Paul Martenstyn | 15 April 2019

Funding's Reach Looks East

Paul Martenstyn reflects on the recent GAR Live event in Moscow, and how litigation funding can serve the needs of clients from Russia and CIS countries.

Litigation funding is big business. While the United States is perhaps the biggest market for litigation finance, other countries do not lag far behind. The United Kingdom, for example, is growing its share of the funding business - as we at Vannin Capital can confirm - but so too, is mainland Europe, particularly the Netherlands, while Asia and Australia remain important markets, and increasingly ever more so.

Wherever there are markets, there will be investments, and where there are investments, there will be disputes. London is recognised as a centre of resolving disputes, especially Russian-related ones; such matters as the Ablyazov and Pugachev litigations and further back, the long running dispute between the late Boris Berezovsky and Roman Abramovich spring to mind, while 2019 promises further such claims. The Financial Times reported last year that a study of 158 commercial disputes heard in London showed Russian litigants were consistently among the top three users of the London commercial courts over the past three years.

This is hardly surprising; with all the benefits the London courts have, while also being the ultimate appellate court for many of the offshore jurisdictions Russian and CIS clients have chosen to make their corporate homes for their businesses.

Discussions on funding are a staple of Russian Law Week, for example, and well understood in the arbitral world, as bodies like RCAN, the Russian/CIS Arbitration Network, can attest to. Within those numbers, there will be those, who will consider the legal and regulatory safeguards London provides, and the attractions funding brings. It is a strong business proposition. While due diligence is important - something we stress at Vannin Capital, and there is a need for independent assessment by any funder in being willing to take on third party risk, our procedures and methods are both well tried, understood and appreciated.

Funding however, does involve not just an assessment of risk and reward but also leaving aside the inevitable procedural matters to be weighed up, there is an element of public disclosure, both as to the existence and identity of funding, and the need for any related stock exchange, or market, disclosure, according to the listing requirements of the company involved, whether it be London, or elsewhere. Funders and clients will have a key eye as to the enforcement of third-party awards - asset recovery is one of the touchstones of this business, for without adequate enforcement, the likely returns from investment in such cases can render an award, or judgment, less useful to both sides. Taking an informed view as to risk is essential.

So too are jurisdictional considerations - the risk as to whether a dispute, suitably funded in a jurisdiction, will be heard in the country of choice - or not. All of these must be weighed up carefully. My experience is that Russian clients are comfortable with funding, whether as an asset class, or as a form of liquidity, or as an investment. There is a depth and maturity to their thinking here whether they are oligarchs, businesses, banks, or conglomerates.

In the latter case, they know funding allows them to diversify their portfolios, and so help mitigate investment risks, as well as strong likely returns and a reduced time to liquidity given the efficiency of common law procedures as seen above. That is not to say that London can afford to be complacent. As Angela Bilbow, the editor of CDR, wrote recently, changes to Russia's arbitration law, as well as a raised awareness of competing jurisdictions, means London must keep its game raised.

Russia is keen to keep its disputes at home and has introduced reforms to ensure that it is more attractive to do so. Governing law clauses are changing; de-offshoring is encouraged; arbitration, particularly at home, and to a greater extent abroad is favoured; and there are increasing alternatives, especially in a sanctions-conscious world.

One only needs to see the great strides made by the Hong Kong International Arbitration Centre in this regard, concluding bilateral agreements with partner arbitral associations in Russia, growing and networking beyond Russia's Far East. Belt and Road offers Russian and Chinese companies a chance for mutual benefit; and Hong Kong, like London, now welcomes funding in arbitration and has business friendly courts, aware of the needs of closely held businesses and oligarchs alike. Singapore is also keen to encourage funded disputes and has reformed both its own commercial arbitration rules and those for investor-state disputes.

While litigation funding in Russia itself is not prohibited, the approach of Russian courts to the topic can vary. Deferred fee agreements may be unenforceable by the courts by some judges, while other courts have said they must be reasonable and proportionate; success fees are generally not recoverable from the losing side.

With clear court rulings in the common law courts, London and her Asian imitators, offer clear commercial certainty, a path to risk and reward and the chance to shift risk, gain insight, partner with experienced professionals and invest in an increasingly popular asset class. Increasingly, as Russia looks East as it should, so too will funding.

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