FINANCING INTERNATIONAL ARBITRATION: A PRACTICAL GUIDE 21
TERMS OF AGREEMENT
FLEXIBLE ARRANGEMENTS Beyond the classic arrangement, funding can take many forms. This can range from the funder buying equity or putting debt into the claimant’s company, to monetising the award (that is, purchasing part of the award up front), to accepting payment from sources other than the award. When funders invest in the claimant’s company, this can be as simple as buying shares, or can go further to include placing members of the funder on the company’s board and taking part in running the claim or even the business. This more invasive approach is rare, however, with most funders looking simply to fund the claim for a return. Accepting payment through sources other than the award allows the funded party to reap the benefit of any award, with the funding agreement to becoming integrated in the company’s broader financial arrangements. These options see what is traditionally referred to as funding take on characteristics more akin to finance, whereby simple sourcing of funds is replaced by more sophisticated financial arrangements. While there is no bright line between these two terms, claimants facing financing issues are increasingly benefiting from tailored funding products. As Mick Smith from Calunius points out, the market is “open to invention”.
CLASSIC FUNDING ARRANGEMENT Terms of agreement usually follow a simple formula: 1. ESTIMATED COST OF THE CASE IS X 2. ESTIMATED QUANTUM IS Y 3. FUNDER WILL COVER THE COSTS AND a. If the case is won, the funder receives a multiple of X or a percentage share of Y, or some combination of the two b . If the case is lost, the funder covers the costs; most funding arrangements include ATE insurance to cover any adverse costs orders These terms can vary greatly, depending on the characteristics of the claim and the funder. As a rough guide, funders will ask for two or three times the costs, or anywhere between 10 to 40% of the quantum. These terms can also be varied in other ways, for example:
TIME: terms can include a time variable, whereby the percentage of damages the funder receives increases as time passes and more money is invested in the claim; for example, increasing from 10-25% over a two-year period. This allows for lower recovery by the funder where less is invested or in the event of settlement.
TRADITIONALLY, TPF IS USED TO RESOLVE AN INABILITY TO COVER THE COSTS OF ARBITRATION.
VALUE OF QUANTUM: this variable provides for a different percentage recovery for the funder on separate portions of damages; for example, 25% on the first 20 million, reducing to 15% on the second 20 million, and 10% on the third. This allows the funder to achieve a return, while the claimant benefits from a large award.
Made with FlippingBook - Online Brochure Maker