What is Arbitration Funding?

Arbitration funding involves a third-party financing some or all of the legal expenses of one or more arbitral disputes in exchange for a share of the proceeds recovered from the resolution of the dispute(s). These transactions are typically non-recourse, meaning that if there is no recovery made from the dispute, then there is no obligation to repay the funder its advances or to pay any return on its investment.

Arbitration provides an alternative to litigation pursued through jurisdictional courts, which offers flexibility and control to the parties involved in a dispute, but which is often costly due to the complex commercial nature of the dispute (particular where the dispute involves transnational parties and raises issues of conflicts of laws) and the sophisticated, specialist counsel at premier law firms engaged by the parties to assist in its resolution. While the cost of International arbitration most likely reflects the complex, commercial and often cross-border nature of the disputes being arbitrated, rather than any inefficiency of arbitration procedures or the parties involved, it can be burdensome on claimants. Increasingly third-party arbitration funding is sought to ease the pressure of these burdens.

Third-party arbitration funding allows cash-constrained claimants to pursue meritorious claims, who ordinarily might not have the resources to seek the redress they are entitled to. It can also be used to allow well-resourced claimants to hedge their legal costs risk and reduce the burden of legal costs on their balance sheet.

Woodsford is a founder member of both the International Legal Finance Association and the Association of Litigation Funders.