Dispute financing has seen a marked expansion over the last decade as new funders emerge and existing funders increase their global footprint. Broadly speaking, the funding industry includes before- and after-the-event insurance products along with other solutions to alleviate risk. In this post, we focus on institutional third-party funding and the financing offered by public and private entities looking to invest in disputes.
Recent press releases (here and here) involving a transaction in the resources sector demonstrate the increasing creativity with which institutional funders are approaching potential investments, and the applicability of dispute financing in a transactions context. For example:
- Company A is entering into a plan of arrangement under which it will be purchased by Company B;
- Company A has been pursuing a fairly substantial claim in ongoing litigation. The litigation is still winding its way through the courts at the time of the arrangement;
- Company A creates a “litigation trust”;
- Under the arrangement:
- the shareholders in Company A receive their designated consideration and a right to pro-rata proceeds from the litigation;
- the litigation and any proceeds therefrom are assigned to the litigation trustee;
- Following the close of the arrangement, the litigation trust sells all of its issued and outstanding shares to the institutional funder. The proceeds from that sale are then distributed to the shareholders of Company A, monetizing the still ongoing litigation for its former shareholders, and Company B does not acquire the dispute.
There are a number of situations where mining companies might want to consider speaking with disputes counsel on potential funding solutions. In addition to transactions such as that outlined above, other examples where companies may want to explore institutional funding include:
- For even well-capitalized corporations, a scenario where you have a claim, and want to enforce your rights, but would simply rather take the matter in whole or in part “off-book” and spend your financial capital elsewhere;
- Where your sole or main asset has been expropriated or impacted in a way that you require funding to pursue your claimed losses as a result of the wrongful expropriation or treatment;
- Situations where you have one or more disputes you are pursuing (as claimant or plaintiff) and one or more disputes you are defending, and it might be possible to create a funding portfolio or pool of funds as a result of that collection of matters (the funding could be used across the matters, but ultimately tied to the proceeds of one or more large claims).
For further questions or to learn more about litigation funding, please contact David Wotherspoon, Gordon Tarnowsky Q.C., Michael Schafler, Rachel Howie, Roger Simard, Matthew Diskin or Sean Stephenson of Dentons’ Litigation and Dispute Resolution in Canada team.