Scope of Disclosure for Third-Party Funding: Insights from the Brazilian Superior Court of Justice

The Brazilian Superior Court of Justice (“STJ”) recently issued a decision that may significantly influence the legal treatment of third-party funding in Brazil. 

In essence, this ruling not only confirms the legality of third-party funding under Brazilian law but also delineates the potential scope of disclosure obligations applicable to such agreements in legal proceedings in Brazil. Although the case arose in the context of litigation proceedings, its reasoning resonates strongly with ongoing debates in arbitral practice regarding the extent of disclosure required to clear conflicts of interest between funders and arbitrators. 

Background of the Case

The dispute arose when a minority shareholder filed a lawsuit in Brazilian courts against the controlling shareholders under Article 246 of the Brazilian Corporate Law, a provision designed to safeguard corporate governance. In particular, Article 246 imposes liability on controlling shareholders for abuse of power and creates strong incentives for minority shareholders to pursue such claims. If the minority shareholder prevails, the controlling shareholder must pay (i) damages to the company, (ii) attorney’s fees equal to 20% of the awarded amount to the minority shareholder’s counsel, and (iii) a premium of 5% of the awarded amount to the successful minority shareholder.

Given the high stakes, the law restricts such actions to shareholders holding at least 5% of the company’s capital or those who provide a guarantee to cover costs and fees if the claim fails. In this case, the minority shareholder lacked the required capital and posted a guarantee—funded, in whole or in part, through a third-party funding agreement. This arrangement triggered a debate over whether the minority shareholder retained standing to sue the company under Article 246, and whether disclosure of third-party funding agreements is required under Brazilian law.

The Brazilian Court Rulings

The first instance judge ordered the claimant to produce the funding agreement to verify the funder’s identity and assess potential conflicts of interest, warning that failure to do so would be considered bad faith and subject to sanctions. On appeal, the minority shareholder argued that it (i) was not required to disclose the third-party funding agreement, and (ii) had already disclosed the existence of the funding agreement and the funder’s identity and qualifications, and confirmed that the funder held sufficient assets to cover costs and fees if the claim was dismissed. The appellate court agreed, holding that:

• Third-party funding is lawful under Brazilian law;

• Neither the disclosure of the funding agreement nor the identification of the funder’s ultimate beneficial owners was required, because Article 246 of the Brazilian Corporate Law only obliges claimants to provide a valid guarantee for costs and attorneys’ fees. The court held that, as long as the existence of the funding arrangement and the funder’s financial capacity are confirmed, there is no legal basis to compel disclosure of the agreement’s terms or the funder’s ownership structure.

Without engaging in substantive legal reasoning on the points addressed by the appellate court, the STJ confirmed the appellate court ruling, affirming that third-party funding does not affect the minority shareholder’s standing under Article 246, provided the minority shareholder offers a guarantee.

In practice, the STJ appears to have given full effect to the nature of third‑party funding agreements in the context of actions initiated under Article 246 of the Brazilian Corporate Law, recognizing that the funder does not displace the original claimant as the funder has no involvement in the underlying substantive relationship between the parties in the dispute. Consequently, the funder’s relationship with the claimholder would exist entirely independently of the claim being pursued, even though the funder remains financially interested in the outcome of the dispute. On that basis, the STJ confirmed that the claimant was not required to disclose the content of the third-party funding agreement.

The decision marks a significant step toward recognizing funding arrangements as legitimate instruments to facilitate access to justice—even in a jurisdiction where litigation costs are relatively modest compared to common law systems—and to limit disclosure obligations of third-party fundings in legal proceedings in Brazil.

Beyond Litigation

While the STJ decision was rendered in the context of proceedings under Article 246 of the Brazilian Corporate Law, its reasoning resonates beyond it. The recognition that third-party funding does not compromise a party’s standing—and that confidentiality of the funding agreement can be preserved—offers a valuable precedent for arbitral practice.

Although the STJ did not interpret the Brazilian arbitration law or any arbitration rules directly, its approach is consistent with the disclosure regimes adopted by leading arbitral institutions: both the STJ and these institutions are satisfied with the disclosure of the existence and identity of funders, but not the full content of funding agreements or the identity of ultimate beneficial owners.

For instance, Brazil’s 2022 CAM-CCBC Arbitration Rules expressly address third-party funding. Articles 9.5 and 9.6 require parties to disclose “any natural persons or legal entities that may be relevant to the arbitration in order to allow the arbitrators to verify any conflict of interest,” and to “promptly disclose the existence of any funding arrangement.” This disclosure ensures that arbitrators can assess potential relationships that might compromise impartiality. However, the rule does not expressly require the disclosure of the full funding agreement or the identity of the funder’s ultimate beneficial owners, preserving confidentiality over sensitive commercial terms.

Similarly, the 2021 ICC Arbitration Rules introduced Article 11(7), which obliges parties to inform the Secretariat, the arbitral tribunal, and other parties of the existence and identity of any third-party funder with an economic interest in the outcome of the case. The ICC’s approach reflects a growing consensus that transparency is essential to safeguard arbitrator independence, while avoiding unnecessary intrusion into the commercial details of funding arrangements.

While the STJ's ruling is not binding on arbitral tribunals, it reinforces the view that there is no compelling obligation under Brazilian law for funded parties to disclose the content of third-party funding agreements in legal proceedings. That finding may be used in support of a more limited disclosure of these agreements in arbitration proceedings, where disclosure of the existence and identity of funders is generally sufficient for conflict checks. The rule supports a balanced approach that aims to protect both transparency and confidentiality.

Conclusion

The STJ’s decision marks a significant development for third-party funding in Brazilian litigation, confirming its legality and clarifying that, under Article 246 of the Brazilian Corporate Law, neither the disclosure of the funding agreement nor the identification of the funder’s ultimate beneficial owners is required—provided a valid guarantee is posted. This approach aligns with the disclosure regimes of leading arbitral institutions, which generally require parties to reveal the existence and identity of funders, but not the full content of funding agreements or the ownership structure behind them.

However, it is important to emphasize that the STJ ruling was confined to the specific context of litigation under Article 246 of the Brazilian Corporate Law and did not expressly address the broader questions that remain central to arbitration. The decision does not resolve whether limited disclosure is always sufficient to identify potential conflicts of interest, nor does it determine precisely how best to balance transparency and confidentiality when arbitrators’ independence and impartiality are at stake. These issues—particularly relevant in arbitration, where the relationships behind funding arrangements may be more complex and the risks of undisclosed ties more acute—remain open.

As third-party funding becomes increasingly prevalent, the arbitral community faces a delicate balancing act: confidentiality, essential to protect strategic interests, versus transparency, which underpins trust in the arbitral process. The debate is far from settled, but this decision provides a valuable starting point for shaping future best practices in Brazil and beyond.