Brazil - Country Report - Handbook on Third-Party Funding in International Arbitration- Second Edition

The thriving TPF market in Brazil, from an institutional and regulatory perspective, is relatively more recently established as compared to markets in the United Kingdom and Australia, which are themselves relatively new (dating back only 25+ years). Moreover, since the practices of ‘maintenance’ or ‘champerty’ have never been prohibited, one must consider that TPF-like activity has been present in our country for at least the past 25 years. However, it has been in the past 12 years that we have seen TPF become properly institutionalized, with the emergence of asset management companies, hedge funds, and investment funds allocating capital specifically to legal claims, thus becoming the main players, or the 'buy side' of TPF in Brazil. Unfortunately, official data to quantify the amount of capital deployed to legal claims or assets under management numbers that would provide a more precise notion of the size of the Brazilian TPF market are still lacking. However, in the last two years, through press and institutional information, investment firms such as Algarve Capital, Prisma Capital, SPS Capital, BTG Pactual, and Jive Investments have been cited, each having allocated capital in the range of USD 250 million to 1 billion in legal claims.

To best describe the TPF market in Brazil, one must first divide the TPF “genre” into two main subsectors: (i) the business of funding a litigation proceeding and (ii) the business of acquiring a legal claim by anticipating its future proceeds.

Funding a litigation proceeding operates by concluding a contract through which a third party agrees to finance the costs and expenses of a judicial or arbitration dispute in exchange for a percentage of the future and uncertain economic benefit obtained by a claimant (or a respondent) in a final ruling.

Acquiring a legal claim by anticipating its future proceeds (i.e., the “true sale” of claims) means that a claimant will assign, in exchange for an anticipated cash payment, all the titles and rights of a legal claim to a nonrelated third party (assignee or funder). The assignee then substitutes the original claimant in the legal proceeding (judicial or arbitration), becoming the new claimant and the ultimate beneficiary of any future award. In most cases, an earn-out is paid to the assignor.