How a Claimant Accesses Third Party Funding

“The actors of the Construction Industry in both business and legal capacities should be aware of the potential of Third-Party Funding.”

High-value “Construction Disputes” makes Third Party Funding a necessity for Claimants in International Arbitration. 

Third-Party Funding is allowed in most major Arbitration Centers around the world.

It is a developing market and allows Claimants to externalize arbitration costs, manage risks and the budget.

This article shows the major steps while accessing the third-party funding.
The nature, structure and features of third-party funding processes may vary from case to case.

1   Evaluating the Potential Funders 

While choosing a “Funder”, it is important to ensure that the Funder has;

if the Contractor suffers delay and/or incurs cost due to;

1.1 Financial Capability

The Funder should have sufficient Capital to meet all the liabilities that may arise.

1.2 Reputation

The Funder should add value to the process by providing legal and technical advice.

2   Initial Review by the Funder

The Claimant or the Claimant’s Lawyer or an intermediary comes together with the Funder and asses;

The Size of the Expected Funding.

The Size of the Potential Recovery.

to determine whether the matter meets the Funder’s basic parameters.

3   Signing Non-Disclosure Agreement

Funding process will include sharing confidential information with the Funder.
It is important to enter into a Non-Disclosure Agreement at the early stages of the process.

4   Preparation for the Due-Diligence Phase

Once initial commercial terms have been agreed upon, the due-diligence process begins. The Funder’s in-depth review is essential.

4.1 Merits of the Claim

Case analysis is conducted by in-house experts of external counsels to evaluate the strength and weakness of the claims.

4.2 Detailed Budget

Detailed costs regarding Lawyers’, Experts’, Artbirtrators’ fees and administrative fees.

Timeline setting out the anticipated process.

4.3 Respondent’s Financial Capability

Respondent’s Payment History.

Location of the Respondent’s Assets.

Enforcement Strategies if the awarded amount is not paid

5   Approval of the Funding

If the funder is satisfied that the case meets the criteria, the Funder will recommend the case to the Investment Committee.

6   Negotiating the Funding Agreement 

General Terms

General Terms should be clear and reflect the intentions of the parties.

Rate and Structure of the Return

Fixed percentage share of any damages recovered, or,

A multiple of the funding to be provided, or,

Combination of both.

The Amount of the Funding

The Amount of Funding to be provided.

The Scope of the Funding

Lawyer’s Fees and Expenses

Expenses related to the Expert and Witness Evidence

Arbitrator’s Fees

The cost of the Arbitral Institution

Distribution Provisions

How and when the proceeds of the recovery are to be distributed among the Parties.

Dispute Resolution Process

Fair, independent and transparent dispute resolution process.

Termination of Agreement or Withdrawal

Whether either or  both parties can terminate the agreement.

The impacts of that termination.

7   Disclosure of the Funding Agreement 

Some Institutions began to address issue of mandatory disclosure such as;

ICC

The new ICC Rules of Arbitration (New Rules) came into effect on 1 January 2021. Article 11(7) of the 2021 Rules requires parties to “promptly” disclose the identity of any third-party funders involved in the proceeding.

Swiss International Arbitration Center (SIAC)

Rule 24(l) of the SIAC Investment Arbitration Rules gives the Tribunal the power to order the disclosure of the existence of the third-party funding arrangement.

Hong Kong International Arbitration Center (HKIAC)

HKIAC Rules recognise third-party funders and in particular, require a funded party to disclose promptly the existence of a funding agreement.

8   Progress Reports to the Funder 

Most funders require reporting from the Funded Party;

On a quarterly basis, or,

At key stages of the arbitration.

This information is provided for your convenience and does not constitute any “Legal Advice”. This document is prepared for the general information of the interested persons. This should not be acted upon in any specific situation without appropriate legal advice.

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