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Legal finance in Spain

  • International arbitration
  • Antitrust & competition
February 21, 2024
Charlie Rooke & Philipp Leibfried

Over recent years, Spain has emerged as a prominent European jurisdiction for legal finance. In this article, we explore the latest trends in Spanish litigation and arbitration, explain why the Spanish market is attractive to legal finance providers and provide a “worked example” from a recent Burford investment in the jurisdiction.

The litigation and arbitration landscape in Spain

Legal finance has been widely embraced in the arbitration space, including in respect of investment treaty arbitrations.

In recent years, Spain has experienced a rapid growth in competition law claims, particularly following-on from regulatory findings of competition law infringements. Trucks Cartel claims continue to wend their way through the regional Spanish court, with many thousands of separate judgments being issued to date. Following the decision in Scania, we expect to see further such claims in Spain. Judges in certain regional commercial courts tend to be favorable towards claimants, particularly individuals or small businesses, and are often willing to attach significant weight to claimants’ economic reports on damages quantum where such reports follow a credible and clear methodology. 

Settlement of claims, especially in cases with a large number of individual claims, like the Trucks Cartel, Milk Cartel or Car Cartel, is relatively infrequent. Pre-action settlement is rarely on the table, with defendants only being willing to engage (if at all) after litigation is well underway. This makes legal finance an attractive option for high-volume, low-value claims, as it allows claimants to continue litigation until they obtain a final judgment. Without legal finance, meeting the costs to reach this stage would be a bar to many claimants. This is felt particularly starkly because of the limited ability for claimants to bring claims as a group (there have been recent instances where judges have pragmatically allowed claims to be joined together after they have been issued, though this is still nowhere near the scale of other European jurisdictions). The potential to bring together groups of claimants, coupled with the Spanish government’s implementation of the EU Collective Redress Directive, has opened the Spanish market for book builders and claims aggregators. 

Spain is also one of relatively few European jurisdictions in which lawyers may enter into conditional or contingency fee arrangements, following a 2008 Spanish Supreme Court decision. Many firms now seek to compete on price by offering alternative fee arrangements, particularly those in which they are remunerated as a percentage of damages obtained by the claimant, rather than on a traditional hourly basis. Accordingly, law firms are increasingly seeking legal finance providers to de-risk contingency and alternative fee practices, as well as to fund  pending high-value claims, turning expenses into assets and allowing reinvestment and growth of the firm.

What makes Spain an attractive market for legal finance?

Spanish litigation tends to resolve much quicker than other major European jurisdictions such as France and Italy. Based on publicly available data published annually by the Spanish General Council of the Judiciary, commercial litigation takes on average around 12 to 18 months to first instance. Competition litigation, including follow-on damages claims, tends to be slower, taking around 18 months to first instance. This is because the Spanish regional commercial courts continue to grapple with a significant backlog created by the follow-on damages claims resulting from the Trucks Cartel. In contrast to countries like the Netherlands and Germany, where the grouping of claims is permitted, the practice of bundling claims in Spain is still in its early stages. As a result, many individuals affected by the cartel have filed hundreds of individual claims. Second instance decisions by the Spanish Provincial Courts take nine to 15 months on average, according to public data. Importantly, appellate courts only admit new or additional evidence in exceptional circumstances, helping to expedite the process and keep costs down. This makes Spain a relatively low-cost jurisdiction in which to litigate, compared to, for example, Germany or the UK. 

Spain is a cost-shifting jurisdiction, meaning that the losing party is generally required to pay the legal costs of the winning part, as determined by local bar association rules. Nevertheless, Spanish judges retain discretion under the Spanish Civil Procedure Rules in respect of costs awards. This means that where the case involves “serious doubts of fact or law”, a judge may decide not to require the losing party to pay the legal costs of the winning party. For example, in competition litigation and consumer claims, adverse costs awards are rare even where cases are rejected in their entirety. That said, there has been an increase in inquiries from clients, particularly consumer claimants and governmental bodies, seeking coverage of all possible fees and costs they might incur in respect of litigation: Not only legal fees and expenses for their lawyers and experts, but also mitigating potential exposure to adverse costs awards. Insurers are therefore active in providing English-style after-the-event insurance policies. Burford is able to provide its Spanish clients with insurance coverage through Burford Worldwide Insurance Limited, offering a fast and effective “one stop shop” for both funding and adverse costs cover. 

Regulation of legal finance in Spain

There is currently no specific legislative or regulatory provision governing legal finance in Spain. Provided that the terms of the financing agreement do not infringe law or public order and respect the rules of professional conduct for lawyers, legal finance is permitted under civil and commercial law.

Commercial legal finance agreements are therefore considered private contracts that bind the legal finance provider and the claimant. Although typical financing agreements contain a confidentiality clause to ensure that document terms are not visible to others, claimants have no obligation to disclose a legal finance agreement to the opposition or to the court.

That said, in Spanish arbitration proceedings, arbitrators have a wider discretion to order the disclosure or production of documents. As such, according to the Spanish Arbitration Club Code of Good Arbitration Practice 2019, the Spanish Court of Arbitration Rules 2019 and the Madrid International Arbitration Center Arbitration Rules 2020, in situations where a party has obtained third-party financing, it must inform the arbitrators and the counterparty and disclose the identity of the legal finance provider.

Worked example: How Burford helped a Spanish business unlock immediate liquidity

A large Spanish construction company approached Burford with a high value arbitration claim in relation to a breach of contract. The company’s CFO was also looking to cut costs due to revenue generation pressures following a brief decline in its profits. 

Given the high costs of pursuing the arbitration, the pending claim represented hundreds of millions of euros in captive value. To change this, the client was able to monetize a sizeable portion of the expected proceeds from its claim. Burford provided over €25 million in capital, allowing the company to pursue the meritorious claim without incurring any downside risk.

As a result, the company was able to unlock value previously unavailable in the contingent legal asset far in advance of the arbitration’s resolution and was able to use the immediate cash flow for strategic business purposes when it was needed.