Gramercy’s BHP dam claim funding exposes tensions in hedge fund-backed litigation

Hedge fund Gramercy is entangled in a dispute over its funding and involvement in a £36bn legal claim against BHP and Vale stemming from the 2015 Mariana dam disaster in Brazil. According to the Financial Times, the case sheds light on the issues that can arise when alternative investment capital is utilized to finance sizable litigation.

Gramercy, which has contributed more than $700m to Pogust Goodhead, advised former CEO Tom Goodhead to consider settling the Mariana claim after BHP and Vale proposed around $1.4bn. However, Goodhead's removal as chief executive of Pogust Goodhead two months after the conversation, supported by Gramercy, has sparked controversy. Goodhead claims that pressure from the funder to accept an undervalued settlement led to his dismissal.

The dispute has expanded to involve the claimants' legal representation, with a committee representing most of the Mariana claimants questioning the firm's influence since Goodhead's departure. They have instructed Bailey Glasser International to manage the case, with UK litigation firm Hausfeld also participating. NorthWall Capital, another litigation funder that initially invested alongside Gramercy, is financing the alternative legal team.

Gramercy asserts that Goodhead sought to involve himself in the Mariana litigation to reap benefits from the eventual result and criticizes NorthWall's involvement. NorthWall denies Gramercy's allegations, stating that legal representation decisions should be made by the claimants and their legal advisers. Pogust Goodhead disputes the claimant committee's right to replace the firm and warns that transferring the litigation could impact existing funding agreements, insurance arrangements, and the case's timeline. Legal proceedings are currently ongoing at the High Court in London.