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September 29-30, 2005 1 Access to Justice for the Victims of Fraud The Finance of Complex Fraud Recovery Investigations and Litigation Martin Kenney & Co., Solicitors Second Floor, Geneva Place Building, Road Town, Tortola, B.V.I. A Meeting of Fraudnet, International Chamber of Commerce, Monaco, 29-30 September, 2005

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September 29-30, 2005 2 Cost of Asset Recovery Proceedings Expense of large scale litigation Expense of large scale litigation Assets transferred through several jurisdictions? Assets transferred through several jurisdictions? Location = Expenditure of Professional time of: Location = Expenditure of Professional time of: Forensic Accountants Forensic Accountants Investigators Investigators Specialised Lawyers Specialised Lawyers Litigation in a Number of Different Jurisdictions Litigation in a Number of Different Jurisdictions Applications for Interim Relief Burn Time Applications for Interim Relief Burn Time Up against Experienced Asset Protection Counsellors Up against Experienced Asset Protection Counsellors

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September 29-30, 2005 3 Costs How Does the Victim Pay for: How Does the Victim Pay for: Evidence Gathering? Evidence Gathering? Evidence Analysis? Evidence Analysis? Legal Costs Solicitors, Barristers? Legal Costs Solicitors, Barristers? Court Fees? Court Fees? Simple Administration? Simple Administration?

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September 29-30, 2005 4 Methods of Funding Quick, Partial Recoveries Quick, Partial Recoveries Conditional Fees (U.K.) Conditional Fees (U.K.) Contingency Fees (U.S.) Contingency Fees (U.S.) After the Event Litigation Costs Insurance After the Event Litigation Costs Insurance Litigation Expenses Insurance Litigation Expenses Insurance Venture Capital / Third Party Investment Venture Capital / Third Party Investment Sale of Shares in Litigation Sale of Shares in Litigation

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September 29-30, 2005 5 Quick or Partial Recoveries The Simplest Approach The Simplest Approach Based on Speed Based on Speed Rule of Thumb: $100m fraud recovery matter = $5m risk management problem Rule of Thumb: $100m fraud recovery matter = $5m risk management problem Can Assets be quickly identified and frozen? Can Assets be quickly identified and frozen? Source of Funding for Investigation and Litigation Source of Funding for Investigation and Litigation

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September 29-30, 2005 6 Conditional Fees (U.K) Contingency Fees allowable for non-contentious work Contingency Fees allowable for non-contentious work Conditional Fees Courts & Legal Services Act 1990; S. 27 Access to Justice Act 1999 Conditional Fees Courts & Legal Services Act 1990; S. 27 Access to Justice Act 1999 Uplift not percentage increase permissible Uplift not percentage increase permissible Provision for fees payable only in certain circumstances Provision for fees payable only in certain circumstances CFA that does not satisfy all conditions shall be unenforceable CFA that does not satisfy all conditions shall be unenforceable

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September 29-30, 2005 7 CFA Considerations Inherent Conflicts of Interest Inherent Conflicts of Interest Need for Negotiation and Independent Advice Need for Negotiation and Independent Advice How is Success Defined? How is Success Defined? What Protection for Lawyers if Client withdraws Instructions? What Protection for Lawyers if Client withdraws Instructions? Warranties as to Clients Version of Facts Warranties as to Clients Version of Facts

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September 29-30, 2005 8 Contingency Fees (U.S.) Fee = Agreed Percentage of Recovery Fee = Agreed Percentage of Recovery Theory is that Risk Inherent counterbalances Potential Windfall Recovery Theory is that Risk Inherent counterbalances Potential Windfall Recovery Typical Contingency Fee should take account of: Typical Contingency Fee should take account of: Quantum of Risk Quantum of Risk Expertise of Attorney Expertise of Attorney Level of Client Support Level of Client Support Possibility that Recovery Exceeds Expectation Possibility that Recovery Exceeds Expectation Staggered Percentage Rate to Cover Large Recovery Staggered Percentage Rate to Cover Large Recovery Can Partner in Recovery be Impartial? Can Partner in Recovery be Impartial?

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September 29-30, 2005 9 After the Event Litigation Costs Insurance Cover for own costs and potential costs of opposition Cover for own costs and potential costs of opposition Belt and Braces Belt and Braces Benefits Benefits Accounting certainty Accounting certainty Incentive for opposition to settle Incentive for opposition to settle Security for Costs Security for Costs Raising Finance to fund the litigation Raising Finance to fund the litigation

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September 29-30, 2005 10 Litigation Expenses Insurance L.E.E. can cover: L.E.E. can cover: Own Costs and Disbursements Own Costs and Disbursements Defendants Costs and Disbursements Defendants Costs and Disbursements Calculated as Percentage of Total Costs Insured Calculated as Percentage of Total Costs Insured Underwriting Considerations Underwriting Considerations Analysis of Issues Analysis of Issues Strengths and Weaknesses of Claim Strengths and Weaknesses of Claim Likelihood of Recovery of Assets Likelihood of Recovery of Assets

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September 29-30, 2005 11 Premiums for Litigation Expenses Insurance Calculated on % of costs insured Calculated on % of costs insured 15% 30% 15% 30% Underwriting Claim analysis Underwriting Claim analysis Independent Legal Opinion Independent Legal Opinion May be recoverable S.29 Access to Justice Act 1999 May be recoverable S.29 Access to Justice Act 1999

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September 29-30, 2005 12 Third Party Finance Ability to Assign All or Part of Proceeds of Recovery = Effective Financing Method Ability to Assign All or Part of Proceeds of Recovery = Effective Financing Method Is Third Party Financing Legal / Acceptable? Is Third Party Financing Legal / Acceptable? Consider Remnants of Common Law Doctrines of Champerty and Maintenance Consider Remnants of Common Law Doctrines of Champerty and Maintenance Are there Statutory Barriers? Are there Statutory Barriers? How does Public Policy View the Practice? How does Public Policy View the Practice? Jurisdiction Clause Consideration Crucial Jurisdiction Clause Consideration Crucial

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September 29-30, 2005 13 Champerty & Maintenance Restriction on assignment of claims and funding of litigation Restriction on assignment of claims and funding of litigation The real concern Control of Litigation The real concern Control of Litigation Bare Right to Litigate cannot be assigned Bare Right to Litigate cannot be assigned Exceptions: Exceptions: Transfer of property with right of action attached Transfer of property with right of action attached Assignment of damages or future property provided consideration is provided Assignment of damages or future property provided consideration is provided

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September 29-30, 2005 14 United States Different Approaches Depending on State Different Approaches Depending on State States that maintain Common Law Prohibition against Champertous Agreements States that maintain Common Law Prohibition against Champertous Agreements States where Champertous Agreements may be considered contrary to Public Policy States where Champertous Agreements may be considered contrary to Public Policy States where Statutes proscribe Champertous Agreements States where Statutes proscribe Champertous Agreements States where Doctrines abolished in toto States where Doctrines abolished in toto

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September 29-30, 2005 15 Is the Agreement Champertous? Merits of lawsuit Merits of lawsuit Fairness and reasonableness of agreement Fairness and reasonableness of agreement Do the facts lead to the evils? Do the facts lead to the evils? Motive in providing assistance Motive in providing assistance Motive of party seeking to have agreement declared void Motive of party seeking to have agreement declared void Relative economic strengths of parties Relative economic strengths of parties

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September 29-30, 2005 16 An Analysis in the Context of Modern Day Realities Champerty should be analyzed by examining Champerty should be analyzed by examining Use of the Investment Funds Use of the Investment Funds Nature of the Cases Nature of the Cases Plaintiff/Investor Relationship, Plaintiff/Investor Relationship, Ratio of Risk and Reward Ratio of Risk and Reward Does third party finance level the playing field or encourage meritless and speculative litigation? Does third party finance level the playing field or encourage meritless and speculative litigation? Proper Controls can encourage the former while minimizing the latter. Proper Controls can encourage the former while minimizing the latter.

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September 29-30, 2005 17 Court Approval Analysis should sufficiently demonstrate why Investment in Asset Recovery Plan should not be deemed champertous Analysis should sufficiently demonstrate why Investment in Asset Recovery Plan should not be deemed champertous Approval of Third Party Finance Agreements ought to be obtained from a Court of Competent Jurisdiction at Outset Approval of Third Party Finance Agreements ought to be obtained from a Court of Competent Jurisdiction at Outset Court Sanction Provides Certainty Court Sanction Provides Certainty

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September 29-30, 2005 18 Understanding why Investment in the Asset Recovery Process should not be considered Champertous The socials ills champerty was created to remedy either no longer exist or are addressed by other legal checks The socials ills champerty was created to remedy either no longer exist or are addressed by other legal checks Fee regulations; sanctions rules; and the doctrines of unconscionability; duress and good faith are more than sufficient to prevent the evils that champerty was originally designed to address Fee regulations; sanctions rules; and the doctrines of unconscionability; duress and good faith are more than sufficient to prevent the evils that champerty was originally designed to address

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September 29-30, 2005 19 Why Third Party Finance? Public Interest in Preventing Unlicensed and Unregulated Market in Litigation v Desirability of Litigating Bona Fide claims Public Interest in Preventing Unlicensed and Unregulated Market in Litigation v Desirability of Litigating Bona Fide claims Development of Regulated Market will: Development of Regulated Market will: Expand Options Available to Victims Expand Options Available to Victims Allow Adjustment of Level of Risk; Amount and Timing of Recovery and Other Variables Allow Adjustment of Level of Risk; Amount and Timing of Recovery and Other Variables Lower Cost of Capital Over Time Lower Cost of Capital Over Time

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September 29-30, 2005 20 Sale of Shares in Litigation Investment Contract Considerations Investment Contract Considerations Level of Information Disclosable Level of Information Disclosable Description of Legal Team Description of Legal Team Description of Litigation Legal Opinion Description of Litigation Legal Opinion Detailed Breakdown of: Detailed Breakdown of: Expected Costs Expected Costs How Investment Funds Will be Used How Investment Funds Will be Used Amount Claimed Amount Claimed

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September 29-30, 2005 21 Conclusions Regardless of Mechanism Funding Option must be Flexible enough to cover: Regardless of Mechanism Funding Option must be Flexible enough to cover: Expert Witness Fees Expert Witness Fees Security for Costs Awards Security for Costs Awards Cross Undertakings in Damages Cross Undertakings in Damages Unforeseen Eventualities Unforeseen Eventualities Cost Risk Relationship Proportionality Cost Risk Relationship Proportionality Conditions of Funding Should Not Compromise Victim or Litigation Conditions of Funding Should Not Compromise Victim or Litigation