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The purchase of a lawsuit can be beneficial to the company because it avoids the necessary provisions

| News | International Arbitration / Real Estate

Third Party Funding and Litigation Monetization for Construction Companies Day: Advantages and Disadvantages of the TPF

The new formulas framed in the Third Party Funding, that is, the monetization of a lawsuit through financing or the purchase by a fund could be beneficial for the company in certain cases. Large construction companies are not inclined to finance because they have resources and going to a fund could make the process more expensive, but they do see the purchase alternative as attractive because it would allow them to avoid the necessary provisions for a risk.

This was evident in the conference on Financing and monetization of litigation for construction companies: advantages and disadvantages of Third Party Funding organized by Andersen Tax & Legal in which Clara Cerdán, Director of the Legal Department of Grupo Ferroatlántica, Vanesa Sañudo, Senior Lawyer in the Legal Department of Técnicas Reunidas, Alfonso Aguirre, participated, Director of the Legal Department of Sacyr, Ignacio Delgado, Investment Officer at Therium Capital, Laura Cózar, Partner at Accuracy, Iñigo Rodríguez-Sastre, Partner at Andersen Tax & Legal, and Elena Sevila, Director in the Litigation, Insolvency and Arbitration area of this firm.

During his speech, Alfonso Aguirre maintained that he is inclined towards arbitration in international projects because of specialization, pointing out that in many public works projects the conditions for forum selection set forth by the bidder must often be accepted. This opinion was shared by Clara Cerdán, who argued that in construction projects, which by definition tend to be very complex, opting for arbitration to settle a dispute is preferable because, a priori, it has a panel of arbitrators who are experts and can better understand the matter while choosing the ordinary jurisdiction entails risks, especially in certain countries where interference and corruption in the judicial system limit legal certainty.

Vanesa Sañudo added that there are certain clients that limit the negotiations of the contract and highlighted that in certain countries the subcontractors have a very strong legal protection that in a dispute can endanger the work and others with certain peculiarities, such as Saudi Arabia, which forces to include Sharia rules in construction contracts. For the lawyer at Técnicas Reunidas, it is important in many cases to avoid conflict with the client over a question of image and reputation that could affect future awards.

Elena Sevila recalled that in a construction project there are multiple parties and litigation can become complicated if the same clauses are not provided for in all contracts.

For his part, Alfonso Aguirre referred to the cost analysis of the process which, in his opinion, acts as a negotiating lever between the parties before going to arbitration.

Laura Cózar also referred to the early assessment of the process, mainly in the construction sector, since the conclusions reached before the start of the process in complex projects will determine the position of the company before a possible litigation. To these effects, she indicated as a very relevant issue that of establishing from the beginning the quantum of the possible claim in order to make the final decision with all the necessary elements. 

The speakers discussed the financing and purchase of lawsuits by funds and Ignacio Delgado analyzed the procedure followed by a fund, from due diligence to the approval or not of the investment, which takes into account issues such as whether the counterparty is solvent or that the amount of the lawsuit is relevant, as well as the defense of the investment during the process or in case of agreement between the parties.

At this point, the representatives of Ferroatlántica, Sacyr and Técnicas Reunidas agreed that financing, which is still not very widespread in Spain, may generate certain doubts due to the possible interference that the fund may have in the defence process and strategy, since, according to the lawyer from Andersen Tax & Legal, three different parties enter the process, with interests that do not have to be aligned. However, they added, the monetization or purchase of all or part of the lawsuit or even the execution of an eventual award or judicial resolution could be a beneficial issue since it would allow them to avoid provisions in the balance sheet.

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