auditor communication provisions (ACPs) in private loan agreements, which are private contracting mechanisms establishing communication between lenders and their borrowers’ auditors. We provide evidence that lenders value auditor communications and often specify different types of ACPs that facilitate lender monitoring. With predictable variation across the different ACP types, ACPs are associated with larger loans, longer maturities, larger loan syndicates, more financial covenants, and greater slack in financial covenants. In examining audit effort implications for borrowers, we find that ACPs are associated with higher audit fees and longer audit report lags. This is consistent with auditors responding to the litigation risk ACPs impose. In samples where the risk of third-party litigation is greater, the association between ACPs and audit effort proxies is heightened, suggesting the increased litigation risk brought about by ACPs interacts with other audit client-specific risk factors. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: M42; D82; G21; G30; K40.

Third-Party Patent Litigation Financing in the United States: Do You Know Who is Sitting in Your Courtroom?

The goal of this paper is to present the current landscape of third-party litigation financing in the United States—namely, patent disputes, as well as a brief insight into the litigation funding business. In the last ten years, patent litigation brought by patent trolls has increased, creating a significant problem. First, this paper explains the basic rules of federal civil procedure that relate to deciding which court will hear a patent case. Next, this paper discusses the Nimitz case before the United States District Court for the District of Delaware, which gained publicity due to the non-disclosure of certain facts by Nimitz’s counsel to the court. Finally, the author recognizes problems raised after the Nimitz case in connection to third-party litigation financing.

Financing the litigation arms race

Using a dynamic real-option model of litigation, we show that the increasingly popular practice of third-party litigation financing has ambiguous implications for total ex-post litigant surplus. A defendant and a plaintiff bargain over a settlement payment. The defendant takes costly actions to avoid deadweight losses associated with large transfers to the plaintiff. Litigation financing bolsters the plaintiff, leading to larger deadweight losses. However, by endogenously deterring the defendant from taking costly actions, litigation financing can nonetheless improve the joint surplus of the plaintiff and defendant. In contrast to popular opinion, litigation financing does not necessarily encourage high-risk frivolous lawsuits.

The Fate of Class Action Common Fund Orders

Common Fund Orders’ (CFOs) have had a significant effect on Australian third party-funded class actions by requiring all class members to make a contribution to the third-party litigation funder’s fee in the event of a successful outcome. This altered past practice whereby only class members who had contracted with the litigation funder would be liable for such a contribution. However in a 5:2 decision in BMW Australia Ltd v Brewster in 2019, the High Court cast some doubt on CFOs, determining that neither s 33ZF Federal Court of Australia Act 1976 (Cth) nor s 183 Civil Procedure Act 2005 (NSW) provided a legal basis for making CFOs at the outset of proceedings so as to secure litigation funding support. In late 2020, the Commonwealth Parliamentary Joint Committee (PJC) on Corporations and Financial Services recommended that legislation be enacted to ‘address uncertainty’ in Brewster in a manner that would enable CFOs to be made at settlement or judgment. The authors canvass normative arguments as to the merits of CFOs and compare the alternative practice of making Funding Equalisation Orders (FEOs). They also consider the related issue of courts setting overall funding commissions. Given the possibility of legislative intervention, they also review arguments as to the potential constitutional validity of CFOs, a matter that was raised, but received very limited treatment from the High Court in BMW.

Proposed Regulation of Third-Party Funding in Investor-State Dispute Settlement

Third-party litigation funding is increasingly used to finance legal claims in investor-state dispute settlement, with financiers funding investor claims against sovereign states in exchange for a share of potentially substantial compensation rendered in eventual arbitral awards. A chiefly unregulated phenomenon, third-party funding has been perceived especially controversial in the context of the investment arbitration regime, a system some allege is already ingrained with inequities. Third-party funding raises numerous policy questions, such as conflicts of interests, disclosure, costs of the proceedings, and even the entire permissibility of the practice in investor-state dispute settlement. This review raises various issues and concerns related to third-party funding in investor-state dispute settlement and presents the regulatory efforts and criticism thereof with regards to the reform of rules of both the International Centre for Settlement of Investment Disputes and the United Nations Commission on International Trade Law.

Nova EU direktiva o kolektivnim tužbama i finansiranje vođenja parničnog postupka sredstvima trećih lica - prilika za evropske potrošače

After years of compensatory collective redress being left to a sort of regulatory competition among Member States, Directive 1828/2020 finally introduced an EU wide representative action scheme, aimed at strengthening the position of European consumers vis-à-vis new market dynamics such as globalisation and digitalisation. The new system, which shall run in parallel with national tools, introduces some innovations such as a cross-border action mechanism, the possibility of adopting an opt-out model and a specific regulation of third-party litigation funding in the context of collective redress. This aspect, addressed already in the 2013 Recommendation, is of particular interest, because third party funding represents a particularly powerful complement to collective redress in easing citizens' access to justice. However, the provisions introduced with Directive 1828/2020 leave some issues open. In particular, the Court's role in managing the funding agreement, with special reference to the funder's fee, and the effect of the funding agreement in case an opt-out adhesion mechanism is adopted are of paramount importance and still need to be addressed interpretatively. In this task, the comparative method will be particularly helpful in analysing the solution which Countries more familiar with third party funding, like Australia, Canada or the United States have introduced or discussed.

Litigation Finance: Financial Engineering in the Courtroom

Litigation finance is a relatively new financial product that has the potential to unlock the justice system for an unmeasurable number of people in the United States who have suffered injustices that would represent meritorious claims if the victims could afford to bring a civil case. Unfortunately, the costs of litigation are so high, that many cannot. Litigation finance is quickly becoming the key to the justice system for those people. The relative lack of familiarity with third-party litigation finance, and the lack of a regulatory regime are still roadblocks to the widespread use of the product, but it’s only a matter of time before that issue fades. Fortunately, these impediments to litigation finance’s emergence as a mainstream product are being actively addressed. Multiple countries have developed regulatory regimes, while the United States has thus far deferred to state governments to develop their own rules regarding litigation finance. This process will eventually lead to a federal standard that will provide clarity and stability for litigation finance to expand. Additionally, litigation finance is increasingly becoming a known financial product. Using traditional marketing techniques and the spread by word of mouth from friends and family members who have used the product, litigation finance is moving into the mainstream. This paper will explore litigation finance and follow its evolution from its ancient beginnings to its current state as a new financial product designed to provide the financial means for unlocking justice which has always been a cornerstone of our democracy.

Financing the Litigation Arms Race

Using a continuous-time model of litigation, we show that the increasingly popular practice of third-party litigation financing has ambiguous welfare implications. A defendant and a plaintiff bargain over a settlement payment. The defendant takes costly actions to avoid deadweight losses associated with large transfers to the plaintiff. Litigation financing bolsters the plaintiff, leading to larger deadweight losses. However, by endogenously deterring the defendant from taking costly actions, litigation financing can nonetheless improve the joint surplus of the plaintiff and the defendant. In contrast to popular opinion, litigation financing does not necessarily encourage high-risk frivolous lawsuits.

Investment Management and Corporate Structuring Considerations for Third-Party Litigation Funders in Luxembourg

Investment Management and Corporate Structuring Considerations for Third-Party Litigation Funders in Luxembourg

Do’s and Dont’s of Regulating Third-Party Litigation Funding: Singapore Vs. France

Opting for international arbitration no longer ensures a quicker and cheaper access to justice. By reason of the exponential increase of the costs incurred in arbitration proceedings, a claim constitutes both a financial asset and a burden. A number of products offered by disputes funding firms allows litigants to externalize these costs. Funding cases puts equity capital at risk on a non-recourse basis. Naturally, this follows a well-structured decision-making process involving a budget plan and a deep dive due diligence conducted by experienced litigation and finance teams. Different approaches to regulating the funding activity have emerged. While France adopted a hands-off approach which led to the development of ethical and professional standards by concerned stakeholders, Singapore successfully legislated and developed an inspiring model, allowing the activity to thrive in the litigants’ best interests, in record time.

Third-Party Funding(제3자 자금지원)의 가능성과 규제 방안

근래 들어 중재 등 분쟁해결산업의 팽창과 함께 ‘제3자 자금지원(third party funding 또는 litigation funding)’ 제도가 빠르게 발전하고 있다. 일각에서는 제3자 자금지원 제도가 고비용의 소송 또는 중재의 해결책으로서 당사자들의 사법 접근성을 향상시킨다고 예찬하고, 다른 편에서는 자본이 분쟁해결에 부당하게 개입하면서 당사자의 이익을 해하고 당사자에게 돌아가야 할 배상금을 잠탈한다는 부정적인 시각을 드러낸다. 그러나 제3자 자금지원은 “부인할 수 없고 중요한 현실”이라는 진단이 점차 주류를 형성하고 있다.BR 보통법계(common law) 국가에서는 제3자의 소송원조를 범죄이자 불법행위로 보는 ‘maintenance and champerty’라는 법원칙이 오랜 기간 제3자의 금전적 소송개입을 금지하는 역할을 수행하였다. 그러나 호주, 영국, 미국 법원들에서 제3자 자금지원을 허용하는 취지의 판결들이 속속 나오고 있고, 최근 싱가포르와 홍콩에서는 적극적으로 중재절차에서 제3자 자금지원을 허용하는 취지의 입법까지 하였다. 현재 우리나라 내에서는 제3자 자금지원이 허용되는지에 그 논의가 머물러있는데, 특히 법적 장애물로 거론되는 것은 비변호사의 법률사무를 통한 이익분배를 금지하는 변호사법 규정과 이자제한법이다. 외국의 사례까지 검토하여 보면, 위 법규가 제3자 자금지원을 전면적으로 금지하는 방향으로 작동하지는 않을 것으로 보인다. 그러나 일정한 한계선을 제시할 것은 분명하다.BR 이제는 논의의 방향을 허용 여부 보다는 얼마만큼 어떠한 방식으로 규제할 것인가로 옮겨갈 필요가 있다. 소송당사자의 권익 보호와 그 제도의 남용 방지를 위해 연구를 통한 적절한 가이드라인이 형성되어야 한다. 무엇보다 자금지원자의 소송개입은 어디까지 허용되고 통제되어야 하는지, 여러 이익충돌 상황을 예방하기 위해서라도 자금지원자의 정보가 의무적으로 공개되어야 하는 것은 아닌지, 자금지원자에게 소송비용을 부담시킬 수 있는지 및 자금지원을 이유로 당사자에게 소송비용 담보제공 명령을 할 수 있는지에 관하여 어려운 논점들이 남아있는데, 그 논의의 기반을 위해 본 논문은 외국의 판례와 중재판정례, 입법례와 중재기구 규칙, 국제규범 등을 살핀다. 특히 ICCA와 퀸메리 대학의 공동 TF에서 초안한 「제3자 자금지원에 관한 원칙(ICCA-Queen Mary Task Force Principles on Third-Party Funding)」과, 미 연방사법센터(FJC)에서 발간한 ‘제3자 소송 자금지원(Third-Party Litigation Finance)에 관한 포켓 가이드’가 이에 참고가 된다.BR 제3자 자금지원의 적절한 활용은 중재산업의 부양과 소송제도의 발전의 동력이 될 수 있다. 본 연구는 이를 위해 국제적 동향을 분석하고 방향성을 제시함을 목표로 한다.

The Need for a Federal Anti-SLAPP Law in Today’s Digital Media Climate

This Note lays out the judicial protections granted to the traditional press and identifies new threats to non-traditional presses through the rise of third-party litigation financing for lawsuits targeting negative reporting. Part I distinguishes between libel and privacy lawsuits, explaining why one approach—particularly in the digital age—can be more fruitful for plaintiffs. Part I also draws from recent Supreme Court precedent to contextualize current attitudes regarding speech and privacy. Part II analyzes two recent new media cases with troubling results: specifically, million-dollar costs at best, and bankruptcy at worst. While ample protections exist for the traditional press, in light of these lawsuits, it is worth considering what more could and should be done to protect media outlets, especially the non-traditional presses. Part II also examines the chilling effect of potential billionaire-backed lawsuits. Because of threats from third-party litigation financiers and because judicial protections are intended for traditional presses, new publishers are left in a precarious position; Part III advocates for a federal anti-SLAPP law as a potential solution.

Auditor Communication Provisions in Private Loan Agreements: Do They Matter?

We examine auditor communication provisions (ACPs) in private loan agreements, which are private contracting mechanisms between external auditors and audit clients which establish communication between lenders and their borrowers' auditors. We provide evidence that lenders value privately-contracted auditor communication and often specify multiple ACPs that facilitate lender monitoring. In terms of debt contracting outcomes, we find ACPs are associated with a lower ex ante likelihood of loan covenant violation. We also examine audit fee implications for the borrower and find that ACPs are associated with higher audit fees, which is consistent with auditors responding to the litigation risk these provisions impose. We corroborate this by providing evidence that this relationship is concentrated in samples where the risk of third-party litigation is greater. Finally, we find evidence that ACPs lead auditors to become more conservative as their clients exhibit lower signed discretionary accruals when the risk of third-party litigation is greater.

Continuous Disclosure Class Actions – Stemming the Flow

This paper suggests that shareholder class actions founded on a failure of the issuer to comply with the continuous disclosure requirements impose significant and unwarranted costs on the market as a result of the material ‘leakage’ they create in the circle of shareholder wealth. The problem is exacerbated by the aspirational nature of the continuous disclosure requirement and the inherent uncertainty in the form of the rule. It is the ambiguity inherent in the rule that has attracted promoters of shareholder class actions to the provision in numbers that dwarf ASIC’s interest in compliance with the provision. Whilst it is accepted that shareholder class actions founded on the continuous disclosure requirements have the potential to encourage compliance are they the best way to achieve that objective? This paper explores three alternative means to stem the flow of capital caused by continuous disclosure based class action claims: a Market Disclosure Panel, re-introduction of fault elements into shareholder compensation actions or the development of a disclosure judgement rule each of which could be considered in the subsequent work of the Australian Law Reform Commission in its Inquiry into Class Action Proceedings and Third-Party Litigation Funders.

Third-Party Litigation Funding with Informative Signals: Equilibrium Characterization and the Effects of Admissibility

Litigation funders provide nonrecourse loans to plaintiffs who repay these loans if and only if they prevail. The loan’s interest rate reflects the funder’s information about the strength of the plaintiff’s case. We analyze a monopoly and a two-firm Bertrand model. Bertrand competition does not eliminate funders’ profits or inefficiency. Making the funding contract admissible evidence enables the funder to increase its chance of recovery by reducing the interest rate to signal to the court that the plaintiff has a strong case. Under monopoly, there is only a separating equilibrium without admissible funding. With admissible funding, there is either a pooling equilibrium or a separating equilibrium, but either increases the joint welfare of plaintiffs and funders. Under Bertrand competition, admissible funding increases joint welfare if courts can make adverse inferences from the absence of funding contracts. Plaintiffs are generally better off under admissibility if they discount the future sufficiently.

Why do member countries choose not to participate in the World Trade Organization’s Dispute Settlement Body?

ABSTRACTThis study examines non-participatory membership in the WTO’s Dispute Settlement Body. It uses an extensive form game that models trade and dispute settlement, costs for litigation, and prisoner’s dilemma-like payoffs. The study finds that, with the same litigation costs, there is a pure subgame perfect Nash equilibrium where both states will engage in protectionism and avoid filing. If one state has a higher litigation cost, it can be locked out of recourse and be worse off than it would be ex ante. These results, however, do not capture third-party litigation; neither do they examine the inability to impose countermeasures.