The Finance of Complex Fraud Recovery Investigations and Litigation’
PRESENTED TO: OFFSHORE ALERT 5TH ANNUAL FINANCIAL DUE DILIGENCE CONFERENCE, MIAMI, 2007.
By: Martin S. Kenney, Esq.
Martin Kenney & Co., Solicitors
Third Floor, Flemming House Building
Road Town, Tortola
British Virgin Islands
And: Elizabeth O’Brien, BL
The Law Library
The Four Courts
1.1 The cost of large scale asset recovery work is a factor which often deters victims of economic crime from pursuing their rights through civil process, preferring instead to leave the task of bringing the wrongdoer to justice, to the criminal legal system with its seemingly unlimited resources. However, the principal result achieved by the criminal law – punishment of the offender by means of the deprivation of his liberty – is of no tangible benefit to victims. A typical $100 million ‘concealed’ asset recovery case can involve more than $10 million in costs and required security to support cross-undertakings in damages and the risk of loss of adverse costs orders. Such an economic and human undertaking is daunting to the undercapitalised victim; or to those who are ill-equipped to manage the risks.
2.0 Costs – What is involved?
2.1 There are a number of factors that conspire to make any asset recovery exercise time consuming and by definition, expensive. These include the increasing cost of specialised professional time.1
2.2 Generally speaking, the assets misappropriated will have been transferred through several jurisdictions, many of them offshore financial centres, before arriving in their current physical or nominal locations. Locating and defining the manner of holding of the assets by necessity involves the expenditure of the professional time of forensic accountants, investigators and lawyers in a number of jurisdictions.
2.3 Defendants use the misappropriated monies to hire experienced asset protection ‘counsellors’ to shield the victim’s money from detection. Also, where the devices employed to shield the fructis sceleris (the ‘fruits of fraud’) are threatened, expensive legal teams are marshaled to defend them. Even in circumstances where they find ‘their’ assets tied up pursuant to a Mareva or other similar restraining order, the Court will, absent exceptional circumstances, provide broad berth to a defendant to mount a defence. The litigation involved will typically need to be conducted in a number of jurisdictions concurrently, and appropriate use will need to be made of interim relief such as freezing and tracing orders and their equivalents. Such relief is not there for the taking. Applications for freezing and related orders typically burn weeks if not months of professional time in their preparation. In addition, courts may require payments of substantial sums into court by way of security for cross-undertakings in damages or costs, particularly in the case of litigants from overseas, before they will grant interim relief such as freezing injunctions.
2.4 The cost of mounting a legal action for the recovery of assets may be divided into legal costs, court fees and the cost of evidence gathering by forensic accountants and investigators. In smaller cases, lawyers may agree with their client not to be paid until the outcome of the case is known, but few firms of lawyers are likely to be able to take on larger cases without being paid by their clients on an ongoing basis, given the extent of the investment of human and financial capital required in such cases.
2.5 In addition, the cost of forensic accountants and investigators is likely to be incurred predominantly at the beginning of any fraud inquiry, when the evidence is being sought. The front-end loading of such costs is an additional factor to consider in assessing reasons why a funding mechanism should be put in place at the outset.
2.6 What can be done in the face of this phenomenon? In most human endeavours –where there is need for financial capital, the capital markets seek to furnish the necessary supply where economic gains can be realised. Claims are contingent assets in the hands of their owners. They have speculative value. If victims could gain access to capital markets by ‘selling’ a portion of the speculative, future value of their claims to the owners of capital, more genuine claims would be advanced effectively, and access to economic justice could, in theory, become a more practical and realistic right.
3.0 Access to Justice – Practice -v- Theory.
3.1 It is recognised as a fundamental policy principle in the jurisdiction of England and Wales that an individual: 2
“…is entitled to untrammelled access to a court of first instance in respect of a bona fide claim based on a properly pleaded cause of action, subject only to the sanction or consideration that he is in peril of an adverse costs order if he is unsuccessful, of which the opposing party may resort to the usual remedies of execution, and/or bankruptcy if such order is not complied with. This principle is of course subject to the further proviso that, if the court is satisfied the action is not properly constituted or pleaded, or is not brought bona fide in the sense of being vexatious, oppressive or otherwise an abuse of process, then the court may dismiss the action or impose a stay whether under the specific provisions of the rules of court or the inherent jurisdiction of the court.” 3
3.2 Few would argue that the concept of access to justice is one worth fostering, yet many recoverable claims are abandoned in the face of the gauntlet left by the male fide actors who have misappropriated the money. The victim is left frustrated. The clarion call for ‘access to justice’ has a hollow ring to it, to those who are kept outside the door to the many courts which must be entered in order that a single complex case can be successfully prosecuted, the world over. A single recovery matter can involve litigation fought at a ferocious pace in ten jurisdictions at once — in instances where substantial sums of misappropriated and heavily ‘laundered’ assets are involved. Furthermore, the economic power obtained through large-scale wrongdoing is used to suffocate any realistic hope for justice through the admittedly legitimate exercise of a defendant’s right to consume frozen assets to fund a vigorous defence. The apparent malefactor can wield tens of millions of dollars of misappropriated wealth against the fledgling attempts of an undercapitalised victim to seek recovery.
3.3 While in theory ‘equal justice under law’ is a noble principle, in practice, there can be no meaningful access to justice without the provision of mechanisms to facilitate it. ‘Facilitation’ includes the wherewithal to ‘fund’ access. Access to the court in large-scale matters, in particular, comes at a very high cost. To convert the high and noble objective of access to justice to a tangible right, not only must the justice system become more user-friendly, but impecunious or under-capitalised litigants must be provided with the resources to litigate meritorious claims.
3.4 Apart from legal aid, which is available to a very small percentage of the population, there remain few methods by which a claimant can afford to meet the costs associated with civil litigation. Depending on the jurisdiction, conditional or contingency fee agreements represent two of such methods; while access to ‘after-the-event’ (“ATE”) litigation costs insurance is another. These are discussed below. I express some doubt as to whether they really do provide an alternative to the would-be commercial litigant.4 In respect of ATE costs insurance, in many cases a set fee or premium is still a prerequisite to proceeding; while the market is exceedingly undeveloped and scarce once the risk of costs in a cause exceeds Stg£500,000. In addition, in cases involving the pursuit of tens or hundreds of millions of pounds of misappropriated money in multiple jurisdictions, several million pounds in security must be posted. Accordingly, I will argue that in larger cases, in particular, access to the private capital markets is the only feasible method of securing access to justice.
3.5 Some of the larger firms of lawyers, forensic accountants and other professionals may be prepared to carry out some initial work, particularly of an investigative nature, without any guarantee of payment, in order to begin to ascertain whether their client’s case has any reasonable prospect of success – if they believe that the case may ultimately prove to be profitable. In some cases firms may foot the initial bill for legal and investigative due diligence if they believe that it could be in their interests to carry out such initial work without payment, either because of a desire to continue or build up a positive relationship with their client or because of the prospect of positive publicity, for example by way of press coverage. However, the extent of such initial free work is likely to be limited, particularly in the context of the high risk which attaches to asset location and recovery litigation – in terms of the failure to recover assets, adverse press publicity or a change in the client’s intentions during the course of the litigation.
3.6 Regardless of whether initial work is provided on an ‘honour’ basis, assuming initial investigations show that assets are available to levy against, it will be necessary to put in place funding to bring the investigation and litigation process through to completion. This paper discusses the following methods of funding asset recovery actions:
quick, partial recoveries;
conditional fees (U.K.);
contingent fees (U.S. and Canada);
after the event litigation costs insurance;
venture capital / third party investment; and
sale of shares in litigation.
3.7 I will argue that, subject to certain exceptions, venture capital or free market access to litigation funding alternatives, operated in a regulated environment, offers the most effective method of securing finance to pursue justice in economic terms.
4.1 The best method of finance of serious fraud recovery cases involves the simplest approach of all. It is based on speed and the notion that a $100 million fraud recovery matter should be initially thought of as a $5 million risk management problem. If a bank account or other minor asset can be quickly identified and frozen, and if that asset is worth a few million dollars, the victim should be in an enviable risk management position – with the source of funding the cost of the investigation and recovery process having been identified and secured through a well executed initial burst of work. Many professional firms will work on a deferred payment agreement to undertake an initial partial recovery if the facts suggest that there exists a realistic possibility of success.
5.0 Conditional and Contingency Fees.
5.1 Contingency fee arrangements have always been permitted for non-contentious work in England and Wales. Indeed, Section 57(2) of the Solicitors Act 1974 specifically authorises percentages and commissions as a means of charging for non-contentious work. The essential, although simplistic, distinction between contentious and non-contentious work is whether proceedings have been begun in a court.
5.2 In the civil courts of England and Wales a true contingency fee arrangement under which the lawyers would be rewarded by a percentage of what is recovered could not be entertained.5 This stands in stark contrast to the position in the United States where fees expressed in terms of a percentage of the value of recovery are commonplace and indeed have led to hugely disproportionate earnings for lawyers in high value recovery class action law suits.
6.0 Conditional Fees (U.K. Litigation).
6.1 In the U.K., until the Courts and Legal Services Act 1990, any form of contingency funding of litigation costs was contrary to the common law doctrine of champerty and was unenforceable (not unlawful) in litigation. The 1990 Act introduced the concept of conditional fee agreements, the essential elements of which are:
no fee for the lawyer if the case is lost and the fee if the client wins is an hourly rate enhanced by up to 100% as a success fee;
the client has to fund their own disbursements and in particular court fees and experts’ fees but can of course seek a separate conditional fee agreement to cover counsel’s fees; and
in most litigation, adverse costs ATE insurance is desirable in support of the conditional fee agreement to protect the client against the risk of losing. This provides the client with an indemnity in respect of the opponents’ costs and the client’s own disbursements.
6.2 Section 27 of the Access to Justice Act 1999 substituted a new Section 58 of the Courts and Legal Services Act 1990. All contingency fee type arrangements are now lumped together under the generic description of “conditional fees”:
6.3 The Act provides that a conditional fee agreement which does not satisfy all of the conditions specified in Section 58 “shall be unenforceable.”
“A conditional fee agreement is an agreement with the person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances.”
6.4 Divisional Court decisions of British Waterways Board –v- Norman6 and Aratra Potato Co Ltd –v- Taylor Joynson Garrett7 had held, respectively, that the client must be under a liability to pay their lawyers whether they won or lost and that the lawyers could not offer to discount their fees in the event of a loss. The Court of Appeal decision in Thai Trading –v- Taylor8 distinguished these arrangements as ‘contingent fee’ agreements. The Access to Justice Act has now provided them with statutory recognition.
6.5 The Access to Justice Act includes the much-heralded provisions for possible recovery of success fees and ATE litigation costs insurance premiums. The relevant provisions include, in section 29, as follows:
“Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy.”
6.6 The explanatory notes confirm that this is not limited to ATE insurance policies taken out alongside a conditional fee agreement. The new section 58A(6) of the Courts and Legal Services Act 1990 reads:
“A costs order made in any proceedings may, subject in the case of court proceedings to rules of court, include [a] provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee.”
6.7 There are a number of interesting considerations which arise in the context of conditional fee negotiation in commercial litigation. Both lawyers and clients should be aware of the following:
Risk sharing between lawyer and client gives rise to an inherent conflict of interests – two parties are buying and selling a product;
There may very well therefore be a need for negotiation and independent advice upon the terms of the conditional fee agreement itself;
In particular, the definition of “success” may be a matter for considerable negotiation. What if judgment is obtained but is not capable of being enforced on a cost-effective basis? There will need to be careful discussion as to the possible outcomes of the litigation;
What protection do the lawyers have if the client decides to withdraw instructions before success is achieved? Most conditional fee agreements in routine litigation provide that the client would then become liable for all of the work done at the basic hourly rate. That assumes that the client will be in a position to pay. In addition, it would be inadequate remuneration for the carrying of risk due to the absence of funding in a case where success had become assured and the client changed to other lawyers on an ordinary funding basis to conclude the litigation;
Solicitors operating under Conditional Fee Arrangements (“CFAs”) in commercial litigation place increased reliance on a client’s credibility on matters of fact. Warranties should be sought and responsibility formally allocated. The clients in CFA litigation need to be advised that they will compromise their own control of the proceedings. Solicitors expect to be able to terminate the retainer at any stage if they become concerned and no longer believe that the prospects justify their continued involvement and investment; and
Under a CFA, in many instances clients are really seeking funding when what they should be purchasing is quality, independent advice. Are solicitors best placed to act as a bank or an insurance company in litigation of this nature? If the expectation is that the solicitors will fund major disbursements on the basis of any sort of direct return in the event that the case is successful, there may be Consumer Credit Act difficulties.
7.0 Contingency Fees (U.S.).
7.1 People often confuse conditional fees with contingency fees. As noted above, under English law contingency fees are only available where a case is settled before Court proceedings are started. 9 In the event that Court proceedings do become necessary then the Contingency Fee element of the Agreement comes to an end and some other form of case funding must then be agreed upon.
7.2 In the U.S., however, contingency fees are not confined to non-contentious work. In a Contingency Fee Agreement lawyers charge an agreed percentage of the compensation that the client recovers. This percentage will cover both fees and expenses. From an ethics perspective, these types of arrangement are often criticized as they provide a potential windfall for attorneys which does not bear any relation to the actual work involved. 10 On the other hand however, attorneys are also open to the risk that no award or a minimal award may be made. It is argued that the risks inherent counterbalance the potential for a windfall recovery of fees. The ‘winners’ must pay for the ‘losers.’ All contingency fee lawyers in America premise the economics of their practices on this principle.
7.3 A contingency type fee can be negotiated to take account of the quantum of the risk involved, the degree of expertise of the lawyer, the level of support that the lawyer can expect from the client and the possibility that recovery may exceed expectations. Thus for example a staggered percentage rate could be agreed, the percentage declining in line with any increase in compensation above certain defined thresholds.
7.4 The advantage of contingency fee type arrangements is that the lawyer acquires an added incentive to succeed, and to increase that success. It is well documented that employees who benefit from a profit sharing or performance related pay structure, outperform those who do not. Many argue however that a lawyer’s duty to his client is such that an incentive is irrelevant – lawyers are duty bound to protect the best interests of their clients and to use due skill and diligence in exercising that duty. Nonetheless, lawyers are human after all. The reality is that contingency type fees have proved a successful way of promoting access to justice in the U.S.11
7.5 From the perspective of legal professional ethics, contingency fees involve a potential pitfall insofar as attorneys who become a partner in the litigation so to speak, may lose their impartiality and may be more inclined to advocate or support positions that, from an impartial perspective, they ought not. Above all the lawyer is an officer of the court and has a duty to ensure that the ends of justice are served whether that be ultimately to the detriment of his client or not.
8.0 After the Event Litigation Costs Insurance.
8.1 After the event litigation costs insurance covers the insured claimant against the liability for its own costs and disbursements and for the contingent risk of incurring a liability for the costs and disbursements of the defendant should the litigation fail.
8.2 If there is a conditional fee agreement, then a claimant may only wish to insure against the contingent risks of incurring a liability for the defendant’s costs and disbursements. Even if there is a conditional fee agreement in place the claimant or his solicitor may still wish to insure a proportion of the claimant’s basic costs which will be unpaid in the event that the litigation is unsuccessful.
8.3 As a matter of professional practice, solicitors in England and Wales are now required to advise clients on whether the client’s liability for their own costs may be covered by insurance and whether the client’s liability for another party’s costs may be covered by pre-purchased insurance and, if not, whether it would be advisable for the client’s liability for another party’s costs to be covered by after the event insurance including in every case where a conditional fee or contingency fee arrangement is proposed.12
8.4 Practice Rule 15 also requires English & Welsh solicitors to discuss with the client whether the likely outcome in a matter will justify the expense or risk involved, including, if relevant, the risk of having to bear an opponent’s costs. This involves the solicitor in undertaking a cost/benefit analysis. In order to do this he will need to assimilate the information that is required in an after the event costs proposal form.
8.5 The reasons for taking out a policy covering after the event litigation costs insurance may include the following:
it facilitates accounting certainty and acts as an excellent risk management tool;
it provides an incentive for the defendant to settle;
it enables provision to be made for security for costs; and
it removes one risk factor from the equation when raising finance to fund litigation.
8.6 Once a premium has been agreed and paid a claimant knows that his liability for own costs and contingent risks for the costs of the defendant are capped at the level of the premium, subject to the limit of indemnity. This is particularly important where the claimant may be publicly accountable for the costs of the litigation or where liquidators may be personally liable. Increasingly, litigation costs insurance may be seen as a form of prudent public accounting.
8.7 A defendant knows when a claimant is sensitive to the issue of costs. A defendant’s classic tactic in an action of this type is to obfuscate and delay, thereby causing the claimant to increase legal expenses and to exert pressure on the claimant to withdraw the action and/or settle. A policy of after the event insurance sends a message to the defendant that underwriters are confident in the claimant’s ability, not only to prosecute the litigation to a successful conclusion, but also to achieve a recovery of assets. The policy of insurance also puts the defendant on notice that the claimant is in the litigation for the duration and cannot be subjected to financial pressure with regard to the costs being incurred, both in respect of own costs and in respect of the contingent liability for the costs of the defendant.
8.8 If the claimant has to provide security for costs then it is possible for the policy of insurance to be pledged to a surety as security for the issuance of a bond which will stand as security for costs in place of a payment into Court. The cost of the bond will normally be approximately 3% of its value. The value of the bond will normally be less than the amount insured for a defendant’s costs and disbursements.
8.9 If a loan is needed in order to fund own costs/disbursements it is now possible for a lender to be named as an insured in the policy of insurance and to lend on the basis that the policy acts as security for the loan. The lender may advance up to 80% of the amount of own costs insured. The lender’s risk is that the insurers will avoid making a payment in the event that there is a claim under the policy. The answer to this is for the lender to take out a separate policy of insurance insuring against the risk that insurers of the primary policy may not pay out. The cost of this supplemental policy is approximately 5% of the amount of the loan. Part of the loan may be used to pay the insurance premiums. The lender will wish to recover interest at an agreed commercial rate in addition to the principal sum loaned.
10.0 Premiums for Policies Covering Own Costs and Disbursements and Defendants’ Costs and Disbursements (Litigation Expenses Insurance).
10.1 Premiums for this type of policy of insurance are calculated as a percentage (the “rate on line”) of the total amount of costs insured (the “limit of indemnity”). The rate on line generally varies between 15% and 30% of the limit of indemnity. Quotes should be obtained from more than one insurer. Rates on line will vary as different insurers may assess the risk differently. The credit rating of the insurers may also influence the choice of insurer. If a case is worth insuring then it should be possible to place the risk at a rate on line not in excess of 30%.
11.0 Underwriting Considerations.
11.1 There are few underwriting considerations that are unique to civil actions brought in England & Wales that involve tracing assets. As with any civil matter, part of the underwriting process will involve an analysis of the issues, the strengths and weaknesses of the claimant’s case and the likelihood of recovering the assets to which the claimant alleges he is entitled. Underwriters will look at the merits and look at whether, on balance, the claimant is likely to be able to establish his asserted entitlement to funds or assets within the jurisdiction and whether there are any such funds or assets available to satisfy the claim. Underwriters will be reluctant to write policies of this type for speculative actions where no assets have been identified. Actions of this type may be motivated by bias against political opponents or a desire for retribution. Underwriters will not be persuaded by such collateral considerations but will apply a cost/risk/benefit approach in deciding whether to write a policy of insurance.
11.2 Many underwriters refuse to write ATE litigation costs insurance unless counsel’s opinion can be secured showing at least a 75% probability of success. It is arguably impossible for counsel to place an empirically sound number in his opinion as a label for indicating the likelihood of success in litigation. But many counsel do ‘toe the insurance industry line’ – and do issue opinions that comply with its requirements.
11.3 In many ways, the ATE underwriting process is similar to the cost benefit analysis that solicitors are required to provide for clients pursuant to the Solicitors Practice Rule 15. The underwriting process should be helpful to clients and their solicitors. Clients spending public or creditors' money will not wish to embark upon litigation that may prove fruitless. There will normally be a fee payable for the underwriting process. This will vary according to the quality and detail of the legal advice available and the complexity of the issues. Fees for underwriting reports can vary from as little as £1,000 up to £25,000 for the more complex cases.
11.4 The most important limitation to ATE insurance is the scarcity of the product in large scale cases. If costs exceed Stg£500,000 on both sides, it is very difficult to obtain. The other major problem lies in the risk associated with the tracing process. The most likely use of ATE insurance for a victim of fraud is to use it to finance the cost of litigation after assets have been found and frozen. Other alternative sources of funding the asset investigation and freeze steps of the recovery process include (a) finding one or two assets quickly, or (b) turning to venture capital finance.
12.0 Proceedings in Jurisdictions Outside England & Wales.
12.1 There is no reason, in principle, why a policy of insurance cannot be written or extended to cover proceedings outside of England and Wales that involve tracing against the same defendant. Underwriting considerations dictate that it will be helpful if the other jurisdictions have similar rules regarding the risk of incurring costs (i.e. costs will normally follow the event). However, this is not necessarily essential. Normal policy wording provides that assets recovered or damages awarded have to be utilised before any claim can be made under a policy of insurance for own costs or for any liability for the costs of the defendant. This means that if a policy was taken out in respect of proceedings in England & Wales and costs were incurred and no recovery was made; and the policy was extended to proceedings tracing assets in other jurisdictions and assets were recovered in those jurisdictions, such assets would need to be credited against any insured costs liabilities in order that the insurer may rightfully avoid any claim being made under the policy. Premiums paid for a policy to cover costs in a foreign litigation may not be recoverable from the defendant, subject to the rules of that jurisdiction.
13.0 Third Party Finance of Claims.
13.1 The assignment of a partial interest in a claim to an owner of capital is a risk-sharing device, where part of the potential award from a lawsuit is exchanged for money or services. It is thus not dissimilar from a typical contingent fee type arrangement, whereby the fee is calculated by a professional service provider by way of a percentage of the economic benefits of the successful outcome of the case. The ability to assign all or part of the fruits of a cause of action provides an effective method of finance of litigation, assuming the availability of access to capital. That access, however, must be fostered, not fettered. For many victims of economic crime, access to venture capital represents the only viable method of financing a multi-jurisdictional, complex and expensive concealed asset investigation and asset freeze.
13.2 While conditional fee type arrangements theoretically provide a method of financing a portion of the litigation aspect of such an action, ‘extra-litigation’ costs are largely ignored. In large-scale fraud cases, the ‘extra-litigation’ aspect can be of greater fundamental importance (or more expensive) than the litigation element. There can be no meaningful recovery for victims if the necessary groundwork in terms of asset-location, forensic analysis and intelligence work is not carried out competently. Millions of pounds of security must be posted. The funding of these aspects of multi-jurisdictional proceedings does not come within the ambit of conditional fee arrangements with professionals, nor does it come within the ambit of the typical litigation costs insurance arrangement. This is where access to capital markets is of most crucial importance.
13.3 The current market for claims worldwide is at best disorganised. In many countries outmoded laws derived from the doctrines of champerty and maintenance13 prohibit the free trade in claims either outright or make such trade subject to stringent conditions.
13.4 In England, the torts of maintenance and champerty were abolished in the 1960s upon the recommendation of the Law Reform Commission which concluded that an action for damages for maintenance and champerty no longer served any useful purpose. Maintenance and champerty were also abolished as criminal offences in England in the 1960s. However, the remnants of the common law doctrine invalidating champertous contracts continuesto exist – to some extent.
13.5 A number of different approaches have developed in the United States to deal with the reform of maintenance and champerty. Some states such as Pennsylvania have maintained the common law prohibitions against champertous agreements, while the courts of other states like California have held that champertous agreements may be contrary to public policy. Recent decisions of the Supreme Courts of South Carolina and Massachusetts have ‘abolished’ the doctrines. Yet other states such as New York have adopted statutes declaring champertous agreements void. However, in New York, the Courts have constructed the meaning of the relevant statute so narrowly as to make it substantially minimalist in application.
13.6 Civil law jurisdictions including Puerto Rico and Louisiana have adopted an approach whereby if a plaintiff sells all or a portion of a lawsuit to a third party, the defendant may settle the litigation with the plaintiff by reimbursing the third party for the amount paid by him or her with interest and costs.
13.7 In general it may be said that there are three routes by which one person may seek to dispose of, and another person may seek to acquire, the prospect of benefiting from current or future litigation against a third party. The first is the transfer of property carrying with it the right to prosecute any cause of action closely related to that property, such as the assignment of a debt. Such a transfer and any action brought by the transferee to enforce that right are not champertous.14 The second is the assignment of a bare cause of action or bare right to litigate. Such assignments offend public policy.15 The third is the assignment of the damages or other monetary compensation that may be awarded in an action in which judgment has not yet been given. Such an assignment, being an agreement to assign future property (damages if and when awarded), operates in equity and if supported by consideration will be valid and no question of unlawful maintenance or champerty will arise, at any rate when the assignee has no right to influence the course of the proceedings.16
13.8 While the laws differ from jurisdiction to jurisdiction, some common or basic guidelines may be extracted from case law. In considering whether an arrangement is champertous, the case law suggests that courts will consider a number of factors, including the following:
The merits of the plaintiff’s lawsuit—the less meritorious the plaintiff’s suit, the more likely the third party’s financial assistance will be seen as intermeddling;
The fairness and reasonableness of the arrangement as between the plaintiff and the third-party investor—if the parties can be viewed as relative equals with respect to their ability to bargain, the greater the likelihood a court will find the third party’s assistance as proper. Additionally, the courts will examine the actual bargain struck to ensure that it is not unreasonable, and that it is reflective of equality of information and bargaining power between the parties;
Whether the facts in the particular circumstances actually lead to the evils which the doctrines against champerty and maintenance are designed to avoid;
The relative strength of the plaintiff and the defendant to the lawsuit—courts will consider the financial and other inequalities between the plaintiff and the defendant in favour of validating the arrangement between the plaintiff and the third party;
A third party’s ostensible motive in providing financial assistance —courts are more willing to uphold agreements where a third party claims a motive of providing assistance to help the disadvantaged, despite recognition by the courts that the third party’s primary motive is to profit from the financing; and
Who brought the action to have the agreement declared champertous—if the litigant after succeeding wishes to have the court declare the agreement invalid, the fact that the litigant is not going to court with clean hands, will have an impact upon the court’s exercise of its equitable jurisdiction.
13.9 One of the recognised exceptions to the doctrines of maintenance and champerty is where the alleged champertor or maintainor has a legitimate commercial interest or a pre-existing interest in the subject matter of the litigation. These are terms which courts can mould to suit the realities of the situation. A bona fide business arrangement will be upheld provided there are no other complicating factors present.
13.10 A development which could make the funding of large asset recovery actions considerably easier would be the establishment of a practice which would permit regulated access to the capital markets for claims in which venture capitalists would be free to invest and compete, with the concomitant availability of capital for meritorious claims, and at competitive rates. A valid view is that there is no rational reason to permit ancient laws to uncritically quash an otherwise viable market — a market that would help victims, defendants, the courts, and society at large:
“Looking at the matter in quite general terms, there remains a public interest in preventing the development of an unlicensed and unregulated market in litigation for fear of the abuses to which that might lead by attraction of the unscrupulous. . .”17
13.11 This public interest, however, must be juxtaposed against the fundamental principle emphasized by the Court of Appeal in 1997 in Abraham v. Thompson, that litigants with bona fide claims should ordinarily be entitled to have them determined by a court. Where sufficient safeguards are implemented so that the unlicensed and unregulated market to which Toulson J. referred does not become a reality, ‘access to justice for all’ is promoted.
13.12 The development of an appropriately regulated market for the third-party finance of litigation would expand the options available to victims by allowing them to adjust the level of risk they wish to bear; the amount and timing of the recovery they seek; and other variables to a far greater degree than they are presently able to do. The introduction of venture capital into the market would lower the cost of capital over a period of time, and ultimately provide victims with a more cost-efficient and comprehensive method of financing litigation than typical, conditional or contingency fee type arrangements. Such a market would foster meritorious law suits while discouraging less worthy claims. As a general rule, the owners of capital do not take irrational or emotive risks with their money. Third-party finance will not flow into doubtful or complex matters unless there exists a viable chance of recovery, or unless the use of the portfolio theory of investment is permitted to assist in the spreading of risk over a number of complex claims by a number of investors.
13.13 For purposes of the present discussion, it is important to have sight of the magnitude of cost involved in the funding of a large-scale fraud action. It is also necessary to bear in mind those who would be affected – the would-be claimant or victim. Depending upon who the perpetrator of the crime is, the victim can be all manner of person. Thus, the victim can be a sovereign state, the citizens of that state, the public at large, public-sector enterprises or entities, a private sector enterprise or a central bank. Theoretically, one of the benefits of third party funding is the absence of an agenda, apart from the monetary incentive. For example, in a case of large-scale government corruption, the recovery process will undoubtedly raise questions of significant public and political importance. Quite apart from financial considerations, political complications may act as a barrier or a disincentive to public law enforcement authorities embarking on a particular course of action, whereas a private law enforcement concern, focused upon victim recovery rather than punishment, may not be so constrained. The privatization, so to speak, of victim recovery litigation represents a neutral and effective method of providing restitution to victims, with the added benefit of deterring the practises which caused the loss in the first place. Enabling access to capital markets in such a scenario effectively privatizes law enforcement within the context of victim recovery, thereby providing access to justice for the victim, together with the social good achieved by compelling the perpetrator to account.
13.14 The third party finance of litigation is currently taking place. In some areas, an open market in litigation already exists.18 The comprehensive recognition and acceptance of such practice, supported by the installation of a judicially enforced regulatory framework governing the funding of litigation, will serve to address the concerns which are currently advanced by those who oppose and criticise the funding of litigation by non-parties as immoral, unfair and contrary to the doctrines on maintenance and champerty. The false inflation of damages, suppression of evidence and the subornation of witnesses are all evils which are proscribed within the context of today’s mature legal systems. Toulson J. was undoubtedly thinking along these lines and in futuristic terms when he referred to “an unlicensed and unregulated market in litigation.”19
13.15 There are two principal concerns that are commonly expressed which cast doubt on the probity of permitting third-party investors to have unambiguous access to the finance of litigation. The first concern is the potential for the taking of unfair advantage over a vulnerable victim or plaintiff. The second relates to the issue of ‘control’ to be exercised by the third party over the conduct of the underlying judicial proceedings. The first concern relates to the protection of the weak and the vulnerable by unscrupulous men of money. The second is directed towards the internal workings of the court and of the judicial process.
13.16 It is acknowledged that the taking of unfair advantage by persons who have greater wealth and knowledge can and does occur in a free market.20 The acid test for the ‘unfairness’ of a bargain involving the third-party finance of litigation is the ‘price,’ and how it is arrived at.21 In what is arguably the most efficiently priced market for legal services (or for access to capital to finance their provision) — the United States of America; this issue has been thoroughly considered by courts and scholars alike within the context of lawyers’ contingency fees. Perhaps the leading American legal scholar on the abuse of contingency fee agreements between lawyer and client is Professor Lester Brickman of Cardozo Law School in New York City. In his 1989 article, Contingent Fees Without Contingencies: ‘Hamlet without the Prince of Denmark?’ 37 U.C.L.A. L. Rev. 29, Professor Brickman first posited his “corollary proportionality proposition”. Professor Brickman’s thesis is that the quantum of a contingency fee must be in proportion to the degree of risk and the anticipated measure of work to be undertaken by a fiduciary on behalf of his principal. A substantial contingency fee should not be charged by a fiduciary for work performed on a matter that is devoid of meaningful risk. Professor Brickman, whom the A.B.A. Journal once characterized as a professor of ethics at Cardozo who “is known as something of a conservative pit-bull chewing on contingency fee abuse,” has recently commented on the decision of Surrogate Judge Renee Roth who asked three law firms to justify their “contingency fees” for representing clients who collected from the September 11 fund as follows:
“Surrogate Court Judge Renee Roth’s decision to inquire into the reasonableness of contingency fees charged by three law firms for representing families before the September 11 Victim Compensation Fund is both perfectly appropriate and exceedingly rare. Surrogate court judges virtually never subject lawyers’ contingency fees to a determination of reasonableness. Instead they virtually always rubber stamp the fees irrespective of whether the risks borne by the lawyer justify the percentage of the recovery that the lawyer is charging. In most tort cases, lawyers charge a standard fee – one third of the recovery — irrespective of whether the representation involves any meaningful risk. But the ethical justification for a contingency fee is that the lawyers is taking a risk that there will be little or no recovery or that he or she will have to devote considerably more time to the representation than anticipated. Accordingly, charging a standard contingency fee in a matter where the lawyer knows at the outset that there will be a substantial settlement — given the seriousness of the injury, the amount of insurance coverage and the absence of any doubt as to liability — is unethical if not fraudulent. Nonetheless, it is a common practice for lawyers to do so and for courts and disciplinary authorities to ignore the clear ethical violations. Thus, it was a moment of rare candor when Judge Roth announced that since the September 11th Victim Compensation Fund was certain to make large awards, “for the lawyers involved in such a process, there was no contingency upon which to support a contingency–type fee.”
In determining the reasonableness of the fees in question, Judge Roth will be looking at whether there was any meaningful risk borne by the lawyers, the amount of the work that they did and whether the results achieved exceeded what most lawyers would have attained in these cases. A reasonable way for Judge Roth to proceed would be to determine a reasonable hourly rate fee for the actual work done by the lawyers. If Judge Roth then determines that the lawyer obtained a recovery that exceeded what would reasonably have been expected at the outset of the litigation, that is, added value to the claim by their efforts, then it would be appropriate to add to the hourly rate fee, a percentage in the 5-10% range of the value added by the lawyer. However, endorsing a percentage fee applied to the entire recovery would likely overcompensate the lawyers because that would include a premium for assuming risk though the process of securing a substantial portion of the award from the Fund involved no risk.
The operative principle that appears to apply to the applicability of rules of ethics to contingency fees is that the greater the fee, the less the applicability. Judge Roth’s decisions to apply ethical standards to determine the reasonableness of contingency fees is an act of judicial courage that stands in sharp contrast to the actions of most judges.”
13.17 Although it is difficult to predict where a more open market for the finance of valid claims would develop in relation to the price to be charged for capital in complex, trans-national litigation, the experience of the author is of some assistance. In a matter involving the pursuit of the restitutionary claims of approximately 800,000 largely elderly American victims of a telemarketing crime that took in an estimated US$240 million of illicit proceeds, the court-sanctioned price of 50% of the proceeds of recovery in return for the advance of in excess of US$4 million of cash and US$3.5 million of security to support a number of pre-emptive asset freezing orders, may act as a helpful guide to assessing where the market price for complex asset recovery capital might travel. 23
13.18 In addressing the vulnerability of a party to being taken unfair advantage of by a financier in connection with the finance of litigation, the analysis must be fact-driven. Obviously, Citibank as a victim of crime is in a different bargaining position than a group of 800,000 unrelated, under-capitalized elderly victims. The latter case would, in the authors’ view, require some form of court-sanctioned agreement for approval of the quantum of the fee to be paid to those who seek to advance the risk capital in the proceedings.
13.19 Agreements with third parties to finance litigation would be more warmly embraced by all who are involved in the administration of justice, if they were subjected to (i) full and fair disclosure to the court in advance as to the nature of the proposed financial arrangement, (ii) the scrutiny and prior approval of the court (to the extent that the relative bargaining positions of the parties require it), (iii) the consensual and open exposure on the part of the financier, to the extent of an agreed limit, to risk of loss for cross-undertakings in damages and adverse costs orders; and (iv) meaningful access to independent legal advice for the victim counter-party to the proposed agreement of finance. Having the court involved in the approval of such arrangements, where appropriate or necessary, would (a) create greater access to capital and lower the price thereof, as it would increase certainty in the lawfulness of the arrangements thus struck and (b) permit the court to be satisfied that it remains in control of its own process.
13.20 The remaining concern to be dealt with is the issue of ‘control’ over the strategic or tactical decisions that must be made during the prosecution of a plaintiff’s cause. This concern, as expressed, is that a third-party financier may be more inclined to wreak havoc on the judicial process through the inappropriate seizing of control through the aegis of a private bargain, in an attempt to improve the likelihood of success — at all costs. There are two responses to this concern. Firstly, the English law of champerty and maintenance is now such that the mere presence of a fear of the potential of an abuse of process by reason of the involvement of a third-party funder in litigation, does not represent an adequate basis for staying proceedings. A factual record must exist establishing a real likelihood of abuse to properly found an order to stay. Secondly, recognized principles of the economic analysis of law hold that a third-party investor of capital, as the party who is truly ‘at risk’, is more likely to behave rationally in the judicial process – than would a victim, driven by, in part, an emotional desire for retribution against the malefactor. This notion inverts the centuries-old assumption that third parties are more inclined to be miscreant litigants than plaintiffs or victims.
13.21 In recent years the English courts have been more willing to recognise the importance of third party funding in the overall interest in fostering access to justice. Indeed the most recent case in which the U.K. Court of Appeal was asked to consider the issue of imposing costs liability on a third party funder of litigation was decided in May of this year. In Arkin v Borchard Lines Ltd (Nos 2 and 3)24 a professional funder who financed the expert witness costs of a claimant's action pursuant to a non-champertous agreement was held liable for the successful defendants' costs to the extent of the funding provided.25
13.22 The House of Lords had considered the application of the discretion to award costs against non-parties in Aiden Shipping v Interbulk Ltd26 where Lord Goff made it clear that the legislation was intended to apply to parties and non-parties alike. The argument in favour of professional funders is that of access to justice where, the role of professional funders (or 'maintainer') was highlighted by Lord Denning MR in Hill v Archbold 27 who stated: ” This is perfectly justifiable ……..provided always that the one who supports the litigation, if it fails, pays the costs of the other side…” The dicta of Denning MR was adopted by Longmore J. in McFarlane v E.E. Caledonia Limited (No 2)28 where Longmore J. made a s51 order against a professional funder who stood to gain 12.5% of the recovery. The concept of liability of the professional funder is distinguished from the cases of charitable donation or pure funder e.g. the well known cases that include Hamilton v Al Fayed29 where Morland J.'s comments at first instance were taken up by the Court of Appeal: “..it would be very exceptional that a situation would arise where it would not be just and reasonable to make a s.51 order against a professional funder.”Neither is the case of the professional funder analogous to that of the illegal champerty and maintenance arrangements. One issue in relation to the liability or otherwise of a professional funder has concerned the question of the funder having 'control' of the litigation. However in Princo v Phillips 30 Pumfrey J. made a s51 order despite finding that there was no 'control' of the litigation by the professional funder. The reason for the differential in the pure / professional funder is that the professional funder has as it's sole objective the aim of a commercial recovery taken from the damages awarded to the claimant. In the case of Arkin v Borchard the professional funder, Managers and Processors of Claim Ltd (“MPC”),31 agreed with the claimant, Mr Arkin, that it would recover 25% of damages to £5million and thereafter 23%. On the figures submitted in evidence which were later revised and which included a claim for aggravated (i.e. punitive) damages MPC could, if the claim succeeded, have expected to recover several million pounds.
13.23 The Court of Appeal in Arkin v. Borchard allowed an appeal by the defendants from the judgment of Colman J.,32 that MPC who had partially funded the costs of the impecunious claimant Yekeshial Arkin, should not be ordered to pay the successful defendants' costs. The Court of Appeal also allowed Borchard's appeal against the judgment of Colman J.,33 to the extent of reducing their liability for costs incurred by successful Part 20 defendants whom they had joined in the proceedings.
13.24 Lord Phillips MR, delivering the judgment of the court, acknowledged that R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions 34 and Hamilton v Al Fayed (No 2)35 established that support of litigation furthered the important public policy objective of facilitating access to justice. The court referred to the summary of principles set out by Lord Brown of Eaton-under-Heywood in Dymocks Franchise Systems (NSW) Pty Ltd v Todd.36 The court concluded that while it was important to foster access to justice the trial judge was wrong not to give appropriate weight to the general rule that costs should normally follow the event. The court concluded that the existence and rationale of the rule rendered it unjust that a funder who purchased a stake in an action for a commercial motive should be protected from all liability for the costs of the opposing party if the funded party failed. A just solution had to be devised whereby a successful opponent was not denied all his costs while commercial funders who provided help to those seeking access to justice that they could not otherwise afford were not deterred by fear of disproportionate costs consequences if the litigation did not succeed. A commercial funder who financed part of the costs of litigation in a manner which facilitated access to justice and which was not otherwise objectionable should be potentially liable for the costs of the opposing party to the extent of the funding provided.
13.25 Without access to capital markets to provide for the funding of large-scale global asset recovery cases deriving from egregious forms of corruption, the reality is that there will be no prosecution of many such cases. Without access to money, there can be no meaningful access to justice for the man on the street — or for the victims of economic crime, alike. It is important that this area of the law be clarified, what exactly is the position of third party ‘pure funders’ in the context of adverse cost awards? What percentage of return is acceptable? These are all questions that must be answered clearly in order that the market for litigation funding is in a position to attract more players. At present there are not enough professional funders to make any meaningful impact upon the volume of cases that would benefit from access to capital for the purpose of prosecuting meritorious claims.
4.0 Sale of Shares in Litigation
14.1 In the United States it is possible to offer shares in litigation, this represents an additional method of funding a lawsuit, however its efficacy will depend very much on the nature and scale of the litigation in question. The legislation governing sale of shares generally also impacts upon the level of secrecy that may be necessitated in a complex asset concealment case, this is an important consideration to bear in mind in assessing the viability of this funding option.
4.2 A number of savings and loan institutions sold shares in litigation that was pursued against the Government of the United States in relation to its alleged breaches of contract resulting from the 1980’s savings and loan crisis.37 These securities were listed on the NASDAQ and known by various names including litigation tracking warrants, contingent payment rights, and contingent litigation recovery participation interests. In addition, recent years have seen the development of businesses that invest in litigation and of several investment firms that finance patent litigation. 38
14.3 An investment in a lawsuit is capable of falling within the broad concept of “investment contract,” under Securities Legislation in the U.S.,39 thus requiring the issuance of a prospectus. Bearing in mind the need for issue of a prospectus where securities are issued to the public,40 it is important to note the type of information which would necessarily be included and therefore made public. Factors that may be considered relevant to a third-party investor in determining the risks of a particular lawsuit and that would be required to allow for full, true and plain disclosure might include the following:
A description of the litigation, including a legal opinion on the strength of the causes of action and potential defences;
A description of the legal teams for the plaintiff and defendant, including their background, reputation and experience on similar cases;
A detailed break-down of the amount claimed;
A detailed break-down of the expected costs of the lawsuit, including legal fees and significant disbursements;
Details of how the investment funds will be used in the litigation and an estimate of the proceeds of the securities issue;
A description of the nature of the investment (equity or debt, rate of return, priority, and control features such as voting rights);
The length of time expected until final resolution; and • Underwriters’ and promoters’ fees.
14.4 Disclosure of this type of information however could be detrimental to the plaintiff’s case should an opponent get access to it. However, other parties engaged in the raising of public funds are also subject to disclosure requirements which may expose sensitive information to competitors. There is no reason to distinguish investor financed lawsuits from these ventures, given the investor protection mandate underlying securities regulation. Without prospectus disclosure, the theory is that some information would not be produced and it would be difficult for a market to accurately and efficiently price lawsuits.
15.0 Spoiled for Choice?
15.1 It will be apparent from the above that there are a considerable number of options available to a victim in pursuit of economic justice, in reality however not all will deliver the goods in a package that suits the occasion. The funding mechanism must be flexible enough to cover unforeseen eventualities such as a perverse judgment, expert witness fees, security for costs awards, cross undertakings in damages, and other facets of the costs inherent in litigation of this nature. Its cost should bear some relationship to the degree of risk involved, the conditions upon which the funding is provided should not compromise the victim or the litigation itself. There are many considerations that must be borne in mind when assessing the choices, this is a developing area and is therefore in a constant state of flux, what may be acceptable today may not be acceptable tomorrow. As with any litigation there is always an element of risk involved, however the risk of funding meritorious litigation should fall not on the impecunious victim but on the funder to the extent of the risk accepted and more importantly on the wrongdoer who is under an obligation to the victim at the outset.
Martin Kenney & Co.
1 There is a misconceived notion that buying unspecialised professional time will save costs, as after all one lawyer or investigator is as good as the next, right? Wrong! The number of hours that a non specialist will
2 Who is not under a disability, a bankrupt or a vexatious litigant.
3 Abraham v. Thomson  4 All E.R. 362 at 372, per Potter L.J. referring to Martell v. Consett Iron Co. Limited  1 All E.R. 481 and Grovewood Holdings Plc. v. James Capel & Co. Limited  4 All E.R. 417.
4 The most recent survey carried out by the Law Society of England & Wales on the use of conditional fee agreements (“CFAs”), in 2003, showed less than 25% of firms using CFAs as a charging method, and only 16% of those (or 4% of those surveyed) using them for commercial litigation work.
5 An exception is made for simple debt recovery work.
6(1993) TLR 11 November.
7SJ 16 June 1994, 587.
8  3 All ER 65.
9English solicitors may also earn a contingent fee in any foreign litigation where such fees are permitted.
10 Professor Lester Brickman of the Benjamin N. Cardozo School of Law in New York City, a leading critic of the substantially unregulated contingency fee model of compensating lawyers in the U.S., has argued that the quantum of such fees should be guided by what he has termed the ‘risk-proportionality principle’ – which holds that the measure of a contingency fee must be proportionate to the risk that the lawyer has embraced.
11 Although the writer suggests that it has also contributed to the United States’ record as the most litigious nation in the world – to an extent, contingency fees have promoted litigation which would be considered vexatious or frivolous in other jurisdictions.
12 See Solicitors Practice Rule 15.
The law of champerty and maintenance is a vast study in its own right, I do not propose to include an in-depth discussion of same within the four corners of this paper. Halsbury's Laws of England, 4th Edition gives the following definitions of maintenance and champerty:
13 “Maintenance may be defined as the giving of assistance or encouragement to one of the parties to litigation by a person who has neither an interest in the litigation nor any other motive recognized by the law as justified his interference. Champerty is a particular maintenance, namely maintenance of an action in consideration of the promise to give the maintainor a share in the proceeds of the subject matter of the action.” [emphasis added]
14 See, for
example, Camdex International Ltd v Bank of Zambia  3 All E.R. 431).
15 See, for example, Trendtex Trading v
Credit Suisse  A.C. 679).
16 See Glegg v Bromley  3 K.B. 474)” per Gibson LJ in Ward – v – Aitken & Ors.,  EWCA Civ. 689.
17 Per Toulson J. in Stoczina Gdanska SA v. Latvian Shipping Co. and others, (No.2), Queen’s Bench Division (Commercial Court),  3 All E.R. 822 at
18For example, much bankruptcy and insolvency legislation permits the sale, mortgage or pledge of assets of an insolvent estate, including claims for the purpose of financing or ‘selling’ the requisite litigation involved. Moreover, it is not uncommon for commercial lenders to provide loans to a litigant for the purpose of financing litigation on the basis that the fruits of a successful outcome provide the security. A relatively new entrant to the insolvency litigation market in the U.K. is the firm of Kingfisher Solvency Solutions which in effect takes an assignment of 100% of a claim from an insolvency practitioner without a down payment, in return for an agreement to prosecute that claim on behalf of the insolvency practitioner and ultimately share in the proceeds. This firm only pursues claims which do not fall a foul of the champerty prohibition (pursuant to the exception contained in the UK Insolvency Act 1986). Factors, participants in secondary markets of debt and the securitisation of future revenue streams all involve the formation and development of a market in claims in one form or another. The foregoing represent but a small sample of the types of third party finance of litigation which are currently taking place.
19 Stocznia Gdanska SA v. Latvian Shipping Company and others (No. 2)  3 All ER 822 at page 31.
20 For instance, a mining company will have an unfair bargaining advantage over a rural land owner of modest means in appreciating the speculative value to be accorded a nascent mineral find embedded in a geological formation deep under the surface of the earth. The formation of a private contract between the mining company and the rural land owner will be influenced by the parties’ respect bargaining positions, experience and knowledge. Unless the mining company can be construed as a fiduciary for the land owner; the land owner, in a free market, must be responsible for his own decisions. The landowner can seek to obtain independent legal advice in completing the formation of a private bargain with the mining company, in an attempt to protect his interests. In addition, the law of non est factum (a plea denying the validity of an instrument sued on); unconscionable bargains; contracts of adhesion; the rule of construction of contracts which resolve ambiguities in favour of the party who did not draw the instrument; the law of fraudulent or negligent misrepresentation; and other norms and doctrines exist to afford the party with a lesser bargaining position some protection.
21'Price' refers to the cost of finance – the amount of profit that the third-party financier will require in order to advance capital, and take risk in the litigation.
22 A.B.A.J. 28 (August 1997).
23 It is noted that the matter referred to, In the Matter of the Bankruptcy of James Blair Down et al (Supreme Court of British Columbia Docket Nos. 188266/7/8/VA ’98 (Vancouver Registry)), involved complex ‘concealed’ asset-preservation litigation by a court-appointed interim receiver, Arthur Andersen, Inc., in eight jurisdictions, including Switzerland, Guernsey, Jersey, the British Virgin Islands, Barbados and others; as well as extra-judicial investigations involving at least an additional 20 countries. In this matter, in excess of US$100 million of ‘protected’ assets were preserved in support of the claims of the victims for a period of 16 months. The fact that over $8 million of investor cash was made available to support this endeavour on commercially rational terms, as approved by the court, would suggest that it would be available in similar matters, particularly where a reform of the law of champerty and maintenance could be advanced to clarify the lawfulness of such arrangements.
24  EWCA Civ 655.
25 The civil system in the U.K. allows for the courts to have wide discretion in relation to the award of costs: “The court shall have full power to determine by whom and to what extent the costs are to be paid” (s51 (3) Supreme Court Act 1981).
26  AC 965.
27  1QB 686.
28  1WLR 367.
29 Hamilton v Al Fayed No 2  EWCA Civ 665.
30 (Lawtel Transcript 16.09.2003).
31 MPC's support under a contingent fee agreement had cost them over £1 3m. The defendants' costs amounted to nearly £6m.
32  1 Lloyd's Rep 88.
33  1 Lloyd's Rep 636.
34 (No 8)  QB 381.
35  QB 1175.
36  1 WLR 2807, at para 25
37 In one of such cases, Glendale (now owned by Citigroup) sued the United States for breach of a contract to honour goodwill as regulatory capital. The trial court awarded Glendale $381 million in 2002. That $381 million is the largest award by far in more than 100 goodwill contract breach cases filed in the Court of Federal Claims. Earlier this year Glendale’s petition for certiorari of the Court’s decision to the U.S.Supreme Court (Glendale sought damages substantially in excess of the amount awarded) was denied.
38 One such business, Refac Technologies, invests in disputed patent infringement ligitation and is listed on the American Stock Exchange.The courts have been reluctant to welcome Refac’s entry into the litigation system. In one case in which Refac financed litigation, the court imposed sanctions of over $200,000 on the basis that the appeal filed by Refac was frivolous.In another case where it was held that the litigation was frivolous, the court ordered Refac to pay $2.5 million for the defendants’ attorney fees.
39 Other jurisdictions have similar concepts of ‘investment contracts’, including Canada. Indeed the failure of a Society established to organize and promote class action law suits, to issue a prospectus in respect of the sale of its ‘shares in litigation’ was arguably one of the factors which influenced a Canadian court in declaring its conduct improper. (Smith v. Canadian Tire Acceptance Ltd).
40While there are certain exemptions from disclosure requirements, such as for example for certain institutions, smaller offerings etc., it is not within the ambit of this paper to discuss these exemptions.