Looking at the Possibility of Litigation Finance in Latin America

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It is well known that the main discussion on litigation finance is generally circumscribed to a handful of common law jurisdictions, chiefly the US, the UK, Australia, and –as we just learned last week from Professor Kalajdzic’s post in this blog- more recently Canada. These are countries where litigation finance has been regulated by statute, mainly in the context of the common law doctrines of maintenance and champerty; and where local courts have occasionally stepped in to redefine the contours of this activity. It is also in those jurisdictions where the fast-growing litigation finance industry seems to be more active, and where their promotion efforts are concentrated.

Although the rest of the world appears to fly below the radar of the academic literature and the policy debate in this field, the increased use of litigation finance in the context of cross-border and transnational dispute resolution demands that we look beyond the confines of the small circle of countries previously mentioned. Latin America, for instance, is a region that should at least have a place in the agenda of litigation finance experts. While the region comprises twenty different countries, each with their own national legal system, institutions, and rules; most of them share a common origin, and all are members of the civil law tradition. As a result, their fundamental approach to the regulation of civil and commercial contracts, and civil litigation tends to converge.

The Chevron-Ecuador saga offers just one example of how important it is to assess the status of the litigation finance industry in Latin America, the need to define the contractual relationship between the parties, and the role of the courts in scrutinizing alternative finance agreements. In the aforementioned case, which involves judicial proceedings in Ecuador, Argentina, and Brazil, the fact that at least one of the parties has obtained outside funding is an issue that the local courts will have to scrutinize. Although the specific question there would not involve an examination about the validity of the litigation finance contract per se, the courts will nonetheless have to gauge the impact of outside finance on the parties to the litigation, and other important aspects. Although the Chevron-Ecuador dispute may be the most notorious current case involving litigation finance in any of those countries, chances are that it is not the only one.

As a result, an exploration of litigation finance from the standpoint of Latin America is warranted. A preliminary query as to the status of litigation finance in the region should focus on individual countries, at least with respect to two main issues. The first one is whether, as a matter of domestic law, litigation finance is allowed in that particular jurisdiction, and in which specific cases. The second issue, which is conditioned to an affirmative answer of the former, refers to how exactly could the parties to a litigation finance agreement regulate their relationship. In other words, what specific elements should a valid and enforceable litigation finance contract contain in the context of that particular jurisdiction. The specific analysis of the aforementioned questions vis-à-vis the domestic laws of different Latin American countries goes beyond the limited scope of this brief commentary, and will be left to another day. Notwithstanding, as a way to prepare the ground for future discussion, I will briefly raise two basic points.

The first point is that the Civil Codes of most Latin American countries contain specific rules that govern the assignment of claims (Cesión de derechos litigiosos, in Spanish; or Cessão do direitos litigiosos, in Portuguese), including the conditions that need to be fulfilled, the rights and obligations of the parties, and the legal limits of the assignment. There are also a vast number of court decisions that have defined the boundaries of these types of contracts. A second and final point is that, although the Civil Codes and the Codes of Civil Procedure of Latin American countries do not recognize the doctrines of maintenance and champerty, there are nonetheless some important ethical limitations that vary between jurisdictions. In their most extreme form, these limitations are designed to prevent counsel from acquiring a personal interest in the outcome of litigation, thus effectively imposing a prohibition of contingency-fee arrangements. On the other hand, there are jurisdictions where contingency-fee arrangements are allowed, even though there may still be other limitations in place.

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