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Mining company says backer of Brazil dam class action suit appears to be controlling the claimant law firm

BHP has demanded to know who is in charge of a £36bn lawsuit against it after the chief executive of the law firm bringing the case was pushed out by the US hedge fund backing the claim.

The mining company is defending itself against a class action brought by litigation firm Pogust Goodhead, backed by Gramercy Funds Management, on behalf of about 640,000 victims of the 2015 Mariana dam collapse in Brazil, one of the country’s worst environmental disasters.

BHP’s lawyers have written to Pogust Goodhead following a clash between the claimant firm and its main backer, saying in a letter seen by the Financial Times that it “appears that your firm may now be owned, controlled and in substance managed by Gramercy”.

The letter from Slaughter and May comes after Pogust Goodhead’s co-founder, Tom Goodhead, was removed as chief executive by Gramercy this month, according to people familiar with the matter, in a rift that has thrown into doubt the future of one of England’s biggest legal actions.

Slaughter and May has called on Pogust Goodhead to clarify what role the funder will play in the “ongoing conduct, control” and “management” of the blockbuster claim, adding Gramercy appeared to “have the power to” remove and appoint the firm's senior executives.

Gramercy has denied it “owns, controls, or manages” the firm.

The letter is BHP’s move to go on the offensive as both sides await an imminent ruling in the landmark litigation. BHP and Brazilian miner Vale offered $1.4bn to settle the case in June but Pogust Goodhead was holding out for a higher sum of about $3bn, the FT previously reported.

Slaughter and May has requested answers to questions about Pogust Goodhead’s governance by Wednesday and has also demanded to know whether the firm is in a financial position to continue the claim.

Its letter said Goodhead’s removal suggested “that there is not only significant discord and upheaval within your firm and between your firm and its funders, but there might be serious issues with your firm’s financial position and ability to continue as a going concern”.

Pogust Goodhead announced on Saturday — three days after the letter — that it had secured fresh funding from Gramercy, which has already put up at least £450mn to finance the claim. Gramercy on Monday said the new credit facility was $65mn.

Questions were previously raised about Pogust Goodhead’s accounts after its auditors flagged a “material uncertainty” over its ability to continue as a going concern in overdue 2022 financial statements published earlier this year. Goodhead said at the time, when he was leading the firm, that the business had the “unequivocal backing” of its lenders.

Goodhead was ousted following rising tensions with Gramercy over the next round of funding, as well as disagreements over corporate governance, said people familiar with the matter.

The hedge fund exercised a right under its loan that resulted in Goodhead’s shares in the law firm being handed to Huw Dolphin, a lawyer and turnaround consultant, and a new board being installed, the people said. Slaughter and May said “three of the four directors appear to be Gramercy appointees” and noted two of Pogust Goodhead’s new directors seemed to have links to the hedge fund.

An internal Pogust Goodhead memo earlier in August said Goodhead was “on leave” and was still a member of the board. It added chief operating officer Alicia Alinia had taken over as interim CEO.

Gramercy said it “denies the allegation that it owns, controls, or manages Pogust Goodhead”. Dolphin was the legal owner of shares in Pogust Goodhead and that the law firm was “managed by an independent board” appointed by him, the fund added. 

Gramercy also said the new board made it “stronger than ever and we plan to financially stand behind the firm”.

Alinia said: “We will not be distracted by those seeking to discredit our fight for justice on behalf of our clients. Crucially, we remain fully independent, with complete control over the strategy and direction of every case.”

She added: “Our renewed focus on governance ensures that the firm is equipped with the leadership and oversight necessary to safeguard the best interests of our people and our clients.”

BHP, Slaughter and May and Vale declined to comment. Goodhead did not immediately respond to a request for comment.