The continuing global rise of litigation funding

Barely a week goes by without a major announcement from one of the big players in the world of litigation funding. This is a symptom of the industry’s rude health. However, funding isn’t just thriving in the established markets of the UK, US and Australia. This global growth can be attributed to ambitious funders seeking out and developing new markets, an increasing acceptance that funding is a force for good and a hard-headed realisation that, in an increasingly global legal market-place, jurisdictions which do not support third-party funding may be competitively disadvantaged.

This article will look at two regions of the world where funding is very much in its infancy but poised for dramatic growth – Latin America and Asia (specifically Hong Kong and Singapore). This anticipated rise in litigation funding will be relevant to barristers who are practising, advising or are interested in these jurisdictions.

Latin America

For several reasons, Latin America is a region that is particularly inviting for litigation funding.  It has a sophisticated and well-developed legal services market, regulatory regimes that do not prohibit third party funding, legal systems that are increasingly pro-arbitration and aligned with international legal standards, and the region regularly sees substantial high-value disputes involving capital constrained entities.

The slow, but steady expansion of litigation funding in Latin America may be viewed in four key areas: the growth of international arbitration, the promulgation of guidelines regarding funding, the emergence of local litigation funders and the increased understanding and acceptance of the mechanics of funding by local practitioners.

In recent years, there has been remarkable growth in international arbitration matters related to Latin America. For example, the International Chamber of Commerce (ICC) reported that 2016 saw a 15% increase in the number of Latin American parties, with Brazil and Mexico being among the top five nationalities globally. This is consistent with the prior decade, which saw the number of ICC disputes involving Latin American parties increase by 131% between 2005 and 2015 and the number of arbitrations seated in Latin America increase by 230%. Investor state arbitration is similarly gaining popularity, with approximately 30% of the International Centre for Settlement of Investment Disputes (ICSID) matters in 2016 involving state parties from South & Central America and the Caribbean.

International arbitration is particularly suited to funding, indeed in Woodsford’s experience, a large portion of claimants in ICC matters and the vast majority of claimants in ICSID matters have actively considered using third party funding.  Woodsford can confidently predict that if Latin America sees more international arbitration, it will also see more third party funding.

The last year has witnessed a spate of guidelines issued by a variety of jurisdictions globally—from the Northern District of California to the Dubai International Financial Centre Courts—regarding the use and disclosure of third-party litigation funding.  In Latin America, CAM-CCBC, a leading arbitration centre in Brazil, issued guidelines regarding funding. These changes likely mirror the increased number of funded matters brought before these institutions, as well as a recognition that funded matters will become increasingly common in the coming years. But, interestingly, by providing such guidance itself, these regulations may well foster overall litigation funding capital inflows to matters within these jurisdictions, because the provision of clear guidance makes them relatively more attractive to claimants and funders as a venue for disputes.

Currently, the majority of major litigation funders are based in and invest in predominantly common-law jurisdictions, and the history of contemporary litigation finance can be traced from Australia to the UK, then to the United States and now to Hong Kong and Singapore. Some litigation funders have been hesitant to invest in civil law countries and have limited their investments to international arbitration or enforcement of civil law judgments in common law courts.  This is likely to change as funders educate themselves and, crucially, as more locally based funders arise to fill a growing demand.  In the interim, funders have been partnering with local experts. For example, Woodsford has a cooperation agreement with Leste Litigation Finance, the first litigation funder in the Brazilian market, allowing the parties to pool their expertise to fund matters in Latin America and beyond.

Asia

In January, Singapore passed the Civil Law (Amendment) Act 2017. This reform permits the use of litigation funding in international arbitration seated in Singapore. As recently as 14th June 2017, Hong Kong became the latest jurisdiction to permit funding by passing legislation to amend the Arbitration Ordinance (Cap.609), enabling funding of international arbitration.

These reforms effectively recognise that funding is part of the modern commercial disputes resolution landscape. In both Hong Kong and Singapore, commercial pressures have also driven the reform agenda. Arbitral institutions including the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC), are commercial operations, which are available to parties with the required financial resources. These centres were being held back by the prohibition on funding arbitration, and were unable to capitalise on their popularity. In short, jurisdictions that do not embrace funding risk being left behind by the competition.

Now that funding is permitted in respect of international arbitration in Singapore and Hong Kong, the popularity of these arbitral venues will increase.  Until now, an Asian-based corporate may have opted to have its arbitration heard in a venue where funding has long been permitted, such as London or Paris. Now, due to the reforms, that same corporate may prefer to select Singapore or Hong Kong as its venue of choice.

While litigation funding in Asia is still in its infancy, the reforms underway in Singapore and Hong Kong, have already raised awareness of the availability of funding in Asia, particularly among disputes practitioners. As more Asia-focused arbitrations are heard in these venues, the more the funding market will expand locally.

Conclusion

Currently, litigation funding in Latin America and Asia is in its nascent phase and its use is often driven by exigency — a claimant needs critical financing, a lawyer faces mounting pressure to reduce legal bills—and funding can be the solution to an urgent problem.  As practitioners (including barristers), in-house counsel and claimants become more sophisticated about the advantages of funding (e.g. law firm portfolio finance, risk hedging, positive accounting benefits) then the next stage will see litigation funding being used more broadly—not when it is necessary because of some acute need, but when it simply offers the best solution to balance complex issues of financial and legal risk.  This anticipated growth in the number of funded cases, particularly international arbitrations, in both Latin America and Asia should present barristers who have interests and expertise in those regions with significant opportunities.

Lara Hofer, Investment Officer at Woodsford Litigation Funding

Lara is a Barrister and Solicitor of the High Court of New Zealand and a Registered Foreign Lawyer in England and Wales. She has experience in general commercial, competition and financial services disputes. She has represented a broad range of clients, both claimant and defendant, and has particular experience in financial disputes including in relation to Interest Rate Hedging Products.

Woodsfordlitigationfunding.com

 


 

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