A company wishes to use third-party funding for an arbitral proceeding
Third-party funding allows parties to have their proceedings being funded in order to manage arbitration costs and ensure their rights are being upheld or defended.
Our client's challenge
Ensuring funding of its proceeding in order to fully upheld its rights
A company wishes to introduce an ICC arbitration proceeding after a dispute arose with its contractual counterpart. It envisions having to pay a substantial amount for this proceeding in order to cover administrative fees of the arbitration center, the arbitrator and lawyers’ fees and other fees for defending its interests.
In order to control the costs of this proceeding, it wishes to request funding from a third-party funder in order to cover all or part of the arbitration costs.
It wishes to be assisted strategically, legally and procedurally, in this process, and requested our services to identify advantages and risks, potential partners, prepare a funding application and reach an agreement with the funder.
Assisting our client in preparing and obtaining third-party funding
Third-party funding consists, for a party to a dispute, in having its action financed by a funder – which does not take part in the dispute strategy – in exchange for a return on investment. This counterparty is generally constituted by a contingency fee and/or a multiple of the investment made. Accordingly, the decision to request external funding will depend notably on the expected profit and the importance of the dispute.
To obtain this funding, relevant funders should first be identified, within those involved in the jurisdiction and for the type of dispute in question (depending on the parties, the amount in dispute, the type of proceeding and the nature of the dispute). A case should then be prepared for the funder to perform its due diligence and assess its risk and investment possibilities. This step will require identifying the relevant facts and underlying elements as well as legal grounds.
Once the decision to invest is taken, our client and the funder will negotiate and conclude a funding agreement which will lay out the parties’ obligations – and the roles of the stakeholders: the party, the lawyers and the funder –, notably the budget and amount of the funding, as well as the funder’s fees.
The consequences of the third-party funding on the proceeding will also have to be anticipated. For instance, under the ICC rules, funding must be disclosed in order to prevent any risk of conflict of interests. Funding may also lead opposing party to request security for costs, as it can be a sign of impecuniosity of the party having obtained funding.