The rapid emergence of the Corona Virus is a human tragedy which has upended the world’s social order and financial markets. It is much too early to tell whether the spread of the virus will create a worldwide pandemic with significant mortality or will turn out to be a more typical health event that is similar to the seasonal flu that can be disruptive but not with long term health consequences. In either even, however, the world’s reaction is already creating dramatic changes in social and business behavior and resulted in severe financial consequences. To identify the obvious impacts, the travel and tourism industries have been devastated, supply chains have been disrupted, large social gatherings have been significantly curtailed and business is no longer as usual in many ways.
Regardless of its ultimate severity, this illness will certainly precipitate significant financial dislocations and an inevitable wave of litigation. Obviously, many contracts will be breached. In the case of requirements contracts, suppliers have and will experience restricted access to their labor markets and raw materials. Many will be unable to perform. In the case of take or pay contracts, the customers have and will experience rapidly contracting demand for their services and products and may be unable to fulfill their purchase requirements. More generally, the overall economic uncertainty will result in contraction of credit availability. The constraint on liquidity in a time of economic stress will, itself, cause credit and contract defaults.
It is also certain that companies with limited cash reserves, credit availability and ability to react to the rapid changes in the business environment will face significant financial stress. On top of those challenges, there will be an inevitable constriction on credit until lenders can evaluate the scope of the threat. As a result, many companies will be forced into bankruptcy or out-of-court restructuring. Those companies are likely to have causes of action against other parties but insufficient liquidity to fund the litigation to pursue those claims. Claim Based Funding may be the only source of funding for those claims.
Also consider the Plaintiffs’ Bar. There are any number of scenarios in which businesses and governmental agencies may face liability for claims of negligence or willful misconduct for failing to protect or exploiting various classes of individuals who may be exposed to the virus. These claims may arise from the failure to test suspected victims, careless quarantine implementation, preventing employees from working remotely, price gouging, falsely promoting treatments or cures and other similar activities. There are likely to be a whole new wave of class actions initiated resulting from the wake of the outbreak in response to such activities. Claim Based Funding can support law firms that take on these cases on a contingent fee basis.
The novelty of this epidemic and the worldwide response, will raise some interesting legal issues. Does that outbreak of Corona Virus trigger a force majeure clause in a contract and excuse non-performance? The answer to that will depend on the specific contractual language. Even with language characterizing an epidemic as a force majeure, however, there will be litigation to determine its applicability.
The combination of a large number of ripening and critical legal claims, financial distress among the litigants and uncertainty create a scenario that is well suited to employing Claim Based Funding. The litigation finance industry is well positioned to help fund that imminent wave of litigation. While the litigants are likely to be reeling from the financial dislocation, the industry is prepared to help with pools of committed capital available for Claim Based Funding and the ability to evaluate the merits and value of the legal claims arising from the epidemic that may well need funding.
Another interesting observation about this Black Swan event is that companies that have made the choice to allocate their cash flow to self-funded litigation rather than arrange Claim Based Funding may find themselves in a dilemma as their cash flow deteriorates. They will be forced to consider curtailing the funding of their litigation in order to fund their business operations.
Litigation funding is available to help in these scenarios of course. Moreover, how many of these companies are second guessing their decisions to self-fund the litigation? While the virus could not have been anticipated, many of these companies would have been better off if they had reserved the cash spent on litigation for contingencies such as this one and secured litigation funding from the inception of their litigation. Something to consider going forward.
Themis wishes all the best to everyone weathering the illness and the dislocation caused by the Corona Virus and stands by to help with the aftermath.