Monetizing and enforcing arbitral awards in Brazil and beyond
During Sao Paulo Arbitration Week 2021, an expert panel addressed critical questions related to enforcement and monetization of arbitral awards in Brazil and beyond as part of a webinar hosted by Omni Bridgeway. Moderated by Annie Lespérance, Head of Omni Bridgeway’s Latin America group, the discussion focused on the difference between monetization and enforcement, the strategies claimants might employ to enforce an award and how a dispute funder can help navigate this process.
Joining Lespérance were Henrique Forssell, an attorney with deep experience leading international asset recoveries and founding partner of Sao Paulo’s Duarte Forssell Sociedade Advogados, and Wieger Wielinga, Managing Director, Enforcement and EMEA, at Omni Bridgeway and a veteran of global litigation, dispute funding and enforcement.
ENFORCEMENT VS. MONETIZATION
Wielinga began with a brief explanation of the differences between enforcement and monetization of arbitral awards from a funder’s perspective.
In an enforcement funding arrangement, Wielinga said Omni Bridgeway offers non-recourse funding, paying the costs of an enforcement effort and in exchange, only recovering expenses and a return on investment when the debt is recovered.
In a monetization arrangement, Omni Bridgeway will pay an advance to the claimant in addition to paying the costs of an enforcement effort and take a share of the outcome, or alternatively, can purchase an award or judgment in its entirety and take over as the primary award holder. An outright purchase of the entire award may be attractive to cash-strapped award holders, but in practice, Wielinga said, the funder often prefers retaining a relationship with the award holders. “They tend to have knowledge about the respondent which can be valuable to the recovery efforts” he said.
Forssell said claimants in a large arbitration or litigation should begin thinking about how they would enforce a judgment or an award from the outset of a case. An enforcement team can develop data as the case progresses and assist in taking precautionary measures to help halt the transfer or sale of assets by counterparties. “There is no asset recovery without the proper resources,” Forssell said.
First, claimants must create an effective plan of investigation and build the right team of experts if they hope to mount a successful enforcement effort—particularly one involving a sophisticated respondent unwilling to pay an international arbitral award.
Developing a strong team that can quickly gather solid evidence can also help convince the courts to support enforcement efforts. While each jurisdiction has its own set of rules, “we have found that most courts are willing to cooperate” in helping compel an unwilling debtor to pay a judgment, Forssell said. The right enforcement team, he added, can make it “very hard for the debtor not to pay the judgment.”
Forssell noted that Brazil, with its large and complex economy, is home to highly sophisticated debtors who are adept at hiding assets. They use offshore jurisdictions, complicated business and trust structures, foreign bank accounts, and third parties who assist in the management of those assets.
Brazilian courts, he said, recognize the majority of judgments that originate in foreign jurisdictions. “Our system is very stable in that sense,” he said. As for judgments originating in Brazil, the courts are empowered by the central bank to freeze accounts from their chambers. “We don’t have to go to individual banks. We are allowed to freeze those accounts immediately,” Forssell said. “This creates a lot of success in our system to defeat debtors who are not willing to comply with court orders.”
Wielinga said in an international arbitration enforcement effort, a claimant must first determine where assets are located. As a result, it will likely need a seasoned asset tracing team, one that can determine the legal status of the assets and ensure they can be seized. “Finding the asset is one thing, but establishing its legal status is another.” That legal analysis is critical, he said. “Is the asset really owned by a counter-party, and can that asset really be used for enforcement? How about the risk of sovereign immunity?”
For its part, Wielinga said Omni Bridgeway typically works with an award holder and its counsel to create a multijurisdictional enforcement plan. In the end, he noted, most enforcement cases are settled. Attaching assets concurrently in multiple jurisdictions turns up the legal pressure on a counterparty and facilitates settlement negotiations. “If that pressure is there and the respondent’s prospect for legally deterring that pressure is clearly diminishing, typically we or one of the law firms on the team will get a call on behalf of the award debtor to settle the claim” he said.
Where sovereign entities are involved, Wielinga said Omni Bridgeway’s engagement begins with a focus on that sovereign’s overall ability to pay and how asset attachments outside of the home jurisdiction of the sovereign can be used to quickly increase the earlier mentioned legal pressure. The research into the status of the assets identified include predicting and judging the risks of any potential defenses such as sovereign immunity, service requirements, and asset ownership structures. Sovereign immunity of execution, means, in general terms, that assets intended for a specific public purpose cannot be frozen. Each jurisdiction has its own rules on what is considered public, he said. The legal team and the intelligence team need to closely work together to understand these issues.
Political issues can make it more difficult to settle sovereign cases, Wielinga said. The size of an asset being attached can also be important in spurring an unwilling sovereign to the settlement table. “If it’s a huge amount, the phone usually rings,” Wielinga said. Focusing on attaching assets where the nuisance value is very high can also be an effective strategy.
HOW FUNDERS CAN HELP
Funders can assist claimants in a variety of ways, Wielinga said. They can:
- provide non-recourse financing to pay all the costs of an enforcement;
- bring aboard an internal specialized team of experienced asset tracers, investigators, and enforcement specialists;
- take on enforcement actions involving difficult counterparties, such as sovereign entities; and
- coordinate a global enforcement effort that may be out of reach for a company or its outside counsel.
Because the funder is only paid its return in the event of a successful recovery, the funder is motivated to seek the largest possible settlement. Thus, its interests are aligned with those of the claimant. “An experienced funder like Omni Bridgeway is likely to improve the total amount of recoveries, particularly in complex situations involving sovereigns, where we have decades of experience negotiating with government officials,” Wielinga said. This expertise can be critical during settlement negotiations.
MONETIZING AN AWARD
Monetization by a funder, Wielinga noted, can take two forms. In one, the claimant may need up-front cash, but it does not want to sell an entire award. In exchange for a percentage of the economic interest in the award, the funder enters into an enforcement agreement with the client and provides an upfront payment or payment in tranches during the process of enforcing an award.
In situations where a claimant may need a larger sum or is anxious to get the matter off its balance sheet, the funder may also purchase an award or judgement outright. Claimants, however, should be aware that the amount paid out will be far smaller than the potential recovery. “This can be disappointing for clients,” Wielinga said. “If they can afford to have some patience, selling a subset of the entire claim might be more desirable to them.”
Lespérance asked Forssell if he was aware of any obstacles to the monetization of arbitral awards in Brazil. “I don’t see any legal barriers” in Brazil, Forssell said. “From my perspective Brazil is completely friendly to these arrangements, and we will see good case law develop on this over the years.”
In some civil law jurisdictions, however, the concept of retrait litigieux can be an impediment to a monetization agreement. Funders, Wielinga said, take a close look at the specific laws in a country to determine if a claim can be sold.
Summing up, Forssell said a funder’s involvement in an enforcement effort can be crucial in ensuring that the claimant is making the right choices from the beginning of the process. “An experienced funder can help determine what is the fastest, safest route to achieve a recovery” Forssell said.
To learn more about Omni Bridgeway’s litigation funding capabilities, visit our Company Insights. While there, explore our recent podcasts, blog posts, and videos. Or contact us for a consultation to learn more about the ways we can help you pursue meritorious claims.