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Move Over Carnival: Litigation Funding in Brazil is Heating Up!

Move Over Carnival: Litigation Funding in Brazil is Heating Up!

Writing for Vannin’s Funding in Focus series, Carolina Ramirez, Managing Director in Vannin’s newly-formed New York office, describes the litigation funding climate in South America’s largest and most populous nation. Ramirez highlights both the perceptions and practical applications of litigation finance in Brazil, as well as the regulatory climate and challenges facing industry growth in the region.
Although third party funding arrived on the Brazilian scene only recently, the practice has been warmly embraced relative to other Latin American markets. That has to do with Brazil’s liquidity crisis following the Great Recession, in addition to fallout in the aftermath of Operation Car Wash, or Operação Lava Jato, and the subsequent reliance on arbitration as a result. According to Ramirez, Brazilians maintain a perception that litigation funding is utilized solely by impecunious claimants, or those facing liquidity constraints. Although perceptions are gradually changing, she points to one local practitioner who claims that “case law on the matter is scarce and major Brazilian arbitration chambers do not publish their precedents, so parties (be it funders, funded parties or adversaries to a funded party) still have to deal with a reasonable (and potentially damaging) degree of uncertainty.” Yet despite the uncertainty, the benefits of litigation funding are widely being recognized, with one practitioner going so far as to state that the practice “will evolve to [allow] major companies seeking reasonable financing that allows them to pursue their core business objectives while conducting high level litigation.” Such is the reality of litigation funding in other major jurisdictions, so why not Brazil? Major obstacles to the adoption of litigation funding have to do with costs and time constraints — the former containing too few, and the latter containing far too many. The cost of filing a claim (appeal included) in Brazil is extraordinarily low, which of course precludes firms from seeking external funding. Additionally, cases can go through many layers of appeal before reaching conclusion, which means that funders can’t accurately predict the timing of their expected recovery. Essentially, the barriers to justice that exist in Brazil work against litigation funders, whereas the barriers that exist in the United States, for example (those being high upfront costs and balance sheet exposure), directly play into a litigation funder’s hands. According to Ramirez, by and large, third party funding is unregulated in Brazil. “Only recently did the Brazil-Canada Chamber of Commerce (“CAM/CCBC”) – one of the most renowned institutions in Brazil – issue a resolution specifically recommending that parties disclose the use of funding at the outset of an arbitration (Administrative Resolution 18/2016).” Practitioners on the ground believe in the likelihood that other arbitral institutions will at some point promulgate further regulations on third party funding in Brazil, though at present, the industry remains unregulated. So is Brazil on the precipice of future growth in the area of litigation funding? Ramirez seems to think so. “The resounding message,” she writes, “is that Brazil is ripe for third party funding and that the time to enter the market is now. It is also clear that practitioners are enthusiastic about the prospect of having foreign third party funders with significant experience enter the market and level the playing field which has thus far been dominated by a single local Brazilian third party funder.” To read Ramirez’s article in its entirety, please visit this link
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ISO Approves New Litigation Funding Disclosure Endorsement

By John Freund |

A new endorsement from the Insurance Services Office (ISO) introduces a disclosure requirement that could reshape how litigation funding is handled in insurance claims. The endorsement mandates that policyholders pursuing coverage must disclose any third-party litigation funding agreements related to the claim or suit. The condition applies broadly and includes the obligation to reveal details such as the identity of funders, the scope of their involvement, and any financial interest or control they may exert over the litigation process.

According to National Law Review, the move reflects growing concern among insurers about the influence and potential risks posed by undisclosed funding arrangements. Insurers argue that such agreements can materially affect the dynamics of a claim, especially if the funder holds veto rights over settlements or expects a large portion of any recovery.

The endorsement gives insurers a clearer path to scrutinize and potentially contest claims that are influenced by outside funding, thereby shifting how policyholders must prepare their claims and structure litigation financing.

More broadly, this endorsement may signal a new phase in the regulatory landscape for litigation finance—one in which transparency becomes not just a courtroom issue, but a contractual one as well.

Innsworth Penalized for Challenge to Mastercard Settlement

By John Freund |

A major ruling by the Competition Appeal Tribunal (CAT) has delivered a setback to litigation funder Innsworth Advisors, which unsuccessfully opposed the settlement in the landmark Mastercard consumer class action. Innsworth has been ordered to pay the additional legal costs incurred by class representative Walter Merricks, marking a clear message from the tribunal on the risks of funder-led challenges to settlements.

As reported in the Law Gazette, the underlying class action, one of the largest in UK legal history, involved claims that Mastercard’s interchange fees resulted in inflated prices passed on to nearly 46 million consumers. The case was brought under the collective proceedings regime, and a proposed £200 million settlement was ultimately agreed between the class representative and Mastercard. Innsworth, a funder involved in backing the litigation, challenged the terms of the settlement, arguing that it was disproportionately low given the scope and scale of the claim.

The CAT, however, rejected Innsworth’s arguments and sided with Merricks, concluding that the settlement was reasonable and had been reached through an appropriate process. Moreover, the tribunal found that Innsworth’s intervention had caused additional work and expense for the class representative team—justifying the imposition of cost penalties on the funder.

For the litigation funding sector, this ruling is a cautionary tale. It underscores the importance of funder alignment with claimants throughout the litigation and settlement process, particularly in collective actions where public interest and judicial scrutiny are high.

Court Dismisses RTA‑Client Case

By John Freund |

Law firm Harrison Bryce Solicitors Limited had attempted a counterclaim against its client following the dismissal of a negligence claim against the firm. First the counterclaim was dismissed, and now the appeal against the counterclaim's dismissal has also been dismissed.

According to the Law Society Gazette, Harrison Bryce argued that it had been misled by its client, Abdul Shamaj, who had claimed to have sustained injuries in a road traffic accident (RTA) and instructed the firm accordingly.

Shamaj retained Harrison Bryce on the basis of a purported RTA injury claim, and the firm later brought professional negligence proceedings against the client, alleging that the claim lacked credibility. Shamaj, in turn, mounted a counterclaim against the firm.

Both the negligence claim and the counterclaim were dismissed at first instance, and the Harrison Bryce's appeal of the dismissal of the counterclaim has now been refused.

The key legal takeaway, as highlighted by the judge, is that simply pleading that the client misled the firm is not sufficient to make out a viable counterclaim. The firm needed to advance clear and compelling evidence of the client’s misrepresentation, rather than relying on allegations of general misled conduct.