Canadian court approves previously-rejected LFA

The Quebec Superior Court has released a decision approving an amended litigation funding agreement in the insolvency proceedings of Fortress Global Enterprises (TSX:FGE).

As we reported in December of last year, the Court initially declined to approve the litigation funding agreement because of the limits on the funder’s obligation to fund an eventual adverse costs award. Specifically, the Court found that in circumstances where the litigation had been going on for seven years, where substantial costs had already been incurred and where part of the funding was to pay for outstanding expert costs of the funded debtor, the defendant’s costs incurred prior to the litigation funding agreement should be part of the funder’s adverse costs exposure. The Court invited the parties, i.e. Deloitte as monitor for the debtor and Omni Bridgeway as funder, to adjust the agreement.

In response to the initial judgment, and further to additional discussions between the monitor, the funder and key creditors of the debtor who would ultimately benefit from proceeds from the funded litigation, an amended litigation funding agreement which increased the adverse costs exposure of the funder (and the fees payable to it to reflect the additional risk undertaken) was submitted for Court approval.

The Court found that the amended litigation funding agreement properly responded to the Court’s concerns about adverse costs but that a notification provision should be added to the agreement, pursuant to which the defendant would be directly informed in the event that the funder chose to terminate the funding agreement. The parties agreed to add the notification provision and the Court approved the litigation funding agreement and related charge on February 11, 2022.

This is the first time a litigation funding agreement has come before Quebec courts for approval in the insolvency context since the Bluberi decision by the Supreme Court of Canada paved the way for these types of arrangements to realize the value of a debtor’s legal asset to the benefit of creditors.

A copy of the order can be found HERE.

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