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Litigation Finance and China’s Belt and Road Initiative

March 1, 2018

Litigation Finance and China’s Belt and Road Initiative

By Mauritius Nagelmueller China is building a multi-trillion dollar trade and infrastructure network – a new silk road – and the legal world is preparing for the disputes that will inevitably arise. What is the Belt and Road Initiative all about, and what impact will it have on litigation finance? Being one of the largest infrastructure and investment projects in history, the Belt and Road Initiative (BRI)[1] will alter the global economy and define China’s role in it. The initiative covers 65% of the world’s population in more than 68 countries, and 40% of the global GDP. An anticipated overall investment of USD 4-8 trillion will connect China with the rest of Asia, Europe and Africa, through six main geographic corridors and a Maritime Silk Road. China’s position is that BRI will improve the infrastructure along the route, providing a network of highways, railways, ports, energy and development projects for trade and cultural exchange. Chinese state-owned banks, the Asian Infrastructure Investment Bank (formed in 2015, but already encompassing 84 approved member states, and with a capital of USD 100 billion – half of the World Bank’s capital), the Silk Road Fund, and investors from the private sector are providing the necessary financing. About USD 1 trillion has already been invested. It seems likely that BRI, if successful, will shift more economic and political power to China. Major concerns surround the environmental impact of the vast project, uncertainties regarding the exact parameters and how much local economies will actually benefit. Security risks along the Belt remain constant. Some even fear a new Chinese “empire”. It remains to be seen which of these fears are justified, but it is interesting to note that China’s president Xi Jinping, who unveiled BRI in 2013 and made the initiative a central tenet of his foreign policy agenda, will likely remain in power, as the Communist Party of China just announced plans to abolish the two-term limit on the presidency. To predict that legal disputes will arise under BRI is to state the obvious, and the legal community in Asia and beyond is preparing accordingly. Jurisdictions are already competing for recognition as the prime venue for BRI related proceedings. In an effort to provide wide-ranging dispute resolution services, China plans to establish an international commercial court in Xi’an for disputes surrounding the land-based transport corridors, another in Shenzhen for the maritime route, and a central court headquartered in Beijing. All three bodies will provide arbitration and mediation services. China’s neighbors share its expectations regarding dispute resolution. In 2017, Hong Kong and Singapore permitted litigation finance in international arbitration, and the legalization for state court procedures may soon follow. Hong Kong passed its law shortly after a BRI Forum in Beijing, and partly also to strengthen its position as a go-to center for BRI related disputes, particularly for the maritime and construction fields. Arbitration institutions around the world, including the ICC (International Chamber of Commerce), SIAC (Singapore), and HKIAC (Hong Kong), encourage the adoption of their rules in BRI deals, and Malaysia’s KLRCA and Seoul’s KCAB are preparing accordingly. Chinese and Singaporean mediation centers (CCOIC and SIMC) have plans to cooperate for BRI related mediation proceedings, while Hong Kong is developing an online arbitration and mediation tool specialized on the initiative. Chinese officials have even publicly floated the concept of an innovative hybrid method combining aspects of arbitration and mediation, with courts playing a central role as well. Many legislators view litigation finance as a vital component in their jurisdiction’s status as a prime dispute resolution center, and litigation finance firms are aggressively seizing on the new opportunities presented. Select funders have already opened offices in Asia, others will soon follow, or plan to be involved from abroad. Entities who plan to invest along the Belt, including many Chinese companies, will not only face complex regulatory challenges, but also disputes with foreign governments, possibly in multiple jurisdictions. In addition to first-rate legal advice, parties will sometimes require external financing to pursue their claims under BRI. Both investors and law firms will utilize the benefits of litigation finance, and seek tailored financing solutions for their cases arising under BRI related projects. This will include single cases, as well as multiple disputes from investments being bundled into portfolios of claims. BRI will have a significant impact on litigation finance in the coming years, as a host of challenges and new opportunities present themselves. As has occurred previously, litigation finance will support meritorious claims which could not be brought without the assistance of external financing, help businesses and law firms diversify and boost their portfolios without increasing risk, and continue to promote access to justice. Litigation finance will benefit from this unprecedented trade and infrastructure initiative. It has already become part of the legal world, and it will soon be part of BRI. [1] Originally called One Belt and One Road Initiative.   Mauritius Nagelmueller has been involved in the litigation finance industry for more than 10 years.

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Case Developments Commercial

Pogust Goodhead Seeks Interim Costs Payment

By John Freund |

Pogust Goodhead, the UK law firm leading one of the largest group actions ever brought in the English courts, is seeking an interim costs payment of £113.5 million in the litigation arising from the 2015 Mariana dam collapse in Brazil.

According to an article in Law Gazette, the application forms part of a much larger costs claim that could ultimately reach approximately £189 million. It follows a recent High Court ruling that allowed the claims against BHP to proceed, moving the litigation into its next procedural phase. The case involves allegations connected to the catastrophic failure of the Fundão tailings dam, which resulted in 19 deaths and widespread environmental and economic damage across affected Brazilian communities.

Pogust Goodhead argues that an interim costs award is justified given the scale of the proceedings and the substantial expenditure already incurred. The firm has highlighted the significant resources required to manage a case of this size, including claimant coordination, expert evidence, document review, and litigation infrastructure. With hundreds of thousands of claimants involved, the firm maintains that early recovery of a portion of its costs is both reasonable and proportionate.

BHP has pushed back against the application, disputing both the timing and the magnitude of the costs being sought. The mining company has argued that many of the claimed expenses are excessive and that a full assessment should only take place once the litigation has concluded and overall success can be properly evaluated.

The costs dispute underscores the financial pressures inherent in mega claims litigation, particularly where cases are run on a conditional or funded basis and require sustained upfront investment over many years.

Case Developments Commercial

Litigation Capital Management Faces AUD 12.9m Exposure After Class Action Defeat

By John Freund |

Litigation Capital Management has disclosed a significant adverse costs exposure following the unsuccessful conclusion of a funded Australian class action, underscoring the downside risk that even established funders face in large-scale proceedings.

An article in Sharecast reports that the AIM-listed funder revealed that the Federal Court of Australia has now quantified costs in a Queensland-based class action brought against state-owned energy companies Stanwell Corporation and CS Energy. The court ordered costs of AUD 16.2 million in favour of each respondent, resulting in a total adverse costs award of AUD 32.4 million. The underlying claim was dismissed earlier, and the costs decision represents the next major financial consequence of that loss.

While LCM had after-the-event insurance in place to mitigate adverse costs exposure, that coverage has now been exhausted. After insurance, an uninsured balance of AUD 19.9 million remains. LCM expects to contribute AUD 12.9 million of that amount directly, with the remaining balance to be met by investors in its Fund I vehicle.

The company has emphasized that the costs awarded were standard party-and-party costs, not indemnity costs, and stated that the outcome does not reflect adversely on the merits of the claim or the conduct of the proceedings. Nonetheless, the market reacted sharply, with LCM’s share price falling by more than 14% following the announcement.

LCM also confirmed that it has already lodged an appeal against the substantive judgment, with a two-week hearing scheduled to begin in early March. In parallel, the funder is considering whether to challenge the costs quantification itself, alongside an appeal being pursued by the claimant. The company noted that discussions with its principal lender are ongoing and that its previously announced strategic review remains active, with further updates expected in the coming months.

Commercial

Avoiding Pitfalls as Litigation Finance Takes Off

By John Freund |

The litigation finance market is poised for significant activity in 2026 after a period of uncertainty in 2025. A recent JD Supra analysis outlines key challenges that can derail deals in this evolving space and offers guidance on how industry participants can navigate them effectively.

The article explains that litigation finance sits at the intersection of law and finance and presents unique deal complexities that differ from other private credit or investment structures. While these transactions can deliver attractive returns for capital providers, they also carry risks that often cause deals to collapse if not properly managed.

A central theme in the analysis is that many deals fail for three primary reasons: a lack of trust between the parties, misunderstandings around deal terms, and the impact of time. Term sheets typically outline economic and non-economic terms but may omit finer details, leading to confusion if not addressed early. As the diligence and documentation process unfolds, delays and surprises can erode confidence and derail negotiations.

To counter these pitfalls, the piece stresses the importance of building trust from the outset. Transparent communication and good-faith behavior by both the financed party and the funder help foster long-term goodwill. The financed party is encouraged to disclose known weaknesses in the claim early, while funders are urged to present clear economic models and highlight potential sticking points so that expectations align.

Another key recommendation is ensuring all parties fully understand deal terms. Because litigation funding recipients may not regularly engage in such transactions, well-developed term sheets and upfront discussions about obligations like reporting, reimbursements, and cooperation in the underlying litigation can prevent later misunderstandings.

The analysis also underscores that time kills deals. Prolonged negotiations or sluggish responses during diligence can sap momentum and lead parties to lose interest. Setting realistic timelines and communicating clearly about responsibilities and deadlines can keep transactions on track.