INTERNATIONAL ARBITRATION 1/3LY
THE FUTURE OF ARBI TRAT ION F INANCE
CONCLUS ION To summarise, the key points to keep inmindwhen considering third-party funding are: 1. KNOW YOUR FUNDERS – use capitalised funders with a strong track-record 2 . NAV IGAT E THE TENDERING PROCESS EFF I CIENT LY – contact funders at an early stage and ensure the claim is well presented during initial evaluation and due diligence 3 . NEGOT I ATE APPROPRI ATE TERMS OF AGREEMENT – agree funding terms and a formof financing that suits the specific circumstances of the claim These basic rules all have in common the goal of providing practical financial solutions to address disputing parties’ funding needs. Flexible terms of agreement and the various forms the investment can take allow for funding to be adapted to suit each claim. These options provide invaluable access to justice for claimants lacking funds in the face of a dispute, and go further to provide a useful financial tool for parties seeking a commercial approach tomanaging risk andmaximising returns in international arbitration.
The financing of disputes is not a modern invention. But as disputing parties become more aware of the options available to them, this increased demand naturally causes the market to develop and expand. As funders grow in size and experience, they are able to offer more varied and tailored products. One of the main developments in this regard is for funders to enter in to multi-claim deals with certain clients or law firms: the funder covers the cost of several claims on the basis that it will gain a greater return in the long run, while disputing parties gain security in outsourcing risk and ensuring that they will not be prevented from defending and enforcing their legal rights owing to uncertainty or cost. So-called “portfolio funding” can also involve funding claims for defendants, contrary to the commonmisconception that funding is only for claimants. By spreading the risk across a portfolio of claims, a funding arrangement allows a company both to protect itself fromadverse claims and pursue its own claims. At the other end of the spectrum, funding can be sought not only for individual claims, but for individual parts of claims – for instance, for security for costs or in the case of post-decision enforcement. Parties can avoid their claims failing at these hurdles by bringing in a third party and gaining immediate access to funds. There are also arrangements that can be developed to tailor legal fees to the specific needs of the case, for instance with hybrid funding products incorporating Conditional Fee Arrangements (CFAs) or Damages Based Agreements (DBAs). Funding can go further to cover a law firm’s work in progress (WIP), for example in a pre-dispute phase or during settlement negotiations. Perhaps themost commonmisconception about TPF is that the fundsmust be used to cover the costs of the dispute. This is entirely false. TPF agreements can be simply described as an exchange of funds for “disputes assets” – for example, a future or existing Award. There is no requirement that such funds be directed to a specific purpose. Themarket for arbitration finance is coming to reflect an increased awareness amongst parties of the broader potential for funding to become part of parties’ wider finance arrangements. There are certainly regulatory issues to be aware of, whichwill vary from jurisdiction to jurisdiction. But the trend towards the use of these arrangements is clear, and disputing parties should be aware of these options when considering or engaged in international arbitration.
A S FUNDERS GROW IN S I ZE AND EXPERIENCE , THE Y ARE ABLE TO OFFER MORE VARIED AND TA ILORED PRODUCT S .
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