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Access to Justice for Developing Countries: Third Party Funding for Sovereigns in WTO Disputes

Guest Post by Mauritius Nagelmueller, who has been involved in the litigation finance industry for more than 10 years.

Access to justice remains one of the prevailing issues within the WTO Dispute Settlement Body (DSB), especially for developing countries. To enforce the promise of a fairer trading system, developing country participation in the DSB must be improved, given that relationships between WTO members are predicated on power dynamics, rather than adherence to the rule of law.

Third party funding has provided access to justice for claimants with meritorious claims, but with limited financial capacity in the private sector, as well as in investor-state disputes. The industry is also capable of leveling the playing field in the DSB, as it can be utilized by developing countries to finance a WTO dispute.

An expansion of the current third party funding business model to include financing sovereigns in WTO disputes would create a win-win situation, by allowing developing countries to bring claims which they otherwise could not afford, and by granting third party funders the opportunity to adopt a more neutral stance towards sovereigns by providing their services in support, rather than in mere contention (as is the case today). And demand is significant, given that most obstacles to developing country participation in the DSB are related to costs, such as high-priced experts that must be brought on to account for a lack of expertise, the fear of economic pressure from the opposing state, and the lengthy proceedings which often place a strain on a developing country’s resources (member states estimate a time frame of 15 months from the request for consultations to the report of the Appellate Body. A period of at least 6 to 14 months should be added to this, as a reasonable period for the implementation of recommendations. Although this time frame is short in comparison to other international procedures, the financial hardship for developing countries can be fatal). The costs of initiating a dispute of medium complexity in the WTO are in the region of $500,000, however legal fees can sometimes exceed $10,000,000. In many cases, developing countries are forced to rely on the financial support of local industries affected by the dispute.

This begs the question, why hasn’t there been an influx of third party funders into WTO dispute resolution?

There are two chief concerns which seem to keep funders shying away. The first involves the typical remedies in WTO disputes, which regularly circumvent a direct financial compensation that the funder could benefit from. Still, complainants seek monetary benefits, be it through concessions (the losing country compensates the winning country with additional concessions equal to the original breach), or retaliation (the winning country withdraws concessions in that amount). A simple solution to this issue is for the winning party to provide a share of those benefits to the funder. One possibility is to assess the level of harm caused by the illegal measure challenged in the dispute, and accept that as a basis for the compensation of the funder. If the WTO Panel decisions are implemented, and the disputed measures that were found to be inconsistent with the WTO are withdrawn, a certain value of trade is not affected by those measures anymore and can be realized again. Affected industries, or the affected country, can set aside part of the gain to compensate the funder. In the case of compensation or the suspension of concessions, the complainant gains from increased tariff revenue, and is able to compensate the financing entity from a portion of the same. In any event, financial benefits of a winning party can be measured, and any compensation for the funder will represent only a minor percentage of the gained value of trade.

The second main concern surrounds the area of enforceability, and whether WTO mechanisms would allow financing agreements. But those would have to be enforced in local courts, and the WTO DSB technically cannot rule on non-WTO agreement issues. However, there are provisions that allow the DSB to engage in arbitration if the parties both agree. A practical solution would therefore be to include an arbitration or dispute settlement provision in the financing agreement that operates outside of the DSB.

Based on the aforementioned demand, as well as the practical solutions which can mitigate possible concerns, it is clear that external funding of WTO disputes can provide a flexible, independent and powerful alternative for developing countries to increase access to justice, as well as for developed countries to “outsource the risk” of a WTO dispute.

It’s only a matter of time before third party funding makes its way into the WTO.

** A version of this article first appeared in International Economic Law and Policy Blog

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Who Could Regulate the Litigation Funding Industry after the CJC Review?

By Harry Moran |

As funders and law firms await the outcome of the Civil Justice Council’s (CJC) review of litigation funding later this summer, industry experts are opining not only on the potential direction any future regulation could take, but what body would be in charge of this new oversight function.

In an insights post from Shepherd and Wedderburn, Ben Pilbrow looks ahead to the CJC review of litigation funding and poses the question that if some form of regulation is inevitable, who will act as the regulator for these new rules? Drawing upon two previous reports that reviewed the funding of litigation, Pilbrow points out that historically there have been two main bodies identified as the likely venues for regulation of third-party funding: the courts or the Financial Conduct Authority (FCA).

Analysing the comparative pros and cons of these institutions as prospective regulators, Pilbrow highlights that each one has two core contrasting qualities. The courts have the requisite expertise and connection to litigation funding yet lacks ‘material inquisitive powers’. On the other hand, the FCA does not have the aforementioned ‘inherent connection to the disputes ecosystem’, but benefits from being an established regulator ‘with considerable enforcement powers’.

Exploring options outside of these two more obvious candidates, Pilbrow suggests that utilising one of the existing legal regulators may be viable due to the fact they are all ‘largely staffed by lawyers but have regulatory powers.’ However, Pilbrow notes that these legal regulators may have common flaw that would stop them taking on this new role. That flaw being the comparatively small size of these organisations, with the Solicitors Regulation Authority (SRA) still only boasting 750 employees despite being the largest of these legal regulators.

Concluding his analysis, Pilbrow suggests unless the government opts for an expanded system of self-regulation under an industry body such as the Association of Litigation Funders, the most likely outcome is for the FCA’s remit to be expanded to include the regulation of litigation funding.

The full article from Ben Pilbrow can be read on Shepherd and Wedderbun’s website.

Commercial Deals

Omni Bridgeway Announces Final Payment for Acquisition of its Europe Business

By Harry Moran |

In an announcement posted on the ASX, Omni Bridgeway announced that it had completed the final payment for the acquisition of the Omni Bridgeway Europe (OBE) business that took place in 2019. The litigation funder confirmed that 5,213,450 fully paid ordinary shares had been ‘issued in satisfaction of the fifth and final tranche of variable deferred consideration’ to complete the acquisition.

Highlighting the progress of the business over the past six years, Omni Bridgeway said that the European business ‘has been successfully integrated into the global operations of the group, creating the most diversified legal asset management platform globally, covering all relevant civil and common law jurisdictions and all relevant areas of law.’ 

The announcement also revealed that OBE has ‘achieved the defined five-year KPIs in full’, whilst the management team ‘has been fully retained.’

Commercial Deals

Burford Capital CEO Says Litigation Finance Market is ‘Booming’

By Harry Moran |

With the global economy and financial markets in a current state of uncertainty, the stability of litigation funding as an uncorrelated asset class for investors is attracting wider attention than ever.

In an interview with Bloomberg TV, Christopher Bogart, CEO of Burford Capital discussed the current state of the litigation finance market, explained why third-party funding is attractive to clients and investors alike, and addressed the common critiques that are levelled at the industry.

On the enduring appeal of litigation funding to corporate clients, Bogart said that for many CEOs and CFOs the truth is that their companies are “spending too much money today on legal fees”. He went on to say that money spent by companies on legal fees is “not doing anything that advances their core undertaking”, and as a result, “the ability to offload that to somebody like us [Burford] is very valuable.”

When asked about why the litigation finance market is thriving during the global economic uncertainty, Bogart highlighted that all of Burford’s “cash flows come entirely out of the outcome of litigation results and those are independent of what’s happening in the market, independent of what’s happening in the broader economy.” In terms of the future of litigation funding and the potential for the market to continue to grow, Bogart pointed out that between legal fees and litigation judgments there is a “multi-trillion dollar a year global market” and that whilst the industry is already “booming”,  there is still “a lot of room to run here” for litigation funders.

In response to a question on the criticisms of litigation funding and the suggestion that funders may look to prolong the duration of cases, Bogart pointed out that Burford is just like any other investment firm that is “looking for high quality assets that are going to produce a reasonable return in a short period of time.” Bogart emphatically rejected what he described as “false concerns” by opponents of third-party funding, and stated plainly: “we’re absolutely not in the business of being interested in prolonging duration or in bringing forward things that are not ultimately going to yield a good result for our shareholders”.

The full interview can be found on Burford Capital’s website.