Litigation finance eyes Latin America

Madrid-Lima, June 2021. The conclusions of the I International Congress on Third Party Funding in International Arbitration, organized by the Peruvian Institute of Arbitration and Stonward Litigation Funding leave no doubt: Latin America is a clear point of interest for litigation funders due to its unequivocal prominence in the resolution of disputes through arbitration. According to ICC, disputes in Latin America and the Caribbean increased by 14% in 2019 over the previous year.”Arbitration with a Latin American element has a unique importance,” said Carolina Bayo, Senior Director of Stonward, at the opening of the Congress.

For two days, June 29 and 30, experts from the world of litigation finance, arbitration and law discussed the usefulness of third-party funding, the benefits of having strategic partners who know how to increase the value of claims with solid merits, the importance of knowing how to match claims with the right funder, the need or not for a specific regulation on this figure in international arbitration, and practical issues such as what to do if, once an award is made, the losing party does not pay, or the importance of the political-economic context when seeking funding.

The conference, which next year is expected to be held in person, was attended by the most relevant voices of the arbitration and third-party funding scene.

The panels

The first panel, dedicated to introductory notions about this legal tool, was moderated by Rodrigo Zamora, from Galicia Abogados (Mexico), with the participation of Fernando Tallón, from Ramón y Cajal (Spain), Antonio Bravo Taberné, from Eversheds Sutherland (Spain), and Fernando Bedoya, from Pérez Llorca (Spain).“Litigation finance covers all the costs associated with litigation, but it’s not just a matter of avoiding costs for the client, but also of ensuring that the client comes out unharmed, because even the legal fees are also insured. The key question is: how do we share a probable favorable award? In this sense, there are several options, but the classic is either a multiple of the investment, or a percentage of the profit. And if the case is lost, the funder doesn’t get the money back,” explained Fernando Bedoya.

The second panel, in English, was moderated by data journalist Jacquelyn Palmer of Bloomberg Law (USA) and the panelists discussed issues relating to the regulation of litigation finance.In the panel, where representatives of different funds participated, there was consensus on the need to disclose the existence of funding and the identity of the third party funder in order to preserve arbitral independence, but not on the need to disclose the content of the funding agreement. The new ICC rules were discussed, which were said to be doing a commendable job of protecting the independence and impartiality of arbitrators by requiring disclosure of the existence of financing and the identity of the fund, and the draft revisions to the ICSID and UNCITRAL arbitration rules were discussed.“The need to disclose the existence and identity of a funder is necessary to avoid conflicts of interest, and also sufficient. No funder wants an award to be annulled because of a conflict of interest that could have been resolved in time, it is not in the funder’s interest to be exposed to that risk,”said Charles Demoulin of Deminor (Belgium). Moreover, Rebecca Berrebi of Avenue 33 (USA) added that”no funder is going to get involved in a case that does not have strong legal merits,” so this legal figure will not lead to an increase in frivolous disputes, two opinions with which William Marra of Validity Finance(USA) also agreed.

On the 30th, two panels of a more practical nature were held. The first one focused on the benefits of financing as a tool for transferring risk to a third party, as well as for promoting access to justice in arbitration for new players:“In jurisdictions where there were doubts about the lawfulness of litigation financing, especially common law jurisdictions, it has already been established that it is lawful, because if it is eliminated, access to justice is restricted. We all know that it is very expensive to go to an arbitration court”,explained Sandra González, from the law firm Ferrere(Uruguay) and one of the panelist. Antonio Vázquez-Guillén, from Allen & Overy (Spain), moderated the panel, with the participation of Enrique Ferrando Gamarra, from Osterling (Peru), Sandra González and Daniel Rodríguez from CMS Rodríguez-Azuero (Colombia).

Finally, the last panel asked the question that is becoming more and more frequent: The award arrives, but the debtor does not pay, what can we do?The panel also addressed the socio-economic issues faced by investors and the need to analyze this context in order to know the real possibilities of finding a funder.“From the investor’s point of view, you have to make socio-economic analyses to know whether to invest, but in the end there is one key thing: what is the country’s track record when it comes to paying arbitration awards. That is what will have an impact on the price imposed at the time of granting funds”,explained Thomas Noorgard of Gramercy Funds Management (USA). In the event of non-payment of the award by the losing party, or the creditor’s desire to sell its claims, the funder offers the possibility of assuming this risk. The third-party financier brings benefits at this stage by offering both the funding of enforcement and collection proceedings and the purchase and sale of awards. But for a financial transaction to be successful, and as thermometers of risk, it is necessary to have the legal and political-economic dimension. These were the three perspectives provided by the panelists. The panel was moderated by Carolina Bayo, Senior Director of Stonward (Spain), with the participation of Hernando Díaz-Candia, from WDA Legal (USA) and Francisco Rodríguez, Economist and Director of Oil for Venezuela (USA) and Thomas Norgaard.