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US hedge fund Gramercy has struck one of the largest ever litigation financing deals to support separate trials over massive environmental claims against miners BHP Billiton and Vale and 14 global carmakers starting next year.
The $552.5 million financing, provided as a secured loan to law firm Pogust Goodhead, is the largest ever for a British law firm in the nearly $16 billion litigation finance market.
The law firm represents 700,000 Brazilian claimants from two mining companies in the UK’s largest class action lawsuit over the 2015 collapse of the Fundão tailings dam at the Samarco Mariana mine. The eight-week trial is scheduled to begin in London in October 2024. The claimants are seeking compensation for the damage they claim the disaster caused to their homes and livelihoods.
Pogust Goodhead has also brought more than a dozen lawsuits on behalf of 1 million British customers of 14 carmakers involved in the dieselgate scandal. The company has reached a £193m settlement with Volkswagen, accusing it of misleading consumers about nitrogen oxide emissions from diesel vehicles. The claim against Mercedes is scheduled to go to trial next year.
The financing commitment is significant for Gramercy, which has $6 billion in assets under management and is known for its bets on emerging markets such as Russia and Argentina. The loan includes co-investments from some clients.
Such investments have become a key part of Gramercy’s pitch to clients that it can deliver returns regardless of the direction of the broader market. “It’s becoming an important area for us in the global market,” said founder Robert Koenigsberger. “We feel we are entering a sweet spot for litigation funding.”
Gramercy’s flagship fund is up 15% year to date, according to one investor.
According to RationalStat, the litigation financing market was worth $15.8 billion last year and is expected to grow at an annual rate of 9% over the next five years.
In mining accident cases, Pogust Goodhead will share up to 30% of the settlement with local Brazilian lawyers if the case is successful.
“This deal with Gramercy… gives us the ability to attack any bad actors,” Harris Pogust, the company’s chairman, said in a statement. “
Gramercy’s investment is structured as a secured loan, avoiding the legal concerns raised by a UK Supreme Court ruling this summer on litigation financing arrangements involving part of the proceeds. The decision invalidates funding agreements in competition proceedings brought by the Road Haulage Association and other hauliers against DAF and other truck manufacturers.
Pogust Goodhead has previously secured two funding rounds totaling £150m from London credit specialist NorthWall Capital.
“The claims are true, but (law firms) are financially depleted,” said James Taylor, Gramercy’s head of special situations. “This gives them the financial resources to complete the job. The defendants will not be able to wait them out.”
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