Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
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48 LEXPERT MAGAZINE | OCTOBER 2017 | LITIGATION FINANCE | gal fees plus disbursements and costs. In the US, where contingency fees are widely used in commercial litigation, Bentham will of- ten enter into "risk-share" agreements with the law firm where the firm gets paid part of its fees with the remainder as a contin- gency fee. In Canada, "we're open to both." Canadian firms aren't interested "quite yet" in doing US-style deals where the most common arrangement is a 50-50 risk share. e law firm gets paid 50 per cent of its fees from the funder as the case progresses, and carries the remaining 50 per cent as work- in-progress. If the case is successful and results in an award, she says, "the law firm takes a 20-per-cent contingency fee, the funder takes a 20-per-cent return, and the client takes 60 per cent — which is in line with common contingency fee arrange- ments for commercial matters in the US." Canadian firms, being newer to the game, are more conservative. "In Canada, oen what we've seen interest in is where the law firm wants to get paid 70 per cent of its fees, for example, and they'll take the last 30 per cent as a contingency fee." at means the firm carries 30 per cent of the case as work-in-progress, and it gets paid 70 per cent monthly. If the case is successful, the firm will receive not just the remaining 30 per cent but also a success bonus. Loewith says a lot of top law firms are already giving their best clients a 10- or 20-per-cent discount in exchange for re- peat business, "so a 30-per-cent discount in exchange for a big cheque at the end of the day is actually a pretty natural progression." WITH THE ADVENT of mainstream commercial litigation funding, traditional litigation funders are starting to see some competition from unexpected sources. Take Crystallex International Corp. In 2002, the Canadian miner acquired the rights to develop the Las Cristinas gold de- for example. You're going to worry about dollars and cents no matter how big you are so I think litigation funding is a great new thing that provides access to justice not just for the little guy, but also for sophisticated commercial parties." THE DOOR WAS opened to the use of funders in mainstream litigation in the summer of 2016 when Ontario Superior Court Justice omas McEwen wrote in Schenk v. Valeant that "I see no reason why such funding would be inappropriate in the field of commercial litigation." It was short- ly aer that that Bentham IMF opened its Canadian office, although Naomi Loewith insists the funder had been looking at Can- ada for many years and "it was just a great confluence of circumstances." Bentham's focus is on commercial litiga- tion, "very much the type of cases we did at Lenczner Slaght," and in Canada, it does not work on cases where the lawyer is on pure contingency fee. While an average of 10 or 15 cases cross Loewith's desk every month, Bentham has so far taken two. e amount of due diligence the funder puts into deciding whether to fund a case can range from 10 to over 200 hours. Bentham will oen interview the clients and their witnesses as part of its evaluation. In Australia, where contingency fees are illegal, the firm pays 100 per cent of the le- posits in Venezuela. Aer trying to obtain the necessary permit for years, Venezuela denied Crystallex the permit in 2008 and subsequently announced that it would operate and develop Las Cristinas itself. Crystallex went to court and did battles in several jurisdictions, but it ran up against a financial wall when $100 million of de- faulted notes matured around Christmas 2011 and it was unable to pay. Crystallex put itself under the Compa- nies' Creditors Arrangement Act (CCAA) — and then it did something interesting. On the advice of its US law firm, Crystallex hired an investment banker to canvass the market and conduct an auction to get the best deal it could on a debtor-in-possession (DIP) loan to continue with its legal fight. Presumably that included litigation fund- ers, but at the end of the day, it was New York-based Tenor Capital Management — a New York hedge fund — that put up $36 million for the Canadian company to "Think of companies here that hold leases in the oil sands, for instance. … They have assets they may be able to borrow against, but if you're going to be using your borrowing room to pursue litigation, it's probably the least effective use of your capital." GEOFFREY HOLUB STIKEMAN ELLIOTT LLP PHOTO: SHUTTERSTOCK