INTERNATIONAL ARBITRATION 1/3LY
IMPA C T OF T P F ON SE T T L EMEN T
This article seeks to address the practical impact third-party funding (“TPF”) may have on parties’ strategy during the dispute resolution process and, in particular, regarding settlement. It will discuss TPF in the context of a simple funding arrangement, whereby the funder will pay legal fees on a non-recourse basis for an agreed return, either as a multiple of their outlay or as a share of any award. THE TRADITIONAL DECISION-MAKING PROCESS In a traditional scenario, involving two opposing parties and their respective legal teams, the decision-making process is relatively straightforward. The legal teamwill provide advice to their client, and the client will make a decision as to the strategy to be adopted in the dispute. This permeates every stage of the dispute resolution process, from the possibility of preliminary informal commercial negotiations prior to a Request for Arbitration being served, to a formal mediation, to a formal settlement offer that may bemade at any stage of the process. The two key questions to be addressed by both lawyers and their clients are: 1. What outcome would represent a “victory” for the client, considering the facts underlying the dispute and the situation of the parties? and 2. What would be the best strategy to obtain this victory? The answers to these questions depend on amyriad of factors specific to the facts of each case. However, one key factor, which this article would like to identify andwhich is influential to answering both questions, is the financial state of the parties involved in the dispute. This crucial commercial factor must always be taken into consideration. If the client is a claimant in a precarious financial position, a “victory” could be achieved at a lower settlement figure than the client might be fully entitled to, taking into account the advantage offered to the client in receiving themoney sooner rather than later. In this situation, time becomes an important factor and the added burden of legal feesmay encourage the client to adopt a strategy of seeking expedited arbitration or, more likely, early settlement of the dispute viamediation or commercial discussions. However, if the client does not have financial pressures encouraging settlement of the dispute as soon as possible, theymay bemore willing to pursue the dispute to its end to obtain the full sum they are legally entitled to. Early settlement at a reduced figure thus becomes less attractive. These considerationsmust also bemade regarding the other party in the dispute. What is their financial position?What are themotivations driving their strategy?What factorsmay be utilised to seek amore favourable outcome for the client?
BY JAMES RUDGE, A SSOCIATE AT CLYDE & CO LLP
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