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BRAZIL’S DISPUTES MARKET OPENS UP TO THIRD PARTY FUNDING
FEBRUARY 2018
BY IAIN MCKENNY AND CAROLINA RAMIREZ, MANAGING DIRECTORS, VANNIN CAPITAL
An increase in high-value disputes in Brazil, alongside an economic crisis that has challenged the balance sheets of all major corporations, is driving a growing market for third-party litigation funding in Latin America’s largest country. Arbitration continues to grow in popularity there, as parties strive to avoid the costly and cumbersome local courts, and many claimants are seeking to monetise claims on their balance sheets that might go uncontested without a litigation funder.
On recent visits to Brazil, we have both met with large corporations that routinely work with multinational law firms on sophisticated cases, and it has become apparent that liquidity issues are driving a growth in demand for third-party funding. The country is facing a well-reported economic crisis, the challenges of which have been exacerbated by the ‘Car Wash’ scandal – a police investigation into corruption involving state-owned companies Petrobas and Eletrobras. That scandal has revolved around sizeable construction projects, and has resulted in the termination of contracts, in turn leading to a surge in disputes.
Arbitration on the rise
Third-party funding is not a new concept in Brazil, but it is an immature marketplace and there are currently only one or two local participants backing smaller cases. And yet the potential is considerable: none of the claims that we discussed with corporates in the country was worth less than $100 million, and companies were invariably sitting on these cases because they could not convince their boards to release the sums of money necessary to pursue them.
For funders, domestic litigation in Brazil is not an attractive prospect, because the aforementioned local courts are both unpredictable and operate with incredibly lengthy timescales. Equally, Brazil is not party to any bilateral investment treaties, and as such the market does not have the large-scale investor disputes seen in other emerging economies. Instead, it is international commercial arbitration that is booming, as the most popular means of resolving disputes involving high-stakes contracts.
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THE TREND THAT HAS SEEN THE USE OF ARBITRATION INCREASE STEADILY FOR THE LAST 15 YEARS IN BRAZIL SHOWS NO SIGNS OF ABATING
In January 2017, the International Court of Arbitration of the International Chamber of Commerce (ICC) published its figures for cases filed under ICC rules in 2016, and revealed a 15% rise in parties from Latin America. Brazilian parties are now the third most prolific users of arbitration globally, according to the ICC, behind the US and Canada, in a year when it saw 123 Brazilian parties participating.
Brazil is a signatory to the 1958 New York Convention on arbitration, and the country’s Superior Court of Justice supports it. The New Brazilian Civil Procedure Code, which came into force in 2016, set out to reduce the number of court cases by encouraging mediation and supporting arbitral proceedings. As such, the trend that has seen the use of arbitration increase steadily for the last 15 years in Brazil shows no signs of abating.
How funding can help
Brazil’s economy is now back in growth mode after two years of its worst recession on record, with the central bank forecasting growth of 2.2% in 2018. With that turnaround likely to be fuelled by energy and infrastructure, and with those sectors currently working through the repercussions of the Car Wash investigations, it is unsurprising that corporations are starting to view claims less as potential costs and more as potential assets. The non-recourse nature of third-party funding means corporates are insulated from the costs of pursuing cases, protected from the cost of a potential loss, but could receive a handsome reward in a few years’ time if they decide to take a case forward.
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Working with a third-party funder allows companies to direct money that might have been spent pursuing claims back into the business, so that management can be focused on growing the bottom line. A non-recourse funding solution can shift all cost risk associated with the litigation from the claimant to a third party, and the funder only makes a return if the case wins, meaning interests are firmly aligned.
The involvement of a litigation funder can also often lead to improved settlement outcomes, when the respondent sees that an independent commercial entity – who only invests in meritorious claims – has judged the case to have a strong chance of success. Furthermore, a professional dispute resolution funder brings considerable litigation and arbitration experience, and can add strategic input as well as giving access to a top-tier legal team, to achieve a better result, more quickly.
Brazil in growth mode
Compared to other Latin American jurisdictions, Brazil’s disputes market is highly sophisticated, with large businesses typically employing international law firms and therefore familiar with the third-party funding options available. As such, the litigation funding market, which has until now been focused on smaller cases, is ripe for development as these larger corporates increasingly appreciate the potential to work with international funders like Vannin Capital to bring forward high-value international disputes.
We expect to see demand from Brazil increasing steadily over the coming years, as the nation’s appetite for commercial arbitration simultaneously takes off.
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Iain McKennyManaging [email protected]
Carolina RamirezManaging [email protected]
Iain is a solicitor of the Courts of England and Wales and a registered foreign lawyer at the Paris Bar. His formative years were spent with Freshfields Bruckhaus Deringer in London before he moved to Paris to join Latham & Watkins as a senior solicitor in International Arbitration. He specialises in international disputes in a number of dispute resolution forums including litigation, arbitration and mediation.
He has particular expertise in disputes involving technology, energy and the construction sectors and disputes involving insolvent entities.
Iain has served as counsel in disputes involving multiple governing laws and has worked with most major international arbitration rules. He is also experienced in disputes involving the expropriation of assets giving rise to State responsibility under international law and conflicts between Public International law, European law and national laws.
Over the years Iain has contributed to various publications focusing primarily on cost effective dispute resolution techniques and access to justice.
Carolina Ramirez works with law firms and claimants on how third-party funding can be pursued and utilised across a broad range of high-value commercial litigation disputes. Based in New York, her role focuses on identifying and providing a full appraisal of disputes that Vannin will consider for funding, as well as monitoring disputes that Vannin has committed to fund.
Prior to joining Vannin Capital, Carolina was a Senior Associate at Dentons US LLP. At Dentons, Carolina’s litigation practice focused on representing clients in government investigations and litigation with a primary focus on violations of the Foreign Corrupt Practices Act. She conducted internal investigations of domestic and multinational organisations and assisted clients with the creation of industry-specific anti-corruption compliance programs.
Previously, Carolina was a member of the commercial litigation team in the New York office of White & Case LLP working on a variety of general commercial claims across a multitude of different industries.
Carolina earned her J.D. from the University of Pennsylvania Law School where she was a member of the International Law Organization and the Latin America Law School Association. She studied abroad in the spring of 2009 at the Tel Aviv University Law School and holds a B.A in International Relations. She also serves on the Penn Law Board of Overseers and is a member of the junior board of New York Lawyers for Public Interest.
Carolina is admitted to practice in New York and is fluent in Spanish.
BIOGRAPHIES
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About Vannin Capital
Established in 2010, Vannin Capital is the global expert in legal finance, supporting law firms and corporations in the successful resolution of high-value commercial disputes.
From single case funding, to portfolio finance and enforcement arrangements, we offer creative capital solutions that are tailored to our clients’ needs.
Our global team of legal and financial experts cover the key commercial litigation and arbitration centres from our offices in London, Jersey, Paris, New York, Washington, Sydney and Melbourne. More than just capital, we combine global experience with local knowledge to deliver the highest standard of service and expertise to our clients around the world.
A market leader, we are a member of the Association of Litigation Funders of England and Wales (ALF), conducting our business to the highest standards in line with its code of conduct.
