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Https://www.lawgazette.co.uk/law/shockwaves-as-supreme-court-rules-litigation-funding-deals-unenforceable/5116775.article
Reading all the daft suggestions of bear raids, market makers controlling XYZ and the like i thought i'd highlight why the drop in price today.
Decision above came out late morning and made news regarding litigation funding enforceability.
Exactly Guvvi - potentially renders all Litigation Funding Agreements unenforceable. Only firm not impacted by this will be Manolete (MANO) as it buys (rather than funds) its cases, which is a peculiarity of insolvency which MANO specialises in.
Except i suspect you just need to alter your agreement slightly to avoid it being classed within the realms of being a DBA. I highly doubt this will undo an entire industry where access to justice is always to be encouraged.
Burford capital is flat
See RNS dated 20 July 2023 (last paragraph before commentary from CEO):
"In line with our usual practice LCM's returns are calculated as a rising multiple of invested capital over time."
This is not a Damages Based Agreement (DBA) and therefore we should not be concerned!
Yes Guvvi. They'll need to amend their agreements going forward. That will also impact their economics and business models because (as I understand it) DBAs are limited to 50% of the net returns, which was a major area of concern for the Supreme Court. Goodness knows how they re-negotiate all past agreements??? Nightmare. But this will all be horribly complicated so a proper lawyer needs to explain all this. I certainly dont qualify !
DBA definition by Thompson Reuters Practical Law:
"An agreement between a representative and a client, whereby the representative's agreed fee is contingent on the success of the case and is determined as a percentage of the compensation received by the client."
That’s precisely why we should be concerned. Today’s ruling states that litigation funding must be a DBA. Any funding contract that is not currently structured as aDBA is invalid and unenforceable as of today.
It may be as simple as amending the contract to say DBA somewhere in there but I don’t know for sure.
Https://www.supremecourt.uk/cases/uksc-2021-0078.html
"Are litigation funding agreements ("LFAs") pursuant to which the funder is entitled to recover a percentage of any damages recovered "damages-based agreements" ("DBAs") within the meaning of the legislation which regulates such agreements?"
MeHumbleThinks that the case is not applicable to LCM usual practice (compensation as a function of time, not % of reward), but proper RNS from the company clarifying the legal situation would be more than welcomed.
We really could do with an RNS!
You are spot on. Opening paragraph of news article:
"Litigation funders will have to redraft the terms of their agreements following a widely awaited ruling by the Supreme Court this morning. In PACCAR Inc & Ors v Competition Appeal Tribunal & Ors, four out of five justices ruled that such agreements fall within the statutory definition of damages-based agreements (DBAs). As they had been entered in to without satisfying conditions for DBAs, they were therefore unenforceable."
It isn't saying that litigation funding HAS to be DBA-based but, if they are DBA based, they need to satisfy the conditions of them.
As far as I can tell, LIT don't use DBAs, at least not widely.
I'm a lawyer and this won't materially affect LITI. Expect a post close RNS to clarify this. Good buying opp IMO
I called the company. Do the same
+44 02039555260
Gallmat - can you relay what they said, why would we all want to bombard them (they are a small team)? They can't give price sensitive information, so you should be able to share freely.
I normally speak to cfo but she is on leave. So i just asked for urgent call back and rns.
Yes bombard them.
They just need to release a statement
Ha - a classic small cap panic. I would suggest topping up on the short term fear. DYOR
Don't bombard them - they will have been well aware of today's judgment but will have to run any release through lawyers/Nomad/broker/etc.
Give them time. It would be better released into close now to allow market to digest.
Agreed - leave the company to respond - they will be all over this. Crazy UK small cap markets at the moment.
What's the cases distribution across geographical jurisdictions looks like for LIT?
This may help with evaluating potential write-down exposure.
In LCM's Investor Meet Company presentation on 14 March, the following question was asked:
"It has been reported that Britain’s litigation funding industry faces “seismic consequences” if an appeal over funding agreements is allowed by the United Kingdom’s Supreme Court - what are the risks to LCM’s UK investments both directly funded and via either fund? Have you reported any information on how this case may affect LCM's business to private investors and/or other investors who participate in the funds?"
Patrick Moloney's response was as follows (my audio transcription):
"In answer to that question, there has been a challenge in the high court here in the United Kingdom with respect to whether litigation funding arrangements constitute damages based fee arrangements and are therefore caught by the legislation which governs solicitors providing those types of services. Now, the advice that we have received in and around that challenge is that it relates to that portion of the underlying funding agreement whereby the litigation financier is paid a percentage of the outcome of the pool of capital that is created as distinct from being remunerated on a multiple of invested capital. Therefore, the majority if not all of our litigation funding arrangements which have been entered into in the UK market are all based around a remuneration and return mechanism for LCM based on a multiple of invested capital. So, we're not concerned in relation to this challenge. The challenge is yet to be determined and is in early stage in terms of going through the court system, but as I say, we're not concerned about that because it really doesn't reflect the way that LCM structures its underlying litigation funding agreements. So, in answer to the final part of that question - have we reported that to the market or those who have invested in our funds management business - the answer is no because we don't perceive that as a risk."
Good find, Lithrin. I expect a strong recovery tomorrow.
Many thanks luthrin.
I just listened to this online myself. I did not register the issue at the time because the ceo was notnconcerned.
Hopefully a good day tom
Yep - great find. Maybe no RNS even required. Should be a 15% up day tomorrow
I'm not invested here though this should bounce back very soon if not just tomorrow morning after investors and the markets realise there's no real risk at all here to that grasping at straws in desperation to stall or derail the LIT case, these sorts of things happen frequently in litigation , the lawyers know they won't win , though they will nearly always try and stall the paying out of compensation awards. The supreme court should see it for what it is, just desperate people doing desperate things to avoid paying out. LIT has no concerns here. A definite buying opportunity ok.
GLA