The rise of risk management

Litigation | 10 July 2018

Large businesses today operate in a challenging and uncertain environment. The geopolitical landscape continues to shift in unpredictable ways with, for example, the political, regulatory and economic ramifications of the Brexit vote and the Trump presidency still largely to play out. Stock markets have started to experience jitters following the second-longest bull run in history, while growth in many economies and for many organisations stubbornly refuses to reach pre-financial crisis levels.
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The role of Litigation PR both outside and inside the courtroom

Litigation | 06 July 2018

The asymmetric approach

King Pyrrhus of Epirus famously said: “If we are victorious in one more battle with the Romans, we shall be utterly ruined.” He was talking in 279 BC about the large number of soldiers he had lost in the battle of Asculum, but today he could just as easily have been referring to the high cost of litigation, or the pitfalls of winning the legal battle inside the courtroom at the expense of losing the communications war outside it.

Your client’s reputation may be more valuable than the matter you are litigating over, or at least the other side’s reputation may be. So winning in the court of public opinion is just as important, and sometimes even more so, than winning in the courtroom. But the courtroom and the outside world are connected for two important reasons. Firstly, because, as Lord Chief Justice Hewart said in 1924, in his appeal judgment in R v Sussex Justices, Ex parte McCarthy, it is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done.”; and secondly because judges and jurors, no matter how impartial, urbane and sophisticated they may be, do not in reality sit in a vacuum, but ride the Clapham omnibus of popular culture to a greater or lesser extent, whether they like it or not.

In other words, there are two conversations going on: one inside the courtroom to persuade the judge, and the other outside the courtroom to persuade the public. But the reality is that these two conversations are linked. Not only to the extent that they make the same arguments in different ways, but also because one cannot help but inform the other.

This means that you need to develop your PR strategy alongside your legal strategy, from the outset.  In the most extreme circumstances, your PR strategy might dictate that you should not litigate, no matter how good your case, because of the balance between the possible legal gain and the certain reputational risks involved for your client. At the other end of the scale, your PR strategy might dictate that you bring a particular case, in a particular jurisdiction, which you might not otherwise have brought, because of how that case will play in your overall strategy, and how that will set up both the legal and public narrative for other current and future cases. Or there will be times when you consider a legal case to be too weak, complex, costly, slow or unrewarding for your client, but where the reputational concerns of the other side mean that a carefully orchestrated settlement PR campaign, threatening to litigate, can bring the other side to make a settlement offer to your client.  And when it comes to Group Actions, it is often not possible to bring or manage the legal claim at all without a strong litigation PR campaign recruiting and keeping informed the corporates or consumers involved.

This asymmetric approach to litigation and PR is particularly key in complex, cross-border international commercial litigation, but its deployment in any case can often mean the difference between success and failure for your client, both inside and outside the courtroom.

When to comment

As Sun Tzu said in ‘The Art of War’: “Attack is the secret of defence; defence is the planning of an attack.” The decision whether to be reactive or proactive in your litigation PR strategy is to a great extent a false one in practice. For example, you may decide to keep quiet unless the other side goes on the PR offensive. But all good journalists seek balance in their stories as far as possible, and in particular like to get the view of the other side of a case, as well as encouraging rebuttal comments from those who will be criticised, so you will get an early warning of the impending attack when you or your client are asked to comment. Then you can deploy the full force of your carefully prepared reactive PR strategy, preemptively turning the fire of the attack back on your opponent, either killing their article or shaping it to your own messaging.

Sometimes no comment at all really is the best comment, but usually only when you are either losing hard or winning big. But these can also be the best times to get on the front foot, by getting to the real or metaphorical microphone first and shaping the news agenda to fit your narrative.

Contrary to popular belief, there is wide latitude to comment on active public court cases. The strict liability rule in Section 1 of the Contempt of Court Act 1981 “applies only to a publication which creates a substantial risk that the course of justice in the proceedings in question will be seriously impeded or prejudiced”, and “only if the proceedings in question are active at the time of the publication”. And “a person is not guilty of contempt of court under the strict liability rule in respect of a fair and accurate report of legal proceedings held in public, published contemporaneously and in good faith”. Furthermore, “a publication made as or as part of a discussion in good faith of public affairs or other matters of general public interest is not to be treated as a contempt of court under the strict liability rule if the risk of impediment or prejudice to particular legal proceedings is merely incidental to the discussion.”

As with so many things in today’s world, speed is key. A pithy comment on a judgment will often go far and wide if it is given within minutes of the judgment being handed down. An hour’s delay and the other side will have beaten you to it, or the story will have been written, or in high-profile cases social media may have already gone off-message. Get out ahead and stay ahead in the mainstream media, and monitor it and social media closely, correcting misinformation where the readership and influence of any publication requires it.

The essential ability to act quickly requires briefing your litigation PR agency on the details of the litigation well in advance of the hearing, and having them brief the press as far as possible in advance. Briefing packs setting out the history and background to the case can be created and distributed, provided that these stick to publicly available information, such as background information about the parties and a summary of judgments from analogous cases or previous litigation between the parties. It is also useful to agree key messages and prepare on the record comments in advance for win, lose and draw outcomes. Your PR should also invite key journalists to the hearing and sit discreetly in the back row of the courtroom with journalists, ready to brief them further on background, as well as on the key points which reinforce your messages from their own contemporaneous notes of what was said in the proceedings. You should also ensure that transcriptions of the hearing are provided to your key journalists as soon as possible on the day of the hearing, together with the key highlights and quotes for your case. To have the best possible control over this situation, your PR strategy can and often should inform the tone and order of your pleadings, and even your choice of advocate.

Beyond this, PR can also assist with witness selection and preparation, as well as the strategic development of private investigations and thought-leadership campaigns, which can be deployed and promoted to shape public opinion.

What to say

 Mark Twain said you should “Never let the truth get in the way of a good story.” That is true, but you should also never lie, especially to a journalist. So, tell the truth and weave it into a good narrative. As well as being accurate and informative, the media also needs to entertain. Even the most complex international commercial disputes need to be simplified to the extreme in order for a clear message to be produced to achieve cut-through. Keep it simple, and make sure your story arc is topical and that your messages will resonate with both the public and your client’s stakeholders.

In the event that a hearing goes badly, litigation PR can strategically shift the focus away from what went wrong on the day, towards the positives and the prospect of an appeal. Even if the appeal never materialises, its prospect on the day creates a positive focus for your client.

As Shakespeare said in Act II of Hamlet: “Since brevity is the soul of wit and tediousness the limbs and outward flourishes, I will be brief…”. You should be brief and to the point, use word pictures where possible, be statesmanlike, consider alliteration or the use of aphorisms, be interesting, and say something different.

As well as putting a strong, clear argument forward, consider introducing other voices where these are aligned with your client’s. Multiple sources will help to validate your messages. Also create broad appeal by talking about principles of law as far as possible, rather than the minutiae of the particulars of your case.

In considering what you say, consider the legacy digital footprint you will be leaving on search engines. Hard copy is tomorrow’s fish and chip paper, but online lives forever, and increasingly everything starts with a Google search.

Sometimes you will need to get inaccurate articles or broadcast items amended or removed. In this your litigation PR team should keep friendly with journalists, but keep defamation lawyers in the background and on hand. IPSO rulings take a long time and defamation suits take even longer and are hard to win significant damages from, meanwhile the offending publication often remains live. So your quickest and only really practical and effective remedy is immediate and from the publication itself, by persuading the journalist or their editor that there is factual error or genuine imbalance in the article.  Journalists will normally be prepared to rapidly correct errors of fact in online articles, and add antidote quotes into published articles where appropriate for balance, fairness and accuracy, provided these are drafted and requested in the right way and do not go further than is strictly necessary.

Integration is key

With the high stakes of litigation, it is vital that a bond of trust is developed between the legal team and the litigation PR team. Often pure legal advice is at odds with pure PR advice, so in order to optimise the outcome for clients, litigators increasingly need a good feel for the balance between the priorities of the law and reputation management, just as specialist litigation PR experts must understand the legal reporting restrictions, the fine details of the case, and the client’s wider objectives. The client, legal and PR teams need to work very closely with each other, both at the planning and execution stages. Thorough planning and preparation is key, including preparing quote books in advance, as your plan will sometimes need to be executed in the heat of battle, where speed and precision are vital in order to take and keep control of the narrative.

Only by PR and legal working hand in hand will you win both the legal battle and the reputation war. And the reality is that winning the reputation war will help you win the legal battle.

Contributing Firm

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Litigation Finance: Key Trends and Opportunities

Litigation | 06 July 2018

Much of the commentary about litigation finance focuses on its growth—and it has indeed grown. An overwhelming majority—70 percent—of private practice and in-house lawyers in the UK say that their organisations’ use of litigation finance has increased in the last two years, according to the 2017 Litigation Finance Survey.

More interesting than where litigation finance has come from, however, is where it is going. The ongoing evolution of legal finance reflects many of the persistent pressure points and perennial conflicts in the business of law.

Below we have identified five trends in litigation finance—and what it means for litigation teams and law firms in the years to come.

As the UK defends its leading dispute resolution centre title, litigation finance will be a key tool

With Brexit negotiations ongoing and the threat of adverse costs exposure serving as a deterrent to potential claimants, the UK legal market faces competition as other European dispute centres increasingly attract litigation that once would have been pursued in London without a second thought.

The UK currently employs almost a quarter of all the legal workers in the EU and the rule of law remains one of the nation’s most respected exports. Two thirds of the cases fought in London’s commercial court are brought by foreign litigants, the majority of whom are non-EU parties. London’s role as the financial centre of the world is highly publicised, but its role as a truly international dispute centre cannot be understated.

With uncertainty now surrounding the UK’s jurisdiction in Europe under the Brussels I Regulation, however, Frankfurt, Paris, Amsterdam, Brussels and other European courts have taken steps to attract litigation that previously would have been pursued in London, adopting English legal practices, offering proceedings in English and opening international courts. Frankfurt considers its own courts to be cheaper and faster, because written briefs are used as opposed to London’s mandatory oral briefs, which contribute both to the cost and time of litigation. To further attract potential claimants, Frankfurt also is contemplating more extensive court transcripts and a stronger role for lawyers.

In addition to the question of jurisdiction, London faces another considerable challenge in its fight to maintain its position as a leading disputes centre: adverse costs exposure. In competition and class action-style cases with multiple deep-pocketed corporate defendants, the cost of pursuing litigation is already a concern. Meanwhile, the potential for adverse costs further deters would-be claimants.

It’s one thing to not win damages in your case, but an entirely different matter to have to pay the other side’s costs as well, as this can multiply potential exposure from litigation three-, four- or five-fold. The adverse costs risk in the London commercial courts has far outstripped inflationary increases in the last ten years. As just one example, in the RBS Rights Issue litigation, RBS’s costs estimate for the liability phase was £90 million. Whilst that is a truly exceptional number, £5 million for the costs of a defendant to trial is by no means unusual.

To remain ahead, London therefore must develop strategies to address costs concerns for would-be claimants—and external financing offers one potential solution. Burford recently announced an offering designed to meet a need in the marketplace for the significant level of adverse costs coverage that is required to protect claimants’ exposure in the UK. To address adverse costs risk in commercial litigation and arbitration, Burford will offer insurance on Burford-funded matters.

Legal finance can offer relief from this extraordinary exposure insofar as a third party assumes the downside risk in the event of a commercial litigation loss. However, it takes a very well capitalised litigation finance business with significant risk tolerance to handle this degree of risk and also provide cover for costs, meaning claimants will have to do their homework before going ahead.

Portfolio financing will help legal teams move costs off balance sheets and improve accounting outcomes

Finance provided on a portfolio basis—which follows the model of single-case litigation finance but with financing collateralised by a pool of multiple matters—is increasingly popular. A particularly telling number in Burford’s 2017 Annual Report is that: over half (63%) of current committed capital is invested in portfolio arrangements. We anticipate interest in the portfolio approach to continue growing as legal teams increasingly embrace it as a tool to move legal costs off balance sheets and address perennial C-suite complaints about litigation spending.

A case study exemplifies this trend. A FTSE 20 company traditionally paid for litigation out-of-pocket—and suffered negative accounting consequences as a result. Without financing, litigation was impairing its financial performance because the accounting rules regarding treatment of litigation expenses and awards. Legal expenses paid by the company were immediately recorded as expenses, thus reducing its earnings. Exacerbating the situation, litigation recoveries were recorded “below the line” as non-recurring or extraordinary items. That was problematic for the large corporate—as it is for many businesses, particularly for EBITDA-based businesses. The accounting result of a successful claim may result in a permanent reduction in EBITDA, because legal expenses reduce EBITDA, but recoveries do not increase it. By self-financing its litigation, the FTSE 20 company was reducing its operating profits, and hence sought a solution that would help take legal costs off its balance sheet.

Litigation finance provided the solution in the form of a £40 million financing arrangement backed by a portfolio of pending litigation matters. This transformed how the multinational subsequently managed litigation expense and provided multiple corporate benefits. Not only did the company have the flexibility to use third-party capital either to relieve legal expense budget pressure or for corporate purposes unrelated to the litigation matters, but because the capital was provided on a non-recourse basis, the corporate was entitled to book it as income received, without waiting for the result of the underlying litigation matters.

As this case study suggests, the portfolio approach to litigation finance offers corporate clients many advantages. One of these advantages is a lower cost of capital: Because risk is diversified across multiple claims, financing is less expensive. In addition, portfolio financing is inherently flexible: Capital can be used to finance matters within the portfolio or for broader business purposes.

Taking that approach to financing on a portfolio basis can enable companies to reinvent their legal departments and budgets, transforming the impact of meritorious litigation from revenue-destroying to profit-enhancing—and that is an area that will undoubtedly drive increased innovation and pickup of litigation finance in the years ahead.

Law firms will use litigation finance to change the subject from alternative fees and discounts

Even a decade after the recession, law remains a buyers’ market, and “alternative fee arrangements” have become the norm—whether that means discounted fees, fixed fees, capped fees or the deferral of fees until success. According to the Georgetown Law Centre for the Study of the Legal Profession 2017 Report on the State of the Legal Market, alternative fee arrangements combined with budget-based pricing “may well account for 80 or 90 percent of all revenues” at many firms.

As the head of global disputes for an international law firm commented in the 2016 Litigation Finance Survey, “The legal departments are under pressure. The firms are under pressure… Anything that can relieve that tension is a good thing. Litigation finance… takes the law firm out of the firing line.”

It’s understandable then why law firms should welcome this shift. Law firms are understandably exhausted by unrelenting pressure to defer payment, discount fees, or arguably worse, engage in race-to-the-bottom competitive bids. And because of their cash partnership structure, even firms that provide conditional or contingent arrangements lack the structure to assume an unlimited amount of client risk. They need a way to bridge that gap and “take the law firm out of the firing line.”

For law firm clients, too, alternative fee arrangements can lead to unintended consequences. For example, if a lawyer is good enough to have continued demand for his or her services, pushing compensation levels below the market will result either in that lawyer not wanting the client’s work, or cutting corners performing it. It’s great to be ferocious when it comes to law firm negotiations, but it is generally short sighted if it costs the result in the case. For commodity legal work it might be fine, but not when confronted with more idiosyncratic, business-critical litigation.

Litigation finance can give firms a better way of keeping the focus on providing clients with top tier service. That may mean talking to a client about third-party financing options for a particular piece of high-stakes litigation, or seeking portfolio financing for the firm that will then benefit the client.

Another case study illustrates this point. A leading law firm wanted to expand its litigation practice, offer more aggressive alternative fees to clients and receive the additional upside for taking risk, but could not take additional alternative fee risk onto its balance sheet. A £45 million going-forward portfolio was created to address this challenge. The portfolio was designed to finance five or more potential matters that would be placed into the portfolio as new case opportunities arose. The assurance of having financing available for future matters gave the firm a competitive advantage over other top firms offering alternative fee options and ensured the firm would not have to turn down a strong case or new client simply because the firm could not absorb additional risk. As a result of this flexible portfolio arrangement, the firm was able to expand its practice and increase its opportunity to earn highly profitable success fees, while limiting its exposure to a loss of its time and out-of-pocket cash investment.

Clients will seek new ways to finance defence matters

While defending a claim is every bit as vital to business growth and survival as bringing a claim, given the choice, any company would prefer to invest in business-advancing endeavours. And yet, because misconceptions about the role that litigation finance can play on the defence side persist, these matters are often overlooked as potential candidates for financing.

In its simplest form, a litigation finance provider advances capital needed to pay lawyers’ fees and other costs related to a case. In return, the funder receives a negotiated return if and when the case is successful. In a defence context, this means the litigation finance firm advances costs to defend against weak claims in exchange for a multiplier or uplift based on predefined success, and cases can run on full or partial CFAs, as well as DBAs, or indeed a combination of these.

Defence financing is ideally suited to the portfolio-based approach described above—and therefore companies with significant litigation portfolios are ideal candidates for this form of financing.

How does it work? Most corporations have at least a few high-value affirmative litigation matters (large commercial disputes with counterparties, patent enforcement cases, financial products disputes, etc.). In essence, clients secure financing to pay for all or partial fees and expenses across a pool of cases—with these affirmative plaintiff cases offsetting the cost of their defence dockets.

The appeal of defence funding within a portfolio is clear for businesses that want to mitigate risk and cost across a range of cases. As one example, Burford helped Grant Thornton, a leading professional services company, use portfolio financing for defensive matters. Insolvent estates often need to secure financing to manage and maximise the value of their claims, but complex insolvencies are not always good fits for simple case financing. Burford provided a £9 million facility backed by one insolvent estate’s litigation portfolio, enabling Grant Thornton to finance all costs of the bankruptcy estate, including defence costs, declaratory matters, administration costs, IP fees and expenses.

While defence matters are most commonly funded as part of a larger portfolio, the economics can also work on a single-case basis and can help level the playing field when resources are asymmetrical. For example, when cash-strapped start-up ShaveLogic sought a means of financing its defence against the world’s largest razor company, Burford provided the resources ShaveLogic needed to mount a vigorous defence as well as to pursue its counter claims on a non-recourse basis. Under the terms of the agreement, Burford would earn its investment back and a return from a combination of a settlement, if any, and/or future razor sales.

Law firms and clients will increasingly use finance at any stage, even after the successful resolution of a matter

The scenario out of which a typical, single-case funding arrangement arises is likely a familiar one: A client is unwilling or unable to pay a firm’s hourly rate, but the law firm’s business model can’t support an alternative fee arrangement. The firm may then work with a litigation finance provider to secure non-recourse capital to cover ongoing legal costs—bridging the financial gap between client and firm, while moving the risk from the firm to the funder.

While financing pre-settlement commercial litigation and arbitration matters remains a cornerstone of legal finance (both on a single-case and portfolio basis), financing can also address the problems law firms and their clients may face even after the successful resolution of a case.

When settlements are subject to court approval or other claim administrative processes, legal fees and awards can be delayed for years. That can cause frustration for both clients and law firms—which have better uses and more immediate needs for their capital.

Non-recourse financing from Burford helps claimants and law firms avoid this problem and—instead of waiting for compensation–speeding receipt of fees and awards by immediately monetising these outstanding legal assets.

Post-settlement financing enables law firms to monetise completed litigation and client work as early as possible. This helps them lower their contingent risk on fees and also reduces their exposure to variables outside of the firm’s control, like unanticipated delays in the litigation process, uncertain claims requirements, and clients’ financial health. Clients can use financing to accelerate their receipt of settlement payments. Instead of expending years of additional effort and ongoing cost and risk to collect their due, clients can monetise their legal assets and begin using capital immediately.

Law firm capital needs don’t follow a court schedule. Litigation finance provides a tool that can help clients and law firms monetise their legal assets and optimise their cash flow at every stage. And with over $3.3 billion invested in and available for legal finance, Burford is well positioned to help throughout the process, from pre- to post-settlement.

Absence of a fire safety permit – an unlikely cause derailing Romanian M&A transactions

Mergers and Acquisitions | 06 July 2018

A considerable number of buildings in Romania operate without a fire safety permit. While this has been treated in the past as a minor issue, a night club fire in 2015 changed both the approach of the authorities and public perception. Currently, M&A buyers are reluctant to acquire facilities that do not hold a fire safety permit. However, the regulatory risk is not as high as usually perceived and there are options to mitigate it without derailing an M&A deal. [Continue Reading]

The big picture – the key economic factors and what they mean for investment and risk

Mergers and Acquisitions | 06 July 2018

Speaking to clients, in-house general counsel and those in industry, while all are concerned about the deal that may be struck around Brexit, many have to deal with other uncertainties existing in the current market. The exit negotiations of the UK from the EU are still subject to many turns before, and arguably if, any deal is progressed by March 2019 and that has important implications for key Scottish industries such as financial services, manufacturing, agriculture, fisheries and more widely, the marine and food and drink sectors.

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M&A impacts of recent antitrust focus on pre-closing integration

Mergers and Acquisitions | 06 July 2018

In recent years there have been markedly increased levels of scrutiny from regulators over the sharing of sensitive information between competitors in the process of mergers, takeovers, and other corporate transactions. As a result, M&A deal teams are increasingly turning to clean-team arrangements to ensure that a competing business purchaser can review competitively sensitive data during its due diligence, while addressing ‘gun-jumping’ rules and competition law concerns.

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Shareholder activism – new tactics, new players and a change in tone

Mergers and Acquisitions | 06 July 2018

Shareholder activism continues to grow in the UK as it does globally, both in terms of capital deployed and the publicity it attracts. While shareholder activism is not a new concept in the UK, the type of investors involved in activist campaigns, the companies that they are targeting, the tools that activists are using and the outcomes that they are seeking to achieve have evolved over recent years. The more typical response of the board of a company that is targeted has also changed reflecting a change in tone and approach away from straight defence tactics alone, and towards that of ‘board preparedness’ and ‘constructive engagement’. [Continue Reading]

Stock-for-stock transactions by Japanese companies – what you need to know

Mergers and Acquisitions | 06 July 2018

It has been uncommon for Japanese companies to use their own stock as a form of acquisition consideration, mainly because the Companies Act in Japan has restrictions on these transactions. However, changes to the law will relax these restrictions and expand opportunities for Japanese companies to use their stock as acquisition consideration. Given that Takeda Pharmaceutical Co recently announced a plan to acquire Shire plc for cash and stock, it is a good time to consider the current and future environment for stock-for-stock transactions by Japanese companies. [Continue Reading]

Act early to engage with Brexit uncertainty

Brexit | 06 July 2018

You only need to dip into the news each day to appreciate that there remains an enormous amount of uncertainty around almost every aspect of Brexit. Not only is the UK negotiating with the EU it is doing so against the backdrop of political infighting within both the Conservative party itself and across the political spectrum. However we do know a few things and just to summarise these: [Continue Reading]