FINANCING INTERNATIONAL ARBITRATION: A PRACTICAL GUIDE 21
T ERMS OF AGREEMENT
FLEXIBLE ARRANGEMENTS Beyond the classic arrangement, funding can takemany forms. This can range from the funder buying equity or putting debt into the claimant’s company, tomonetising the award (that is, purchasing part of the award up front), to accepting payment fromsources 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 placingmembers of the funder on the company’s board and taking part in running the claimor even the business. Thismore invasive approach is rare, however, withmost 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 characteristicsmore akin to finance, whereby simple sourcing of funds is replaced bymore sophisticated financial arrangements. While there is no bright line between these two terms, claimants facing financing issues are increasingly benefiting from tailored funding products. AsMick Smith fromCalunius points out, themarket is “open to invention”.
CL A SSIC FUNDING ARRANGEMENT Terms of agreement usually followa simple formula: 1. ES T IMATED COS T OF THE C A SE I S X 2 . ES T IMATED QUANTUM I S Y 3 . FUNDER WILL COVER THE COS T S AND a. If the case is won, the funder receives amultiple 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 claimand 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:
T IME : terms can include a time variable, whereby the percentage of damages the funder receives increases as time passes andmoremoney is invested in the claim; for example, increasing from10-25% over a two-year period. This allows for lower recovery by the funder where less is invested or in the event of settlement.
TRADI T IONALLY, TPF I S USED TO RESOLVE AN INABIL I T Y TO COVER THE COS T S OF ARBI TRAT ION.
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 20million, reducing to 15% on the second 20million, and 10% on the third. This allows the funder to achieve a return, while the claimant benefits froma large award.
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