Identifying the opportunities and challenges for funding in Canada
- Geoff Moysa
- Investment Manager, Legal Counsel - Canada
Six years ago, Omni Bridgeway became the first leading commercial litigation funder to open an office in Canada, a move designed to support the growing demand for dispute funding in the market. Just as it has around the world, funding has continued to evolve in Canada in the years since and ever-more sophisticated financing solutions are available to assist claimants and counsel pursuing meritorious claims.
To help further educate lawyers about the increasing number of funding options, Geoff Moysa, an investment manager and legal counsel in Omni Bridgeway’s Toronto office, recently served on the faculty of a Legal Education Society of Alberta (LESA) course, “Third Party Litigation Funding: Identifying Opportunities and Challenges.”
Moysa’s presentation, “Financing Solutions for Legal Assets,” explored the variety of funding solutions available to claimants and counsel, what a dispute funder looks for when assessing cases, some of the common legal and ethical issues encountered when obtaining funding, and how the funding relationship operates in practice. The full course is available for download from LESA. A few key highlights follow.
A Broad Market
Moysa noted that litigation funding takes many forms. “Funding is not a monolith,” Moysa said. “It’s a variety of different financial products targeted at a variety of markets.” For its part, Omni Bridgeway funds commercial claims, including commercial litigation, arbitration, insolvency-related claims, intellectual property claims, competition law cases, and class actions (though rarely in Canada). The company also engages in judgment enforcement and claims monetization.
In its early days, funding was primarily used in David-vs.-Goliath cases, where an impecunious claimant needed financing to bring meritorious claims and level the playing field with a large, well-funded defendant. Today, well-funded entities are seeking funding to de-risk plaintiffs-side litigation and shift costs off the balance sheet. “Litigation is always a risky enterprise,” Moysa said. “It can be a huge cost centre and unpredictable. A lot of entities are seeing the benefit of shifting those costs, having more predictability, and having more protection against adverse cost risks.”
Omni Bridgeway, Moysa said, provides single-case funding, as well as financing for portfolios of litigation. Funding is non-recourse, which means the funder only receives a return on its investment if the litigation is successful. If a case fails, the funder is owed nothing.
Single Cases and Portfolios
In single case funding, the funder advances capital for fees and disbursements to the claimant. Often, the funder and a law firm enter into a risk-sharing model. In a typical scenario, the funder pays either all or a percentage of the firm’s hourly fees. If the firm is paid a percentage of its fees, the firm is paid the remaining fees along with a success fee on resolution. Thus, the firm is incentivized to seek a strong recovery, but does not bear the risk of a full contingency.
Omni Bridgeway seeks cases with a strong likelihood of success and with defendants who have the ability to pay judgments. From a financial perspective, this means a ratio between the amount of funding needed per case and the expected recovery that will allow a satisfactory return for all parties. (The ratio can vary depending on the specific funding arrangement.) “We want the client to receive the lion’s share of the proceeds of the recovery,” Moysa said.
In a portfolio funding arrangement, Omni Bridgeway bundles three or more cases and provides funding either to a client or a law firm. “We extend a pool of capital to a client or firm based upon a basket of cases that are all different and all cross-collateralized against each other,” Moysa said. Law firms receive capital for a set of plaintiff’s side matters for various clients. The firm can use the capital for whatever it wants – to advance its cases, cover operational expenses, hire associates or staff, and pay partner distributions. “And we take our return based upon a multiple anchored against all of those cases,” Moysa said.
In Canada, boutiques and startup firms have responded favorably to portfolios as a way to help them develop their plaintiffs-side and contingency practices. “It helps smooth out cash flow and build up a war chest,” Moysa said. In markets like the United States where dispute funding is more advanced, large law firms including AmLaw 100 firms are negotiating very large portfolios. Firms are able to use the arrangements to hedge risk and deliver more competitive pricing for clients. “They know they can cut their rates or do a case on a full contingency because they are getting financing for it,” Moysa said. “This allows them to do more work for existing clients and take on cases they may not have been able to take in the past.”
Other Financial Tools
Beyond single case and portfolio financing, other funding tools can help clients with the impact and aftermath of litigation. For instance, Omni Bridgeway provides working capital to funded parties, such as distressed companies whose revenue-generating assets may have been taken away by a defendant.
Moysa also noted that Omni Bridgeway operates in a number of loser-pay jurisdictions, and the company funds adverse costs as a matter of necessity. “If we don’t, and the plaintiff doesn’t have the resources to cover adverse costs, the defense may bring a motion for security for costs to stop the litigation in its tracks,” he said.
Further, the company offers enforcement funding to locate and take action against an unwilling debtor’s assets. Enforcement may be funded on a non-recourse basis, with Omni Bridgeway receiving a success fee based upon the recovery. Omni Bridgeway also offers a monetization model, paying an advance to the claimant in addition to paying the costs of an enforcement effort and taking a share of the outcome. Alternatively, Omni Bridgeway may purchase an award or judgment in its entirety and take over as the primary award holder.
Monetization is not limited to enforcement, Moysa said. “Monetizing litigation assets is becoming more common,” he said, noting that monetization occurs most often during corporate transactions, when a company has a piece of litigation on its books that it wants to dispose of or generate liquidity from prior to a sale or merger.
To learn more about Omni Bridgeway’s litigation funding capabilities, visit our Company Insights. While there, explore our recent podcasts, blog posts, and videos. Or contact us for a consultation to learn more about the ways we can help you pursue meritorious claims.