Third Party Funding in Arbitration

Third Party Funding in Arbitration

Third-party funding (TPF) in arbitration is a growing trend that allows parties to finance the costs of arbitration proceedings. This can be a valuable tool for both claimants and respondents, as it can level the playing field and allow parties to pursue or defend claims that they might not otherwise be able to afford.

How does it work?

In a typical TPF arrangement, a third-party funding company agrees to advance funds to a party in an arbitration proceeding in exchange for a share of any damages awarded in the case. The funder will typically conduct a due diligence review of the case before agreeing to fund it, and will only fund cases that they believe have a good chance of success.

There are two main types of TPF arrangements:

• Equity funding: In an equity funding arrangement, the funder receives a percentage of the damages awarded in the case, regardless of the amount.
• Debt funding: In a debt funding arrangement, the funder receives a fixed amount of interest on the funds advanced, plus the repayment of the principal amount.

Benefits of third-party funding in arbitration

There are a number of benefits to using third-party funding in arbitration, including:

• Increased access to justice: TPF can make arbitration more affordable for parties with limited financial resources.
• Leveling the playing field: TPF can help to level the playing field between parties with different financial resources.
• Improved case selection: Funders typically only fund cases that they believe have a good chance of success, which can help to improve the overall quality of arbitration cases.
• Increased efficiency: TPF can help to make arbitration proceedings more efficient by providing parties with the resources they need to pursue or defend their claims effectively.

Challenges of third-party funding in arbitration

There are also a number of challenges associated with third-party funding in arbitration, including:

• Conflicts of interest: There is a potential for conflicts of interest to arise between the funder, the party receiving funding, and the arbitrator.
• Increased costs: The involvement of a third-party funder can add to the overall cost of an arbitration proceeding.
• Limited availability: TPF is not yet available in all jurisdictions, and even in jurisdictions where it is available, it may not be available for all types of arbitration cases.

The future of third-party funding in arbitration

TPF is a relatively new development in the world of arbitration, but it is rapidly gaining popularity. As the use of TPF continues to grow, it is likely that we will see a number of new regulations and guidelines being developed to address the challenges associated with this type of funding. Overall, TPF is a valuable tool that can help to make arbitration more accessible and efficient.