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Levelling the playing field: How SMEs are embracing litigation financing to help turn commercial disputes into assets

Paul Rand  is the Managing Director and Chief Investment Officer for Omni Bridgeway Canada, where he leads the team and oversees Omni Bridgeway’s investment management and due diligence. With more than two decades of experience in the legal profession, Paul is a leader of the litigation finance industry in Canada. Paul can be reached at prand@omnibridgeway.com. 

As the most powerful driver of growth in the country, small and medium enterprises (SMEs) are the lifeblood of Canada’s economy. Our economic future and long-term competitiveness depend on the continued success of our thriving SME landscape.

Over its lifetime, however, a business’s success will be challenged by all kinds of factors. One such factor may be a need to assert legitimate business interests through litigation. Issues such as contract breaches, misappropriated intellectual property, or international disputes often only resolve through the courts or arbitration. While it may be tempting to avoid litigation at all cost, savvy leaders and their boards are increasingly viewing such legal claims as strategic assets. Top leaders and boards understand that an  affirmative litigation strategy —i.e., where they pursue a dispute as the plaintiff— is critical to the success of their business.

Yet advancing claims can be extremely costly and involves risk. That’s why smart SME leaders across the country are taking advantage of  litigation financing  to fund their large commercial court cases.

What is litigation financing?

Litigation financing (or funding) is a sophisticated source of capital available to fund major commercial disputes. A litigation funder covers the legal budget of a large case to ensure it’s litigated as robustly as possible, levelling the playing field for businesses that might otherwise find it daunting to pay the fees for top lawyers.

In exchange for funding, the return on a litigation funder’s investment comes as a portion of the proceeds of any judgment or award in the case. This is a  non-recourse  funding model, which means that the claimant  only  repays the funding if they receive a settlement, judgment, or award.

Omni Bridgeway is a pioneer in the litigation funding industry, and we work with a long list of SME clients across the country to ensure they can pursue their legal disputes as thoroughly as possible. We also have specialized skills in tracking down and enforcing judgements and arbitration awards that clients are owed, which can be a whole challenge unto itself.

The benefits of litigation funding for Canadian SMEs

SMEs in particular benefit from litigation financing in several important ways:

  • Budgetary certainty without affecting cash flow :   Pursuing large claims is expensive, and cash flow is a primary concern for SMEs. If an expensive piece of litigation arises, SME leaders face a dilemma: do they avoid pursuing the case because it will be so costly, or do they dig deeper into their pockets, extend themselves further or forego other important business opportunities to pay for their litigation? Funding allows companies to pursue a case  without  digging into their cash reserves. Initial legal budgets quoted by counsel can also change as a case proceeds, and having litigation financing in place helps provide a degree of budgetary certainty and peace of mind.
  • Access to funds regardless of debt load :   SMEs may carry a significant amount of debt, which can make it difficult to access other sources of funding. But a litigation funder, unlike traditional capital providers, focuses on the expected value of a company’s litigation—we look at the merits and value of the case itself.  The expertise of a litigation funder enables it to evaluate litigation as an asset, in a way that other sources of financing don’t.
  • Unbiased, well-researched independent assessment of a case’s merits :   A smart litigant will look for an independent third-party assessment before embarking on costly litigation. Because litigation funders seek to invest in very strong cases, we do the heavy lifting up front to develop an honest, thorough appraisal of every claim. We conduct a rigorous critique of the case, involving an unparalleled level of analysis and due diligence. At Omni Bridgeway, our team is made up of former Supreme Court clerks, Bay Street lawyers and former in-house corporate litigation managers, who are experts at assessing litigation.
  • Teams who specialize in award enforcement :   Winning a case does not always guarantee that the defendant will be willing to pay what it owes. This is where a litigation funder with an enforcement team steps in. At Omni Bridgeway, we have a highly experienced team of economists, researchers, and lawyers with deep expertise in tracking assets and inhibiting asset-hiding activities. Clients can access these enforcement services for a pre-existing award they’re trying to track down, even if we were not involved in the case itself, and the same non-recourse funding model applies.
  • Jurisdictional knowledge and connections around the world SMEs may face disputes beyond Canadian borders. Litigation financiers with operations around the world have intimate knowledge of the complexities of various jurisdictions, and they can assist with enforcement, help evaluate local legal issues, and make introductions to top legal advisers in the relevant location(s) and with the appropriate expertise. At Omni Bridgeway, we have a team of over 200 global colleagues we can call on to bring the best expertise possible to our Canadian clients, and we draw from a very strong domestic and cross-border track record.

Examples of Canadian SMEs using litigation funding

There are numerous examples of cases where Canadian SMEs have benefited from litigation financing provided by Omni Bridgeway to fund their legal disputes. They often fall into these broad categories:

  • Breach of contract: Vancouver-based residential developer vs. construction services company

A Vancouver-based residential developer contracted with a construction firm to build a residential tower subject to a guaranteed maximum price obligation. A dispute arose when the construction company breached the contract by refusing to complete the project on the agreed terms. This could have jeopardized the future of a small company, yet many businesses facing this scenario would lack the appetite or the resources to pursue a claim. The developer’s executive team, however, reached out to Omni Bridgeway to secure litigation financing, levelling the playing field so they could confidently pursue their claim.

  • Broken deal: theatre developer vs. entertainment technology company

A leading middle east-based theatre developer contracted with a Canadian technology company to provide advanced equipment for a high-end luxury theatre. After twists and turns, the technology company pulled out of the deal, causing the theatre developer to lose the rights to the project. When a competitor took over the project, it became apparent that confidential project design information had been shared with them. The technology provider had significant resources available to resist litigation, leaving the media company at a strategic disadvantage. To ensure they could robustly enforce their business rights, the theatre developer secured funding from Omni Bridgeway in order to pursue damages over US$100 million.

  • Misappropriation of confidential information/intellectual property: startup company vs. HVAC service provider

Here we funded an Ontario-based technology startup for commercial HVAC systems. The company contracted with an HVAC service provider for a chain of stores in Canada. After piloting the startup’s systems, the HVAC service provider misappropriated the product, put their own name on it, and provided it directly to the chain of stores—in breach of obligations to the start up. To recover the substantial damages that resulted from the misappropriation, the start up engaged Omni Bridgeway to fund their pursuit of this case.

  • International disputes/arbitration: Toronto mining company vs. Latin American state

A Toronto mining company claims that a Latin American state breached its international obligations under a bilateral trade agreement when it failed to compensate the mining company for losses incurred from the state’s prohibition of mining in areas under development by the mining company. Omni Bridgeway stepped in to fund the mining company’s pursuit of the case before the International Centre for Settlement of Investment Disputes (ICSID).

  • Enforcement services: Canadian tech company vs. an African debtor

We are working with a Canadian communications technology company to enforce a multimillion-dollar arbitral award against an African state-entity debtor who breached a contract, lost in an arbitration, then refused to pay the arbitral award against it.

Strategic SME leaders are taking advantage of this approach

Litigation is time consuming and costly, and it takes leaders away from driving business growth. However, forward-thinking leaders know that running an SME involves making the right strategic decisions to protect and grow their company, and not letting the time, cost, or risk prevent them from pursuing their legal rights.

Luckily there’s a smart way to fund the pursuit of such cases. As litigation financing continues to grow in popularity as a legal strategy, more and more Canadian SMEs are pursuing meritorious disputes without affecting their balance sheets or cash flow. They’re also obtaining thoughtful and informed second opinions on the merits of their cases and recouping the financial awards they’re owed.

Canada’s prosperity depends on the continued success of SMEs across the country. With litigation finance as a valuable element of their legal strategy, SMEs have the means to turn important disputes into monetizable assets without affecting their cash flow, so they can grow their business and continue to drive Canada’s economic success.

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