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This article was first published for Grant Thorton with co-authors Sandy Cowan (Grant Thornton UK LLP) and Marcela Kohlbach de Faria (Leste)
In this article, we focus on the impact of Third Party Funding (TPF) on quantum experts and on enforcement strategies, both from an English and Brazilian perspectives.
In the UK, the position of a third-party funder (Funder) is clear: once the decision to fund a claim is made, the Funder does not have any rights to direct or control the litigation. They are not involved in managing the case, deciding strategy or negotiating a settlement. In other words, they must not interfere in the lawyers’ work. According to the Code of Conduct of the Association of Litigation Funders (ALF), “a Funder will not seek to influence the Funded Party’s solicitor or barrister to cede control or conduct of the dispute to the Funder1”. The Funder relies entirely on the due diligence process to manage its risk. With regard to experts, there is usually no direct contact between quantum experts and Funders during the arbitration process. Quantum experts only receive their instructions from the party that instructed them and their lawyers. Litigation costs, including expert costs, are notoriously hard to estimate in large cases and often overrun. Additional funding requests may need to be submitted to the Funder, which puts the Funder in a position to affect the continuity of the expert’s work. For example, the quantum expert may wish to carry out additional work, which the Funder may not consider necessary or commercially sensible. In that instance too, the ALF’s Code of Conduct is clear: a litigation funding arrangement (LFA) cannot give the Funder a discretionary right to terminate the litigation funding agreement outside the circumstances provided by the Code itself (ie where the Funder ceases to be satisfied about the merits of the dispute, reasonably believes that the dispute is no longer commercially viable or there has been a material breach by the funded party).2
1 Paragraph 9.3
2 The author would like to thank Marion Lespiau for her assistance in drafting this article.
It is important to note that TPF is a new market in Brazil, and, until now, only Leste Litigation Finance provides funding in a structured and organized manner. There is no regulation concerning TPF in Brazil. As a first mover in the TPF market, Leste Litigation Finance has a strong motivation to maintain best practice in order to avoid unfavourable precedents and any form of liability imposed to the Funder.
Thus, as occurs in England, Leste Litigation Finance has no control of the management of the case. The funded party takes all strategic decisions. Notwithstanding the risk taken by the Funder, if, in any circumstance, the party wishes to amend the initially designed strategy, the only option for the Funder is to update the funding agreement. For that, some safeguards clauses need to be inserted in the contract.
Therefore, considering that the Funder does not interfere in the conduct of the case, nor the appointment of the quantum expert, it is hard to imagine a situation in which the existence of a Funder might affect the independence of the expert.
The Funder should also previously have indicated to the funded parties any reasonable circumstances that might result in a conflict of interest between the Funder and the other
participants in the arbitration proceeding, such as arbitrators, lawyers or experts. This practice is important to avoid conflict scenarios and, eventually, the invalidity of the procedure. This can be especially true for new TPF markets such as Brazil, where, as in other Latin American countries, there has been a historical obstacle in the development of arbitration due to the resistance of the judiciary.
It is difficult to see a set of circumstances where quantum experts’ independence could be seen to be compromised.
These instances are more likely to arise with law firms who have conduct of the claim and/or arbitrators.
As mentioned by my colleagues above, in the UK we have the benefit of the Association of Litigation Funders and their Code of Conduct. Although not mandatory, most Brazilian or English international arbitrations shall have regard to the International Bar Association’s General Standard 7 of the Guidelines on Conflicts of Interest. They provide for the disclosure of TPFs in certain circumstances.
Where a quantum expert sits as an arbitrator, or the underlying organisation where the experts operate from have a vested interest in the TPF or the outcome of a claim, this may well constitute an impairment on their independence. We recently held a round table on a related issue here at Hardwicke, and it transpired that one of the lawyer’s firms was advising a Funder investing in a Funder. A sort of TPF reinsurance, for want of a better expression. It is difficult to see how the “reinsurer” could be disclosed under the current provisions around the world. They would without a doubt have an interest in the claim. As the landscape becomes more sophisticated, I can see there may well come a point where this issue becomes more polemic.
In summary, I do not think TPF has generally affected the impendence of quantum experts. However, circumstances where they could, at least in theory, I believe are in the not too
TPF is new in Brazil. So far, TPF is only available from one provider (Leste) and from experience, only cases of international arbitration (rather than litigation) are being
funded. Issues arising out of TPF are similar to those arising in other jurisdictions that allow the practice, and the answers provided by our panel from an English and a Brazilian perspective will have sounded familiar to arbitration practitioners.
In short, as indicated in Part 1 of this article, TPF encourages the involvement of quantum experts when the decision is made to involve a Funder. Funders may also use their own quantum experts as part of their due diligence process to verify the methodology employed
for the funded party. However, there is a real risk that any work carried out by the Funder before lawyers or even the claimant(s) is engaged or any communications between the Funder and the expert may not be covered by privilege.
In Brazil, after the arbitral award is rendered, the Funder can pursue the awarded amount itself, or together with the funded party. As discussed in Part 2, legal aspects need to be considered at an early stage, including whether the countries where the assets are located are signatories to the New York Convention and whether there are local laws restricting enforcement. Asking for expert assistance in locating assets may be a useful step to consider, although these may be separate from the experts providing evidence on quantum.
Regarding the independence of experts (Part 3), TPF is not specifically regulated in Brazil, and there is no equivalent to the ALF Code of Conduct to guide the conduct of Funder. In practice, safeguard clauses are included in TPF agreements in Brazil to provide that Funders have no control of the management of the case. As Funders have no say in the appointment of the quantum expert, it is unlikely that the existence of TPF in a Brazilian-seated arbitration would affect the independence of the expert.
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