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Commercial Regulatory Issues

Landmark New York Court’s Decision Strengthens the Future of Litigation Funding

September 14, 2023

Landmark New York Court’s Decision Strengthens the Future of Litigation Funding

The following piece was contributed by Guido Demarco, Director and Head of Legal Assets at Stonward. In a groundbreaking legal battle that pitted Petersen Energía SAU and Petersen Energía Inversora SAU[1] (the Petersen Companies) against the Republic of Argentina, the recent decision by the District Court of Southern District of New York has far-reaching implications for the litigation funding industry. This landmark ruling reaffirms the critical role litigation funders play in providing access to justice, particularly in complex cases involving powerful sovereign entities. The Petersen case was a high-stake dispute that arose when Argentina failed to fulfill its obligations under the bylaws of YPF S.A, the national oil company. When Argentina privatized the company during the 90s, the country promised under the bylaws a compensated exit to shareholders – a mandatory tender offer – if Argentina were to reacquire control of the company by any means. In 2012, Argentina expropriated Repsol’s 51% stake in YPF but did not fulfill this promise, eventually plunging the Petersen Companies into insolvency and liquidation. To fight back against this injustice, the resourceful insolvency administrator of the companies, Armando Betancor, devised a liquidation plan in 2015 that included securing litigation funding. Given the immense risks involved, the Petersen Companies had to assign 70% of any recovery obtained in the claims to Burford Capital, the litigation funder. These risks included fighting a fierce sovereign in New York courts, which implied paying high attorney and experts’ fees during a lengthy period, as well as enforcement risks. During the trial, Argentina attempted to diminish the awarded damages by arguing that the litigation funder was the primary beneficiary of the compensation, seeking to shift the focus away from the plaintiffs’ rightful claims. This tactic sought to undermine the legitimacy of the litigation funding arrangement, implying that the claimants should receive reduced damages due to the involvement of a third-party funder. However, the court’s decision firmly rejected this argument, emphasizing that the responsibility for compensation lay with Argentina, regardless of the funding arrangement, ensuring that the claimants were not deprived of the full measure of their entitled damages. In a single paragraph, the Judge unequivocally dismissed Argentina’s attempts to derail the case by injecting the role of Burford Capital into the proceedings. The Judge emphasized that the essence of the case remained between the plaintiffs and the defendant who inequitably refused to comply with its promises: “The Court also rejects the Republic’s effort to inject Burford Capital into these proceedings. This remains a case brought by plaintiffs against a defendant for its wrongful conduct towards them, and the relevant question is what the Republic owes Plaintiffs to compensate them for the loss of the use of their money, not what Plaintiffs have done or will do with what they are owed. The Republic owes no more or less because of Burford Capital’s involvement. Furthermore, the Republic pulled the considerable levers available to it as a sovereign to attempt to take what it should have paid for and has since spared no expense in its defense. If Plaintiffs were required to trade a substantial part of their potential recovery to secure the financing necessary to bring their claims, in Petersen’s case because it was driven to bankruptcy, and litigate their claims to conclusion against a powerful sovereign defendant that has behaved in this manner, this is all the more reason to award Plaintiffs the full measure of their damages.” Ironically, the most powerful impact for the litigation funding industry comes not from a lengthy legal argument, but from a single paragraph tucked away in a footnote of the judgment. Within this inconspicuous footnote, the Judge’s words resonate loudly, reaffirming the fundamental principles underpinning litigation funding. It reminds us that justice is blind to the funding mechanisms employed to level the playing field and that litigants should not be penalized for seeking financial support, particularly when facing formidable sovereign opponents and obstacles. No doubt, this will be a beacon in times in which the industry is under heavy scrutiny, especially in Europe under the so-called Voss Report. The ruling reaffirms the legitimacy and importance of litigation funders in enabling access to justice in complex cases where financial backing is essential to bring claims to fruition. The Court’s decision in the Petersen case is a significant victory not only for the plaintiffs but also for the litigation funding industry. It sets a powerful precedent that reinforces the rights of litigants to secure funding for their cases without sacrificing the full measure of their damages, contributing to a more equitable and accessible legal system. This decision will inspire confidence among potential litigants, funders, and investors alike, encouraging continued growth in the litigation funding industry. We, at Stonward, are proud of having Armando Betancor, the insolvency administrator of the Petersen companies, in our Board of Investment. [1] Petersen Energía SAU and Petersen Energía Inversora SAU v. Republic of Argentina, District Court of Southern District of New York, 15 Civ. 2739 (LAP) – 16 Civ. 8569 (LAP)

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Commercial

Litigation Finance Faces Regulatory, MSO, and Insurance Crossroads in 2026

By John Freund |

The litigation finance industry, now estimated at roughly $16.1 billion, is heading into 2026 amid growing uncertainty over regulation, capital structures, and its relationship with adjacent industries. After several years of rapid growth and heightened scrutiny, market participants are increasingly focused on how these pressures may reshape the sector.

Bloomberg Law identifies four central questions likely to define the industry’s near-term future. One of the most closely watched issues is whether federal regulation will finally materialize in a meaningful way. Legislative proposals have ranged from restricting foreign sovereign capital in U.S. litigation to taxing litigation finance returns. While several initiatives surfaced in 2025, political gridlock and election year dynamics raise doubts about whether comprehensive federal action will advance in the near term, leaving the industry operating within a patchwork of existing rules.

Another major development is the expansion of alternative investment structures, particularly the growing use of management services organizations. MSOs allow third party investors to own or finance non legal aspects of law firm operations, offering a potential pathway for deeper capital integration without directly violating attorney ownership rules. Interest in these models has increased among both litigation funders and large law firms, signaling a broader shift in how legal services may be financed and managed.

The industry is also watching the outcome of several high profile disputes that could have outsized implications for funders. Long running, multibillion dollar cases involving sovereign defendants continue to test assumptions about risk, duration, and appellate exposure in funded matters.

Finally, tensions with the insurance industry remain unresolved. Insurers have intensified efforts to link litigation funding to rising claim costs and are exploring policy mechanisms that would require disclosure of third party funding arrangements.

Taken together, these dynamics suggest that 2026 could be a defining year for litigation finance, as evolving regulation, new capital models, and external pushback shape the industry’s next phase of development.

Commercial Regulatory Issues

Liability Insurers Push Disclosure Requirements Targeting Litigation Funding

By John Freund |

Commercial liability insurers are escalating their long-running dispute with the litigation funding industry by introducing policy language that could require insured companies to disclose third-party funding arrangements. The move reflects mounting concern among insurers that litigation finance is contributing to rising claim costs and reshaping litigation dynamics in ways carriers struggle to underwrite or control.

An article in Bloomberg Law reports that the Insurance Services Office, a Verisk Analytics unit that develops standard insurance policy language, has drafted an optional provision that would compel policyholders to reveal whether litigation funders or law firms with a financial stake are backing claims against insured defendants. While adoption of the provision would be voluntary, insurers could begin incorporating it into commercial liability policies as early as 2026.

The proposed disclosure requirement is part of a broader push by insurers to gain greater visibility into litigation funding arrangements, which they argue can encourage more aggressive claims strategies and higher settlement demands, particularly in mass tort and complex commercial litigation. Insurers have increasingly linked these trends to what they describe as social inflation, a term used to capture rising jury awards and litigation costs that outpace economic inflation.

For policyholders, the new language could introduce additional compliance obligations and strategic considerations. Companies that rely on litigation funding, whether directly or through counterparties, may be forced to weigh the benefits of financing against potential coverage implications.

Litigation funders and law firms are watching developments closely. Funding agreements are typically treated as confidential, and mandatory disclosure to insurers could raise concerns about privilege, work product protections, and competitive sensitivity. At the same time, insurers have been criticized for opposing litigation finance while also exploring their own litigation-related investment products, highlighting tensions within the market.

If widely adopted, insurer-driven disclosure requirements could represent a meaningful shift in how litigation funding intersects with insurance. The development underscores the growing influence of insurers in shaping transparency expectations and suggests that litigation funders may increasingly find themselves drawn into coverage debates that extend well beyond the courtroom.

Case Developments Commercial

Diamond McCarthy Backs Lansdowne Oil Treaty Claim Against Ireland

By John Freund |

US-based litigation funder Diamond McCarthy has agreed to back a high-stakes investment treaty claim brought by Lansdowne Oil and Gas against the Irish state, with the claim reportedly valued at up to $100 million. The dispute arises from Ireland’s policy shift away from offshore oil and gas development, which Lansdowne argues has effectively wiped out the value of its investment in the Barryroe offshore oil field.

According to NewsFile, Lansdowne Oil and Gas, a small exploration company listed in London and Dublin, is pursuing arbitration against Ireland under the Energy Charter Treaty. The company alleges that Ireland’s 2021 decision to halt new licences for offshore oil and gas exploration, followed by regulatory actions affecting existing projects, breached treaty protections afforded to foreign investors. Lansdowne contends that these measures frustrated legitimate expectations and amounted to unfair and inequitable treatment under international law.

Diamond McCarthy’s involvement brings significant financial firepower to a claim that would otherwise be difficult for a junior energy company to pursue. The funder will cover legal and arbitration costs in exchange for a share of any recovery, allowing Lansdowne to advance the case without bearing the full financial risk. The arbitration is expected to be conducted under international investment dispute mechanisms, with proceedings likely to take several years.

Ireland has previously defended its policy changes as part of a broader climate strategy aimed at reducing fossil fuel dependence and meeting emissions targets. Government representatives have indicated that the state will robustly contest the claim, arguing that the measures were lawful, proportionate, and applied in the public interest. Ireland is also in the process of withdrawing from the Energy Charter Treaty, although existing investments may remain protected for a period under sunset provisions.