Erso Capital Co-founder, Matthew Amey was quoted extensively in the below article from The Times exploring the US Chamber of Commerce efforts to shape the EU funding landscape.


Row over US push for tighter litigation funding rules

Original publication date: Thursday, October 21 2021, 12.01 am

Publication: The Times

Article link (subscription required): Here

Tatiana Akhmedova used litigation funding to try to recover assets including her oligarch ex-husband’s superyacht, Luna

Analysts at the legal reform branch of the US Chamber of Commerce can be relied on to bash the growing litigation funding business — and a few weeks ago they were in top form.

Perhaps having given up on the UK, where third-party funding has been growing significantly over the past five years, the Americans are focusing on Europe, maybe assuming that warnings of an Anglo-Saxon-style litigation frenzy will resonate on the Continent.

According to a chamber survey published last month, “the vast majority” of EU consumers “want safeguards if third-party litigation funding is allowed”, the researchers say. Litigation funding companies back claims for a share of the damages awards in cases that they win.

The findings of a survey of more than 5,000 consumers in France, Germany, the Netherlands, Poland and Spain showed that between 77 and 79 per cent backed a range of positions, including that funders should have a fiduciary duty to put the best interests of claimants over their investment interests; that they should be legally obliged not to withdraw funding before the case is concluded; and that funding agreements should be subject to an independent review to ensure they are not written unfairly in favour of the financial backers.

The survey found that consumers in those five EU jurisdictions wanted litigation-funding companies to be accountable to pay costs that arise during legal proceedings when their sides lose and for limitations to be placed on the fees that funders can charge if the party they are backing wins or settles.

According to the researchers, only a third of EU consumers surveyed said that funding companies should be allowed to regulate themselves through the type of code of conduct operated by the Association of Litigation Funders in the UK.

“EU consumers said loud and clear [that] allowing funders to self-regulate isn’t enough to protect their lawsuit system from abuse,” Scévole de Cazotte says of the chamber’s Institute for Legal Reform. He adds that EU consumers “want the government to enact strong protections that put consumers’ interests first, not the funders. The European parliament has the chance to be a leader in the effort to bring transparency and oversight to the secretive third-party litigation-funding industry.”

The US organisation’s lobbying on this point is not new — it has been pressing for tighter controls on UK and EU litigation funding for the best part of the past decade. And Christopher Bogart, the chief executive of Burford Capital — the largest funder in the world and the backer of the high-profile divorce award enforcement tussle between Tatiana Akhmedova and her oligarch ex-husband Farkhad Akhmedov — is sceptical of the chamber’s motivations and the research results.

“You need to ask why the US Chamber of Commerce — a US business lobby group — is worrying about European consumers,” Bogart says “It is certainly not out of a concern for their wellbeing; the chamber is solidly anti-consumer, and anti-litigation.”

Warming to his theme, Bogart argues that the chamber “is a relentlessly pro-big-business group that stands for limiting litigation and consumers’ rights of redress”. And he points out that the last time the organisation commissioned similar research was three years ago as part of its opposition to Europe’s collective redress scheme, which the EU nonetheless implemented.

Matthew Amey, a director of the litigation-funding business Erso Capital, is less inflammatory but still critical of the chamber’s position. “We are not opposed to regulation or greater safeguarding measures as a matter of principle,” he says. “But the EU and national lawmakers need to be careful not to draft impractical and potentially quite draconian rules based on research funded by the US Chamber of Commerce, which, apart from being openly anti-litigation funding, is not a body one suspects automatically acts in the interests of EU consumers.”

Amey maintains that, for litigation funding to become an accepted and useful tool in expanding access to justice for consumers, there needs to be confidence in the market participants. “But the market itself will only exist if its participants are not overburdened with unreasonable levels of regulation and unlimited exposure to risk.”

There appears to be no shortage of those willing to jump into that market in the UK. Last month Mishcon de Reya, a London law firm that is aiming to float on the stock market, announced plans to launch a funding unit with Harbour, an established player. At the time Martin Tonnby, Harbour’s chief executive, said that the move illustrated “continued growth in the demand for litigation funding”. And Amey says that the move is an example of how “innovation in litigation portfolio structuring has only just started”.

But he warns that “law firms should not rush too quickly to replicate first movers without considering their own portfolio. There is a lot of capital in the market and different ways to structure such arrangements.”

A big concern about third-party litigation funding — and one repeatedly highlighted by the US chamber — is that the deals create conflicts of interest with the potential of funders being put at odds with clients over when a claimant should or should not settle.

“From the client perspective,” Amey says, “if [funding deals with law firms] improve efficiency and value without creating conflicts or other moral hazards, then it should be welcomed.” But he adds that “such arrangements will not be appropriate for certain dispute resolution teams, and for such a facility to work, it’s important law firms are realistic in their ability to deploy the funder’s capital in qualifying cases”.