The litigation finance market in South America is heating up. We have seen an uptick in the number of claimants with cases in the region inquiring about funding.
What’s driving this growth? A key factor is the expansion of arbitration in the region. In recent years, the International Chamber of Commerce (ICC) reported double-digit annual increases in the number of Latin American parties involved in international arbitration matters, and the number of arbitrations seated in a Latin American country jumped by more than 200 percent in the last 10 years.
In a sign of the region’s growing clout as an arbitration center, the ICC’s International Court of Arbitration announced last year that its fourth international office would be located in Sao Paulo, Brazil. (The other ICC courts are in New York, Shanghai and Singapore.) This isn’t the first time litigation funding has grown in a jurisdiction hoping to be a dispute resolution centre. In Singapore and Hong Kong, arbitration’s growth played a key role in driving regulatory reforms that now allow for litigation funding in some circumstances. Both locales have key advantages that have attracted arbitrations and funders: They have robust and transparent legal systems, which are based on English common law, transact in English, have a well-qualified legal bar, and a volume of insolvency and arbitration proceedings.
It remains to be seen if the code-based, civil law justice systems in South America will attract the same level of funder interest. On one hand, as we have seen in Quebec, civil systems typically do not have the prohibitions on champerty and maintenance that have been a part of English common law. Those restrictions tend to slow the growth of litigation funding common law jurisdictions.
On the other hand, the rule of law is developing in some parts of South America, and a less settled system of jurisprudence makes it difficult for a funder to assess the likelihood of success in a particular case. Initially, more funded cases likely will be heard at the arbitration table rather than the courthouse.
This development is relevant for Canadian resources companies. In recent years, Canadian companies have availed themselves of litigation funding in South American arbitrations involving expropriation. In 2011, Canadian mining company Crystallex commenced an ICSID arbitration against Venezuela over the nationalization of the Las Cristinas gold deposit. The right to develop Las Cristinas was Crystallex’s principal asset, and as a result of the nationalization Crystallex was forced to enter CCAA protection. Its principal asset became its arbitration claim against Venezuela. Through the CCAA process, Crystallex obtained court approval for a form of debtor-in-possession financing to allow Crystallex to pursue the arbitration. In 2016, the ICSID panel awarded Crystallex $1.36B.
More recently, two Vancouver-based mining companies have obtained litigation funding in connection with South American arbitrations. In 2016, Eco Oro Minerals commenced an ICSID arbitration against Colombia for actions it alleges destroyed the value of its mining concessions. The arbitration became the company’s principal asset, and Eco Oro obtained litigation funding to allow it to pursue the arbitration. Companies seek funding not only for the arbitrations themselves, but for enforcement steps. In 2018, Rusoro Mining obtained litigation funding in order to enforce an unpaid $1.3B award it obtained against Venezuela in 2016.
South America is a large region with several diverse legal markets, and while we are optimistic about the future, we also recommend caution. Claimants should seek out a reputable litigation funder who will provide transparency about its financial position and verifiable proof of its success. A funder with a well-established track record can help mitigate risk—especially in unfamiliar terrain.
To learn more about international litigation funding options, please contact us.