An American hedge fund called Gramercy is funding a massive £36 billion lawsuit against a mining company on behalf of over 400,000 Brazilian people who were affected by a deadly dam collapse in 2015. Litigation funding is when an outside company pays a law firm’s costs to run a case in exchange for a cut of the money if the case succeeds.

Gramercy told the lawyer running the case to accept a £1.4 billion settlement from the mining company, but the lawyer refused on the basis of this being a bad deal. Just two months later, this same lawyer was removed as head of his own law firm in a move that Gramercy backed.

Analysis

This story demonstrates what can go wrong when a case that was originally meant to help victims gets tangled up with a litigation funder that is looking to gain returns on their investment quickly.

And in the UK, lawyers have to act in their client’s best interests rather than the investor’s best interests, adding to the confusion as to how strategy is deployed in cases of this sort.

What impact does this have on the sector?

• Big lawsuits are increasingly reliant on litigation funding, so more cases like this could surface where the funder pressures the lawyers involved to settle early

• Law firms will likely face more scrutiny as to how much influence funders like Gramercy have over their business

• Regulators may introduce stricter rules over how much control a funder can exercise in order to protect vulnerable claimants like the affected Brazilians in this case