If you decide to start litigation, or resort to arbitration or mediation in resolving a dispute, it is important to determine how funding will be raised for the proceedings. Indeed, often, having made even a superficial calculation, the parties come to the understanding that it can be very costly for them to pay the entire amount of costs, or even not at all within their power. Then you should think about attracting funding from outside.
Third-Party Funding (TPF) in the settlement of a business dispute has become widespread in several jurisdictions in Canada. Of the European countries, the most common in the UK. A growing number of experts are recognizing its value in alleviating the financial burden of the parties involved in the proceedings. In this blog post, we'll look at how you can attract and use TPF when using alternative methods of resolving business conflicts.
TPF of arbitration
In its classic form, third-party financing of arbitration proceedings refers to the provision by an investor to a client of financing to cover the costs of the arbitration in exchange for a reward in case of victory. Having suffered a defeat, the client, as a general rule, is not obliged to return the funds invested by the investor. This is a kind of so-called non-recourse financing.
In recent years, the market for financing arbitration proceedings has been actively developing. If several years ago the volume of world supply was estimated at 1 billion US dollars, now, according to various estimates, this figure is 5-10 times higher. The number of participants in arbitration proceedings who, in one form or another, have encountered funding in practice, is growing every year.
TPF in litigation
Typically, the applicant assumes both the positive and negative risks that litigation entails: if a party succeeds, they receive compensation for all or part of their legal costs. The loser of the parties pays the legal fees.
The situation is different when resolving a commercial dispute with the TPF. Of course, the sponsor will try to insure part of their risk by covering part of the legal costs incurred. To request legal advice on potential business risks in resolving a dispute with TPF, please fill out the application form below.
Benefits of TPF for parties involved in mediation
- In the course of resolving a business conflict through mediation, the sponsored party often consults with the sponsor. The latter can provide an independent assessment of the key points of the process.
- Mediation funding agreements often contain a sliding scale of payments to the sponsor. Thus, the agreement may provide for a lower payment amount or percentage of proceeds if a commercial dispute is resolved through mediation, compared to dispute resolution through arbitration.
- Also sponsors often seek to interact with the client and perform various checks before starting a transaction with TPF.
For more information on how to peacefully resolve a commercial dispute attracting TPF, please contact our specialists for a comprehensive consultation on the pre-trial settlement of business disputes.