The Impact of Third-Party Financing on Transnational Litigation

Article excerpt

Third-party litigation finance is a growing industry. The practice, also termed "litigation lending," allows funders with no other connection to the lawsuit to invest in a plaintiff's claim in exchange for a share of the ultimate recovery. Most funding agreements have focused on domestic litigation in Australia, the United Kingdom, and the United States. However, the industry is poised for growth worldwide, and the recent environmental lawsuit brought by Ecuadorian plaintiffs against Chevron demonstrates that litigation funding is also beginning to play a role in transnational litigation.

This article, prepared for a symposium on "International Law in Crisis," speculates about how the growing litigation-finance industry may reshape transnational litigation in the coming decades. It argues that the individual economic incentives created by third-party financing will likely increase the number of transnational lawsuits filed, raise the settlement values of those lawsuits, and spread out the lawsuits among a larger number of countries than was typical in the past. It further hypothesizes that these individual choices about transnational litigation will lead countries to reassess their internal balance of litigation and regulation and will create pressure for greater international coordination of litigation procedure, including transnational forum choice and cross-border judgment enforcement.

I.   INTRODUCTION
II.  THE INTERNATIONAL GROWTH OF THIRD-PARTY
     LITIGATION FINANCE
III. THE ECONOMIC INCENTIVES OF LITIGATION FINANCE
     A. Individual Incentives
     B. Shifting Magnetic Polarities
     C. Social and Regulatory Impact
        1. Altering the balance of regulation and litigation
        2. Coordination of litigation procedures
IV.  CONCLUSION

I. INTRODUCTION

The long-running environmental litigation between the Ecuadorian residents of the Amazon region and Chevron/Texaco has spawned multiple adjudicatory proceedings in several countries, (1) a host of scholarly commentary, (2) a documentary film sympathetic to the plaintiffs (3) and another film commissioned by the defense, (4) as well as hidden-camera videos allegedly revealing wrongdoing by plaintiffs' counsel. (5) The drama of the Ecuadorian case is in many ways sui generis. Nevertheless, various aspects of the case have been useful in highlighting emerging trends in transnational litigation, and the high-profile nature of the case has drawn attention to doctrinal intricacies and litigation strategies that have become increasingly important in transnational cases. (6) One such emerging trend highlighted by the Ecuadorian litigation is the convergence of transnational forum choice and related litigation strategies with third-party litigation financing. (7)

Historically, the U.S. has been a "magnet forum" for transnational cases, as it permits broad discovery and contingent-fee representation, and it offers relatively high damage awards. (8) U.S. courts have relied on the doctrine of forum non conveniens to discourage litigation of cases arising abroad that could be tried elsewhere. In the past, it was rare for such cases to be filed abroad after dismissal from the U.S. (9) In recent years, however, a number of other countries--especially those in Latin America--have taken steps to make it easier for plaintiffs to file those cases in the plaintiffs' home forums, and more cases have been tried to verdict abroad. (10)

Also in the last decade, a number of countries have loosened restrictions on third-party financing of litigation. (11) Such financing typically encompasses "third parties--with no previous connection to a claimholder--investing in a claimholder's litigation, covering all his litigation costs in exchange for a share of any proceeds if the suit is successful, or, in the alternative, nothing if the case is lost." (12) Australia and the U.K. have been leaders in this regard, but other countries such as the Netherlands, Belgium, Germany and South Africa have also liberalized lawsuit financing. …