Third-party litigation funding among legal considerations for start-ups – Law Times

Craig Lockwood

Sep 12, 2019

Law Times journalist Anita Balakrishnan recently reported on a “Lunch and Learn” event that was hosted by Osler’s Litigation and Dispute Resolution Practice Group: “Disputes 101 for Start-ups.” In her article, Anita focuses on the insight Osler partner Craig Lockwood and associate Eric Morgan provided at the event about legal disputes that start-ups can face as well as the recent expansion of third-party legal funding in Canada.

For example, Craig discusses the common ownership-related disputes that can result when “sweat equity” is involved but isn’t properly documented because start-ups try to save money by using boilerplate agreements that they find online. Often, those agreements are missing important points.

“It may seem like you’re saving money because you don’t have to draft up an agreement that, frankly, seems cut and dry,” he says. “I understand the inclination to do that. But I can tell you, it will cause headaches in the long run.”

Another issue that comes up often is the question of who is considered an employee at the start-up and how that relationship should be governed.

As Eric explains, “How are you documenting what your relationship with them is? Terminating employees, compensation, benefits, non-competes … Once people leave, what are they allowed to do and not do, and do they take confidential information with them?”

Both Craig and Eric emphasize the importance of always being prepared for litigation.

“You don’t have to be facing litigation to be thinking about litigation,” Eric says. “It’s just a reality of doing business.”

On the plus side, the litigators point out that start-ups have more options today than ever before, thanks to the increased availability of litigation funding from third parties.

“They recognize that a lot of these start-ups, in particular, don’t have liquid cash or resources to pay for lawyers, but they may have an extremely valuable claim,” Craig says.

Read Anita Balakrishnan’s full article, “Third-party litigation funding among legal considerations for start-ups,” in the September 9, 2019, issue of Law Times.