1. Update from John Byrne and Neil Purslow, Co-Founders, Therium Capital Management
We are delighted to have announced the first close of our new £300 million fund dedicated to funding litigation and arbitration, of which more below. The investment comes from our existing major investors and new institutional investors and is in response to the high demand for our services across the world. Notably, the fund raise drew interest from an increasing range of investors, institutional investors in particular who are attracted by the returns and long-term potential of litigation funding as an asset class.
To date Therium has funded claims with a total value of £26 billion, including many of the largest and most high profile cases in the UK. Our growth also continues at a high level across our all of our international offices – in the US, Germany, Italy, Spain and Scandinavia, and in other jurisdictions where we are looking at establishing a presence.
We are very pleased to have recently welcomed Jeunesse Edwards, Elly Brindle and William H. Weisman as investment officers to our London and New York offices. Jeunesse joined from another litigation funder, where she was Director of Strategic Engagement in London, responsible for sourcing cases and conducting due diligence on potential matters. Will came from Liberty International Underwriters, Inc., where he oversaw high exposure litigation matters on behalf of the company’s Directors & Officers insurance business.
Suffice to say, we are very excited about the opportunities ahead. Many thanks, as ever, for your interest in Therium and we would like to extend our gratitude to James Oldnall at Mishcon de Reya for being our ‘In the spotlight’ guest and for sharing his insights into the cases to watch this year.
Thank you for taking the time to read our update, and a special thanks to Mark Humphries at Humphries Kerstetter LLP for being our ‘In the spotlight’ guest.
2. Therium completes first close of new £300 million fund from global institutional investors
Jersey, Channel Islands, 14 February, 2018 Therium Group Holdings Limited, a leading global provider of litigation finance, today announced that it has completed the first close of its new £300 million fund dedicated to litigation finance. The first close is at £200 million with a further £100 million expected before final close. This will be Therium’s largest fund.
The investors include both Therium’s existing major investor, which is increasing its commitment, and the introduction of selected global institutional investors who have the scale to grow with the firm.
John Byrne, Co-Founder and CEO of Therium Capital Management Limited, said: “We are delighted to announce the first close of our largest fund, which marks a further milestone in Therium’s growth story. The track record of deployment and returns from our past funds have led to a substantial and increasing interest in Therium from a wide range of investors, especially institutional investors, and we continue to see very significant growth potential in litigation funding, globally. We are delighted to work with some of the largest and most sophisticated global investors and we welcome them as our partners in the continued development of the firm and the asset class.”
The new fund follows Therium’s £200 million fund raised in April 2015, which at the time was the largest single investment in the litigation funding sector, as well as several minor fundraises totaling £55 million.
Strong demand for Therium’s litigation finance offerings has meant that Therium deployed the £200 million raise more quickly than expected, allowing the firm to return to investors earlier than originally planned. The previous fund backed high profile cases including the shareholder group claim against Lloyds Banking Group and several former directors for the acquisition of HBOS in 2008; the cartel action for the Road Haulage Association against several truck manufacturers; PCP Capital Partners’ claim against Barclays related to a $3 billion loan to Qatar in 2008; a group claim against Visa and MasterCard relating to interchange fees; the emissions litigation in the UK against Volkswagen for over 45,000 car owners; the claim for iPhone users against Google, Inc. relating to the ‘Safari Workaround’; and most recently Noel Edmonds’ claim against Lloyds Banking Group in relation to the HBOS Reading scandal.
Neil Purslow, Co-Founder and Chief Investment Officer of Therium Capital Management Limited, said: “Demand for litigation funding from Therium since we launched our last major fund has exceeded our expectations and we have transformed the scale of our operations over the past few years in order to meet that demand. Over that period, Therium has enjoyed an unprecedented scale of opportunity in funding single cases in all of our markets. At the same time, we have innovated with portfolio products for law firms and corporates and with the acquisition of claims, judgments and awards. Our new investor base provides the platform that we need to be able to deliver all of these products to our clients, and we are excited to be partnering with them in this rapidly developing space.”
Therium will use the new funds to continue to invest in litigation cases globally across its core sectors of financial services, energy and mining, and technology, media and entertainment, and across all forms of commercial litigation and arbitration. Therium invests in a broad range of complex commercial disputes, from securities and shareholder actions, international arbitration, competition and anti-trust cases, through to intellectual property, insolvency and group and class actions. The new fund is expected to be deployed within two years.
Since April 2015, Therium has expanded its operations significantly, with teams launching in the USA, Spain, Norway and Germany.
Therium was advised on the establishment of its new fund by Haitong Securities, Simmons & Simmons, Ogier and Seward & Kissel LLP.
3. Taking advantage of group litigation offerings
By Neil Purslow, Co-Founder, Therium Capital Management
Corporate clients are of course no strangers to litigation. Listening to in-house counsel talk about how they approach litigation, they will often regard it as an inevitable, if undesirable, by-product of doing business. When it arises out of their core business activity, and particularly for large organisations – banks and insurance companies, for instance – they will frequently regard themselves as sophisticated users of the litigation or arbitration process. In run-of-the-mill cases for which they budget and, where necessary, appropriately reserve, they will typically consider that they and their advisers are well placed to understand and manage the risks. Not all litigation claims of course fall within this category and from time to time businesses will be drawn into one-off disputes, often as defendant, but on those they are likely to have no (or little) choice but to engage.
There is, however, a third category of claims, which are neither run-of-the-mill nor so significant as to be unavoidable, where in-house counsel have a choice whether or not to get involved. Competition damages claims are a good example. A company may have suffered as a result of anti-competitive activity, and may have a good claim, but pursuit of the claim is not a business priority and certainly not one which would justify diverting scarce resources away from core activities. This will be exacerbated where the costs involved may compare unfavourably against the losses suffered by that individual claimant. The natural tendency on the part of in-house counsel in such cases will often be to conserve resources to support business-critical activities and to leave the value of such claims on the table.
This reluctance to invest in realising the value of claims is unsurprising given the way that the cost and value of litigation claims are accounted for. Broadly speaking, companies will treat the costs of litigation as an expense in the year in which it is incurred. This will drive up expenses as the costs are incurred and correspondingly drive down profitability.
At the same time, the company will be unable to reflect the value of unrealised claims in their balance sheet. So, while the company’s cash decreases, the litigation asset in which the company is investing has no corresponding value on the balance sheet. This gives a worst-of-all-worlds outcome while the case is ongoing.
The company takes an ongoing hit to its profitability which will be reflected (possibly many times over) in the company’s share price (if that reflects a methodology referencing profit), while the company’s net assets are reduced by the expenditure without reflecting any value for the asset being realised. Even should the claim conclude successfully (and there is of course no guarantee of that), the revenue is likely to be regarded as a one-off item not included in gross profit and therefore may be stripped out by analysts in their assessment of the company’s underlying profitability for valuation purposes. Any in-house counsel considering allocating resources to pursuing a claim will therefore have to consider whether the future benefit from the claim outweighs the negative impact of tying up cash, the drain on management time and also the drag on the company’s perceived financial performance for the life of the case.
In recent years, however, in the UK, we have seen offerings to corporates which ameliorate these effects through the use of litigation funding and adopting a group approach to litigation. By utilising litigation funding, companies are relieved of the ongoing burden of funding the claim, as well as the risk if the case is unsuccessful. The effect is to tip the balance away from a likelihood of not pursuing the claim towards pursing it providing that the risks are properly addressed. By joining forces with other claimants, companies are able to share the legal costs and funding cost, making the proposition attractive for funding, making the case more robust commercially and therefore protecting the company’s economics.
In the competition space, recent examples include the claims being pursued with funding from Therium by Humphries Kerstetter on behalf of a group of companies, including the Co-op, against Visa and Mastercard for damages relating to the practice of overcharging of merchant interchange fees to merchants. Similarly, Therium is funding the Road Haulage Association in bringing collective proceedings in the Competition Appeal Tribunal on behalf of hauliers and other buyers of trucks against manufacturers who have been fined by the European Commission for fixing prices of certain kinds of trucks over a 14-year period. Such claims are not restricted to the competition space; the recent shareholder claims against The Royal Bank of Scotland, Lloyds Bank and Tesco are also examples of group litigation involving litigation funding and the clients included large institutional investors.
Funded group litigation offerings like these provide corporate clients with alternatives to shouldering the entire burden of litigation alone. As issues emerge in the public domain which are likely to give rise to a claim in which a company is a potential claimant, in-house counsel should now be considering what options are likely to be available to prosecute the claim, whether their interest in the issue is sufficient that they would wish to issue proceedings individually as against the benefits of joining a broader group, and whether to use third-party funding rather than self-funding. It may even be possible to answer the issues of individual versus group claim and funding independently – for instance pursuing the case individually on a funded basis or joining a group but with the company self-funding, bearing its own share of the costs. Whatever the answer in an individual case, it is clear that the emergence of these litigation options is changing the perspective of in-house counsel on accessing the value locked up in the company’s claims and that trend looks set to continue.
4. Keynote speaking engagements
Therium is regularly invited to speak about litigation funding at law firms, barristers’ chambers and industry events. Do get in touch if you are interested in us speaking to your colleagues, or at one of your events.
Our recent speaking engagements include the following:
21 March, Ankara
Tim Mayer spoke at the FIDIC update and arbitration masterclass hosted by CMS Ankara
16 November, Oslo
Henrik A. Jensen spoke at an arbitration workshop hosted by law firms Schjødt (Norway) and Roschier (Sweden) and London barristers’ chambers 20 Essex Street.
9 November, Stockholm
Henrik Berg spoke at Young Arbitrators Sweden’s “Arbitration Day”, hosted by law firm Mannheimer Swartling.
8 November, London
Tim Mayer took part in a debate on the draft report of the ICCA-QMUL Task Force on Third-Party Funding in International Arbitration. The event was hosted by QMUL and Norton Rose Fulbright.
Q & A with James Oldnall, Partner, Mishcon de Reya LLP
Which are the cases to watch in 2018 and why?
In the banking litigation space, we have already had important Court of Appeal decisions in the PAG v RBS and Singularis Holdings v Daiwa appeals. The Goldman Sachs International v Novo Banco SA and Deutsche Bank v Comine di Savona appeals will provide an opportunity for the courts to clarify some of the jurisdiction issues arising from cross-border finance transactions, an area in focus given the sense of market uncertainty around the implications of Brexit.
In what case areas do you expect to see a particular increase in litigation finance and 2018 – and why?
I think we can expect the trend of funding in the group litigation space to continue, especially if either or both of the Merricks CBE v Mastercard or Lloyd v Google proceedings fall in favour of the claimants.
Do you think recovery of judgments and awards is going to be an issue following Brexit?
In the EU context this is difficult to predict, given the range of unresolved variables and uncertainty over what regime for recognition and enforcement of judgments will be in place. In the absence of any reciprocal arrangements, or arrangements that are more restrictive in scope than those provided by the current regime, there is a risk that recovery may be more difficult. However, any changes will not be felt immediately and regardless of their form, there will still be avenues of recovery available.
Your most important regular read: columnist, journalist, blogger or newspaper?
I enjoy the rational optimism of Matt Ridley. He is also one of the few commentators brave enough to challenge the mass media’s take on scientific orthodoxy. As a banking litigator who has enjoyed the fall out of the banking crisis, I have a bit of a soft spot for him given his role in overseeing the collapse of Northern Rock.
Best book you read recently? Scarcity by Sendhill Mullainathan and Eldar Shafir. It offers a unique perspective on the effects of poverty on cognition and the choices we make. Whilst much of the book is directed at the impact of financial scarcity, the reasoning is highly transferrable to anybody who suffers from time poverty. A back section of the book contains practical tips to minimise the effects of the time poverty trap.
Best film or box set?
My favourite film of 2017 was Baby Driver. A sumptuously produced over the top combination of heist movie and music video. The film is built around half a dozen or so scenes that Edgar Wright choreographed to music. They are impossible not to enjoy.
And your favourite lunch spots are?
They don’t take bookings so you have to have luck on your side, but Barrafina in Covent Garden is the best you can get within 10 minutes of our office.