OVERVIEW OF THIRD-PARTY FUNDING IN INTERNATIONAL ARBITRATION
Arbitration is increasingly becoming the preferred method of dispute resolution. However, it is often the case that the costs incurred with arbitral proceedings are rather high and can discourage parties from pursuing their meritorious claims. Third-party funding (TPF) is one of the means to help overcome financial hurdles and it has now become an industry, with an increasing number of international corporations embracing this option with a view to freeing up their cash flow. The rise in popularity of TPF is also due to the funders’ subject matter expertise, which makes the process more efficient, providing for a comprehensive risk assessment as well as a better understanding of the pricing.
TPF is defined as a financing method, involving the funding of litigation or arbitration by bona fide specialised providers, which are not party to the dispute and do not have a close connection to it, but which rather have an interest in the potential profit gained in return for the funding provided. In other words, TPF in international arbitration is represented by an agreement between one of the parties and a funding institution that has no connection with the case, by which the funder agrees to cover the party’s costs in exchange for guaranteed returns on success. If the claim is unsuccessful, the funder will not recover their money and will not have recourse against the party. If, however, the claim is successful, the funder will be paid from the damages recovered by the party.
Apr-Jun 2017 issue
The Chartered Institute of Arbitrators (CIArb)