Third-party funding has become an established feature of both commercial arbitration and investment treaty arbitration.

The global funding market has developed significantly, and the range and sophistication of funding products and structures available to parties involved in arbitration have broadened. Funding can provide access to justice for parties that could not otherwise pursue a claim. It is also used by well-capitalised businesses seeking to preserve liquidity, share risk, and manage the financial impact of arbitration.

Stewarts has extensive experience of advising on funding and risk-sharing arrangements. We help clients identify and structure solutions that reflect the circumstances of the dispute and the commercial objectives of the business.

What is third party funding?

Third-party funding in international arbitration generally involves a commercial funder agreeing to finance some or all a party’s legal fees, expert costs and other disbursements. Funding is most commonly provided to claimants and counterclaimants, although it can be available to respondents in appropriate cases.

Funding is usually provided on a non-recourse basis. If the claim does not result in a recovery, the funder will ordinarily lose the capital it has invested, subject to the terms of the funding agreement. In return for assuming that risk, the funder receives an agreed return from any recovery if the claim succeeds. The return may be calculated by reference to committed or deployed capital, the amount recovered, the duration of the funding, or a combination of these factors.

What do funders assess?

Funders undertake detailed due diligence before deciding whether to invest. Their assessment will usually include the merits and value of the claim, the proposed budget and likely duration of the arbitration, the prospects of enforcement, and recovery, and the relationship between the funding required and the likely proceeds. They will also consider the proposed strategy and the experience of the legal team.

The availability, structure and enforceability of third-party funding depend on the circumstances of the case and the applicable legal and regulatory framework. The existence and identity of a funder may need to be disclosed under applicable law, institutional rules, or a tribunal’s directions, including to address potential conflicts of interest. Whether any further terms of the arrangement must be disclosed will depend on the circumstances.

How we can help

Our London-based International Arbitration team has substantial experience of funding arrangements for high-value and complex commercial arbitrations and investment treaty arbitrations. Funding is generally most suitable for substantial claims whose value and prospects justify the costs and risks involved. We assess whether a claim is realistically fundable, help clients prepare and present the investment case to funders, identify suitable funders, run a competitive process where appropriate and compare the financial and non-financial terms of competing offers.

We also assist with negotiating the funding documentation and coordinating advice on any applicable legal, regulatory, or professional requirements. Once funding is in place, we help clients manage reporting, budget, and consent obligations throughout the arbitration and address requests for additional capital or amendments to the arrangement if the case develops.

Our experience of working with leading funders, insurers, and other capital providers enables us to anticipate the issues that matter to them while remaining focused on protecting the client’s control of the claim and economic interests.

Alternative fee arrangements

Depending on the circumstances of the case and applicable law, we may consider arrangements under which part of our fees is deferred, discounted or linked to the outcome. These arrangements may be used on their own or alongside third-party funding, allowing risk to be shared between the client, Stewarts, and the funder.

Further information is available on our alternative fee arrangements.

ATE insurance, adverse costs, and security for costs

After-the-event (ATE) insurance can provide cover, usually up to an agreed limit, against the risk of an adverse costs award and, in some cases, certain of the insured party’s own disbursements. ATE insurance may be used alongside third-party funding or an alternative fee arrangement.

Adverse costs exposure and the possibility of an application for security for costs should be considered when structuring a funding arrangement. Depending on the circumstances, ATE insurance or an indemnity from the funder may assist in managing these risks or in providing an appropriate form of security.

Stewarts has created its own ATE insurance facility, Stewarts Litigate, which is also available in respect of arbitration. Stewarts Litigate was launched with Arthur J Gallagher Insurance Brokers Limited and is designed to work alongside Stewarts’ alternative fee arrangements. It provides eligible commercial disputes clients with a solution intended to balance the risk, cost, and financial impact of litigation and arbitration.

Contact us

To find out more about third-party funding, ATE insurance, Stewarts Litigate, and alternative fee arrangements, please contact a member of the International Arbitration team or visit our litigation funding and insurance page.