The James Hardie class action settlement was a major legal fee fest – But did it also damage the case for litigation funding?
John Bowie* Many were surprised – not least the claimants – when London-based litigation funder Harbour Litigation Funding, pulled their funding and wrote off their investment, mid-trial, for the James Hardie leaky home litigation at the beginning of the month.
What did this mean? What had changed for the funders? And what does it say about litigation funding ata time it is starting to gain widespread acceptance for facilitating access to justice. ?
The end of the trial of a case originally set down for a four month hearing was a shock-horror moment for many, the thousand-plus claimants obviously but also for some observers who perceived the rug-pulling as a sign of the ruthlessly clinical view taken by funders who could, on a whim, torpedo an action upon which so many hopes had resided.
However, the reality is somewhat different, although the conspicuous silence from the participants adds little to the issue surrounding the withdrawal, which for some looks as much a debacle as the Biden pullout from Kabul.
Major litigation such as the James Hardie cases are incredibly expensive and complex, potentially taking 5 years or more and costing in the tens of millions of dollars. The cases involve massive preparation and briefing of evidence, assembly of research reports and investigations and often even mock trials and the seeking of third party legal opinions to ascertain holes in the plaintiffs case. Before agreeing to fund the case it is highly likely Harbour obtained a recommendation from the legal team and certainly would’ve undertaken careful consideration of all the facts of the case to make sure there is clear evidence of wrongdoing and that the case was meritorious.
Money, mostly, is no object in these matters.
All of which makes the Harbour decision somewhat perplexing and not helped by the cone of silence around it. But it would be surprising, to say the least, that Harbour would’ve written off its investment without very good reason. Their size and success suggests that litigation withdrawls are not of the chaotic, Kabul-style Biden pullout, but for a soul-searching, commercial imperative.
We just don’t know precisely what prompted it.
Their decision was followed shortly after by a decision from Justice Simon France in the 274-page ‘Cridge’ decision that found claimants who had taken action in respect of James Hardie’s ‘Harditex’ product leading to weathertightness problems had ‘failed in their entirety’.
Big Fees Everywhere
The legal action, run by Adina Thorn, was expensive, to say the least.
According to some reports as much as $10-$15million may have been spent on the part-heard case by James Hardie’s legal team, lead by Jack Hodder QC with John McKay (of Colin Craig representation fame) and a large and expensive team from his old firm. They were not, as one observer told LawFuel, a “litigation-lite” lot.
The company’s accounts showed that it had paid US5.2 million (NZD7.5m) on legal fees for its New Zealand weather tightness legal fights in the two years until March 2020.
The so-called White Litigation handled via Adina Thorn saw James Hardie paid $1.25 million by Harbour in addition to the millions they’d already spent on the case.
The other action against James Hardie, which was funded by Australian funder Maurice Blackburn, brought by Wellington-based Dan Parker & Co instructing Jim Farmer QC and others who acted on behalf of Tracey Cridge and Mark Unwin in a class action involving the same Hardiflex cladding product and which was resoundingly defeated in a judgment from Justice France earlier this month.
The London Silk
In an unusual move, the James Hardie claimants were represented by a London silk, Simon Hughes QC, who did his MIQ before undertaking his cross examination in Auckland. Harbour clearly wanted Hughes, ‘Construction and Energy Silk of the Year’ in 2019, for his obvious expertise. But – like everything else about this case – it was hardly an inexpensive move either.
The fact that Hughes has substantial international experience, particularly in arbitrating complex construction and engineering issues, and that Harbour are London-based and James Hardie is ultimately based in Ireland, provided a global context for the multi-billion dollar cladding debacle.
Their ‘blame-the-builders’ tactic and focus upon the fact that the cladding, based on the Harditex monolith cladding, was a ‘system’ that needed to be properly installed and had not been properly tested under New Zealand conditions, were some of the key factors in their defence.
But quite why the pullout remains unknown, as does the origin of the report to Harbour recommending the action.
They may have been sensitive to failure following their unsuccessful backing of the Feltex class action claim over 10 years. A claim which saw Harbour paying the defendants over $5m in court costs as well as writing off the costs of the plaintiffs that it had funded in full, which were estimated to be a further $10m.
They may also have been sensitive over the impending decision in the Cridge case where the Court had over 10,000 pages of written briefs on the James Hardie products and liability issues when he had concluded that a ‘reasonably competent builder’ could build a waterproof house and that the issues were essential fundamental building errors and non-compliance with the James Hardie instructions.
But we don’t know. Either way, Harbour were out of there.
The Litigation Lender’s Right
Whatever the basis of the Harbour decision, it remained their investment and their call to notify plaintiffs that funding would stop. It was certainly not a case of the funder running short of money, as the largest private, dedicated litigation funder that has raised over $US1.5 billion in its history.
Further, the pandemic has enhanced the interest in litigation funding both from an investors’ viewpoint and jurisdictionally as more regions see a growth in the mechanism, including a greater interest in insolvency-related litigation.
Robert Rhoda, a partner in Dentons’ litigation and dispute resolution group in Hong Kong, said that litigation funding as an attractive asset class for investors due to potentially high returns and its counter-cyclical nature, meaning that there may be more opportunities when the economy, and possibly other investments, are suffering.
But it remains a high risk investment – and therein lies the issues that the James Hardie action has highlighted. Risks – and rewards – are often a delicate balancing act.
The Litigation Funding Access to Justice Issue
A point worth remembering is access to justice is simply access, funded litigation doesn’t guarantee plaintiffs a successful outcome. In both cases the plaintiffs got their case to court with the assistance of funding.
Those who see it as the ugly side of litigation funding, which of course includes defendants and their insurance companies who are having more legal fights on their hands and potential accounting write-downs to allow for, it remains a right that is inevitable for those who have the investment in the litigation.
The fact that insurance companies, who are the funders of defendants, are claiming their costs are increasing as a result of cases like the LPF-funded Mainzeal case, does not serve as an adequate reason to pull the rug from litigation funding itself.
It was the actions of the Mainzeal directors in trading the company while insolvent that has led to the directors liability. The insurance companies should be looking a the wrongful actions of the people they are insuring, not at the legitimate claims of those who have been wronged.
Harbour, who LawFuel is yet to hear from with details on the pullout, despite indications of doing so, have their own issues and where the current situation leaves them is anyone’s guess.
But the James Hardie pullout by Harbour and the failure of the Cridge litigation does not remove the central issues examined by the Law Commission so far as litigation funding is concerned, which is providing access to justice and to provide some competition to the insurers who regularly fund – or stifle – the major litigation affecting potential litigants who otherwise have no ability to make their claims.
The suggestion of mandating a time period for funders before pulling their money is not a viable option. If a case is a loser, for whatever reason or change in circumstance, then a funder should be permitted to withdraw – just as a plaintiff who is personally funding their own litigation can. For every loser there is more than one winner.
That fact alone should merit the continuance of litigation funding for aggrieved litigants. Even in this case, there is no argument that the homeowners were able to access justice as a result of Harbours’ funding. The outcome was just not what the plaintiffs or the funder would’ve wanted.
As for Harbour’s decision in the James Hardie case, there is little doubt that the decision to quit would not have been made lightly. The company may have spent over $15 million seeking justice for the leaky home-owners. There will be tears in London, as well as the kiwi home owners left high and – in this case at least – dry.