When Does a Dispute Cease To Be Merely a Legal Conflict & Also Become a Financial Asset?

For years, litigation and international arbitration were perceived by many companies exclusively as a source of risk and cost. However, the growth of so-called Third Party Funding is partially reshaping that perception, particularly in the context of complex disputes arising from mergers and acquisitions (M&A) transactions.

Third-party litigation funding generally consists of an external entity assuming all or part of the costs of judicial or arbitral proceedings in exchange for a potential financial return in the event of a successful outcome. Although this mechanism has been present in Anglo-Saxon markets for years, its use in international arbitration and complex corporate disputes has gained increasing relevance in recent years.

Disputes linked to corporate acquisitions and sales often involve proceedings of significant legal and financial complexity. In many cases, they include extensive contractual frameworks, claims relating to breaches of representations and warranties, sophisticated financial analysis, and actions involving multiple jurisdictions.

Added to this is the considerable cost associated with international arbitration proceedings of this nature. The duration of the proceedings, the need for specialised teams, and the involvement of economic and expert witnesses make these disputes highly demanding from both a technical and financial perspective.

In this context, external funding is increasingly being considered by certain companies as a mechanism to manage the financial impact associated with the proceedings.

One of the most significant aspects of Third Party Funding is the possibility of externalising part of the financial risk arising from litigation or arbitration. The funder assumes the cost of the proceedings and, generally speaking, also bears the financial risk of an unfavourable outcome.

This model may facilitate access to complex arbitration proceedings for certain companies without requiring the immediate allocation of internal resources to the full development of the dispute.

Beyond the strictly financial component, funding processes are usually accompanied by prior assessments regarding the legal and economic viability of the claim. Case evaluation, document review, damage assessment, and the analysis of potential enforcement scenarios are commonly part of these operations.

In post-M&A disputes, one of the issues that frequently acquires central importance is the economic quantification of damages. In this type of proceeding, it is not sufficient merely to demonstrate the existence of a contractual breach; it is also necessary to determine the specific financial impact resulting from that breach.

The difference between the scenario initially contemplated in the transaction and the actual state of the business following completion often becomes one of the main areas of dispute. Consequently, economic expert evidence plays a particularly significant role within the arbitral proceedings.

The involvement of financial and economic experts is common in arbitrations relating to company valuations, economic losses, or breaches of contractual representations and warranties.

Another element that has gained increasing relevance in this field is the stage following the arbitral award. Obtaining a favourable decision does not necessarily mark the end of the dispute, particularly in international proceedings where actions relating to the challenge or enforcement of the award may subsequently arise across different jurisdictions.

As a result, in certain cases, the financial and procedural strategy associated with arbitration extends beyond the proceedings themselves.

The growth of Third Party Funding reflects the increasing intersection between the legal and financial spheres in complex business disputes. The rise in international arbitrations linked to corporate transactions, together with the significant economic cost associated with such proceedings, is contributing to a greater presence of external funding mechanisms in certain disputes.

In this context, at ILIA ETL GLOBAL we consider it particularly important to approach these types of proceedings from a multidisciplinary perspective, integrating legal, financial, and strategic analysis in transactions and disputes involving significant technical and international complexity.