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

October 4, 2017

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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Legal-Bay Urges Caution on Quick-Pay Option in Proposed $800 Million Archdiocese of New York Settlement

Pre-settlement funder Legal-Bay has welcomed the proposed $800 million abuse settlement involving the Archdiocese of New York while warning claimants that the plan's fast-track payment option may undervalue their claims.

As reported by The Mountaineer, the proposal would be paid in two installments — roughly $615 million up front and a further $185 million within about 15 months — covering an estimated 1,300 claims brought under New York's Child Victims Act. Claimants would be able to accept a flat quick-pay amount of $250,000 or submit to an individual evaluation under a points-based matrix that has not yet been released publicly.

Legal-Bay chief executive Chris Janish said the figure represents meaningful progress. "For survivors who have waited years to be heard, an $800 million proposal is an important step toward resolution," he said. He cautioned, however, that the quick-pay election may not deliver fair value for claimants whose circumstances would score higher under individual review, and noted that the matrix remains unpublished, leaving claimants to weigh a certain sum against an unknown alternative.

Janish added that non-recourse funding advances can help plaintiffs avoid accepting an early payment for liquidity reasons alone. Legal-Bay provides pre-settlement advances that are repaid only if the underlying claim resolves successfully.

The company has tracked the Archdiocese proceedings closely, having flagged in April that the case had reached what it described as a critical crossroads for claimants awaiting resolution.

Commercial

Aperture Portfolio Manager Says Litigation Finance Has Reached an Institutional Inflection Point

Litigation finance is moving from a niche alternative allocation to a recognised corner of specialty private credit, according to Luke Darkow, a portfolio manager at Aperture Investors.

As reported by ABF Journal, Darkow argues that institutional investors are no longer treating legal assets as an exotic curiosity but as a potential source of returns uncorrelated with public markets. "Litigation finance is no longer merely an alternative curiosity," he writes. "It is increasingly viewed as a potential diversifier within their current portfolios."

The case rests partly on the sheer size of the underlying market. U.S. legal services generated roughly $375.7 billion in revenue in 2024 and are projected to reach $427.9 billion by 2029, a compound annual growth rate of 2.64%. Darkow, who says he has personally deployed more than $1.25 billion into litigation finance over his career, frames that spend as a large and persistent financing need rather than a cyclical opportunity.

Aperture's own approach is built around lending to law firms rather than backing individual cases. The firm structures direct loans secured by diversified pools of legal fee receivables, blending post-settlement receivables with near-settlement matters. Darkow contends that this structure reduces the binary outcome risk that has historically made single-case investments difficult for institutional allocators to underwrite, because repayment depends on the performance of a portfolio of claims rather than one verdict.

Aperture, which reported roughly $600 million in litigation finance assets under management earlier this year, is among a group of credit managers positioning law firm lending as a distinct private credit strategy.

Commercial

New York’s Usury Cap Still Shadows Litigation Funders Despite the State’s New Consumer Funding Statute

New York's new consumer litigation funding statute has not removed the risk that a funding agreement will be recharacterised as a usurious loan, according to a commentary published this week by three lawyers at Glenn Agre Bergman & Fuentes.

As reported by Bloomberg Law, partners Reid Skibell and Joseph Gallagher, with associate Colleen Piasenti, argue that the Consumer Litigation Funding Act — effective 17 June 2026 — gives funders a statutory framework but not a safe harbour. The Act defines consumer litigation funding as non-recourse and caps the funder's total recovery at 25% of the claimant's proceeds. Non-recourse treatment is what keeps a funding agreement outside New York's 16% civil usury ceiling, and the authors contend that courts will look past the label to the economics of the deal.

They point to the July 2026 decision in *Denemark v. New Chapter Capital, Inc.* as the cautionary example. There, a funder advanced legal fees to a party in a matrimonial dispute at a stated 12% interest rate, secured by a UCC-1 lien on marital property and supported by a guaranty that triggered repayment if the spouses reconciled or if either spouse died. The court concluded the structure left the funder recovering in virtually every realistic scenario, making the arrangement a loan in substance at an effective rate of roughly 19%, and voided it.

The practical lesson, the authors suggest, is that risk-reduction devices meant to protect a funder's downside can be the very features that strip away non-recourse status.