PORTUGAL Trends and Developments Contributed by: Nuno Temudo Vieira, Alexandra Valpaços, Miguel Santos Almeida and João Saúde, Sérvulo & Associados
funder exercising a controlling influence over a party may be treated as bearing that party’s identity for the purpose of assessing an arbitrator’s independence. This question is far from academic, since the presence of TPF may also be invoked in support of applications for security for costs. Use of third-party funding in Portugal Portugal has traditionally been a small, marginal mar - ket for TPF. For a long time, the concept did not attract any attention from the local legal community, with lit - tle written about it and no court cases or legislation addressing it. Over the last ten years, however, it has become a familiar topic of discussion at conferences and webinars, and in published articles, particularly within the arbitration community. More importantly, in recent years, there has been a significant growth in the number of funders acting in the Portuguese market, with at least ten currently active at the national level. Consequently, it is increas - ingly common to see high-value disputes – particularly in arbitration proceedings – in which the claimant is funded by a third-party funder. The criteria used to determine which disputes may be funded will vary depending on the funder. The minimum value of the dispute to be funded usually goes from EUR1 million to several million euros. That said, the most notable third-party funded cases so far have been consumer class actions. Backed by international funders and helped by rules that make collective claims easier to bring, several large funded actions are under way, including cases against major technology companies. It is in this area that funded liti - gation has first taken on a meaningful economic scale in Portugal. This trend is already expanding to other disputes, particularly high-value arbitration cases. Third-party funding in practice The process normally begins when the party with the claim, or its lawyers, approaches a funder and pre - sents the case. The funder typically carries out a risk assessment, which involves legal and financial due diligence – essentially a detailed review of how strong the case is, how much money is at stake, whether the opposing side would be able to pay if the case is won, how realistic it is to actually collect, and how long it
will take to collect. This review serves two purposes: deciding whether to fund the case at all and setting the price of the funding. The due diligence is very thorough, from both a legal and factual perspective, and requires the entity apply - ing for funding to disclose the facts and evidence that allow the funder to properly assess the likelihood of success of the claim. Typically, funders will hire law firms with solid litigation and arbitration teams to carry out such due diligence. If the funder decides to go ahead, the two sides nego - tiate a funding agreement. This is usually structured so that the funder pays the costs of the case and, in return, receives a share of the proceeds if the case succeeds. The share of the proceeds to be received by the funder may vary and will depend on a number of factors, such as the value of the claim and the level of risk to be taken by the funder. According to a recent study by the European Commission on Mapping Third Party Litigation Funding in the European Union, in Por - tugal the percentage of the proceeds delivered to the funder may vary between 14% and 70%. If the case fails, the funder simply loses its investment, and the funded party owes nothing back. The agreement typically deals with a number of practi - cal points, including: • confidentiality, since the funder will see sensitive information about the case; • how much say the funder has – the line between being kept informed and actually controlling or co- managing the case; • who bears the other side’s costs if the case is lost, which needs to be stated clearly because silence can be read as the funder accepting that risk; and • how and in what order the money is shared at the end, often through priority (“waterfall”) arrange - ments and escrow accounts. Typically, the whole process from the first approach to the funder until a funding agreement is executed will take a few weeks. Once the agreement is signed, the funder monitors the case through to its conclusion, and when money
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