Third Party Funding

- Blog on International Arbitration Term of the year

- Also prevalent in investor state arbitration
- It is 10 years old; in its infancy stage
oncept
- !ost cases are third party funded
- A "P# or $oint #enture is formed and that enters into the arbitration
agreement %ith arbitration clauses&
- The actual party very rarely funds the arbitration
'ommercial ( Professional Third party funding)
- The la% firm approaches bro*er or a funder to fund the arbitration for the
client&
- Terms are+ - I %ill give you the money, but in return I %ant - times the
money lend or .0/ of the arbitral a%ard, %hichever is higher&
o If the client %ins then he pays, if he does not %in, the funder losses
money and the client does not have to pay anything&
o 0ue diligence by the funder, in-house counsel goes over the case
papers and then the deal is done&
- Funder or #ulture 1
- Access to $ustice is the *ey criteria for Third Party Funding
- 2is* !anagement
o lient brings the case %ithout any ris*; loan is non-refundable&
o It3s a %in-%in situation of the client&
- 0ue 0iligence
o 4ther la%yers, financers, all having a close loo* at the case& It helps
the la% firm in preparing %ell for the arbitration&
- !anagement
o Funder pays in milestones, 5uestions the client at every stage,
increases efficiency
6egatives
- 7nconsionable terms
- Third party funder %ill run out of money mid %ay 8rarely happens9
o The money is deposited in a separate account&
- TPF %ill get frivolous cases
o Also not true because many la%yers have a loo* at it&
- :ac* of 2egulation
o Australia ; Financial Institutions only do TPF& They have various
regulations to abide by& But most of them are private TPF
o 7< ; In =011
o 6o international code on TPF& It %ill lead to one mar*et ;
standardi>ed terms of trade can be formed&
- onflict of Interest
o The la% firm has relation %ith bro*ers and lenders& "o the party
%ill often have to go and fetch funders&
o Funder %ill %ant to do something %hich the client %ould not&
"ecurity for costs orders ; IF the losing party pays, they have to pay for the costs&
But the tribunal can only order the party to pay and not the TPF& In that process
%ho %ould pay the %inning party its costs 1 "hould a tribunal order a security for
costs before the final a%ard1 6o& There should be a high standard of bad faith for
issuing such orders& The regularity of security for costs %ill free funding and
hinder the gro%th of the system &