Litigation funder eyes up $6.2bn return from single case

Argentina: Set to appeal

The world’s biggest litigation funder could recover an astonishing $6.2bn (£5bn) from a single piece of litigation after a US ruling in its clients’ favour.

However, Burford Capital warned that there were several stages to get through before it might actually be paid.

Since 2015, it has spent tens of millions of dollars backing a claim brought by Petersen Energia Inversora and Eton Park Capital Management, which were minority shareholders in Argentina’s largest oil and gas company, YPF, at the time it was nationalised in 2012.

Earlier this year, the US District Court for the Southern District of New York ruled that the Republic of Argentina failed to make a tender offer for the shares as it was required to do and that this “harmed [the] plaintiffs because they never received the compensated exit” that YPF’s bylaws promised.

YPF’s share value fell sharply and caused Petersen, the largest minority shareholder, with 25%, to become insolvent.

The court granted summary judgment, holding that “once the court decides the legal issues, the relatively simple facts in this case will demand a particular outcome” – there was “no question of fact” as to whether Argentina was in breach.

A further ruling on Friday dealt with the question of which date the government should have made the tender offer and the rate of pre-judgment interest. As a result of the decision, Burford said it estimated that Peterson was in line for a total judgment of $14.3bn and Eton Park $1.7bn.

Argentina has indicated its intention to appeal and Burford said the Second Circuit Court of Appeals is currently taking around a year to resolve appeals once filed, although the judgment would be enforceable in the meantime.

There could then be a further appeal to the Supreme Court, but Burford said “the likelihood of it accepting a commercial case of this nature that does not present a contested issue of law is quite low, particularly given that Argentina has already once in this case unsuccessfully sought Supreme Court review”.

In a statement to investors, Burford – which is listed both in the UK and US – continued: “With an enforceable judgment in hand, plaintiffs will either need to negotiate a resolution of the matter with Argentina, which would certainly result in what would likely be a substantial discount to the judgment amount in exchange for agreed payment, or engage in an enforcement campaign against Argentina which would likely be of extended duration relying on Burford’s and its advisors’ judgment enforcement expertise.”

The financing agreements provide that Burford is entitled to 70% of Peterson’s damages and 73% of Eton Park’s.

However, from the Peterson sum, “certain entitlements to the law firms involved in the case and other case expenses will need to be paid, reducing that number to around 58%”, while over the years it has sold 38.75% of its entitlement in the case to third-party investors for $236m.

In all, this has reduced Burford’s net share of proceeds to around 35%, which would be $5bn of the judgment as currently estimated, with a further $1.2bn from Eton Park.

In a brief filed last year, Argentina said Burford bought the Peterson case for $15m, later agreeing to fund Eton Park’s claim too, in pursuit of a “windfall”, but on Friday Judge Loretta Preska explicitly rejected the effort “to inject Burford Capital into these proceedings”.

She explained: “This remains a case brought by plaintiffs against a defendant for its wrongful conduct towards them, and the relevant question is what the Republic owes plaintiffs to compensate them for the loss of the use of their money, not what plaintiffs have done or will do with what they are owed.

“The Republic owes no more or less because of Burford Capital’s involvement. Furthermore, the Republic pulled the considerable levers available to it as a sovereign to attempt to take what it should have paid for and has since spared no expense in its defense.

“If plaintiffs were required to trade a substantial part of their potential recovery to secure the financing necessary to bring their claims, in Petersen’s case because it was driven to bankruptcy, and litigate their claims to conclusion against a powerful sovereign defendant that has behaved in this manner, this is all the more reason to award plaintiffs the full measure of their damages.”

Jonathan Molot, Burford’s chief investment officer, said Burford had spent “many thousands of hours getting to this point”.

He continued: “This case represents what Burford is all about and exemplifies the contribution we make to the civil justice system – without us, there would be no justice in this complicated and long-running case for Petersen and Eton Park.”

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