Advantages of Third-Party Funding in arbitration
Third-party funding, which is additionally referred to as litigation finance as the name suggests, is where an individual who is not a part of an arbitration agrees to provide funds to the party to that arbitration in exchange for an approved return. Typically, the funding covers the funded party's legal fees and expenses incurred within the arbitration proceeding. Third-party funding means to support the businesses that don't have the means to pursue claims. It has become an essential feature in arbitration lately since there is a considerable increase in funding activities over the past few years. It initially focused on investor-state arbitration, but it has now broadened its horizon covering international commercial arbitration.
As the use of third-party funding has hiked, so have the number of institutions to finance litigation and arbitration. Additionally, specialised third-party funders, insurance companies, investment banks, hedge funds and law firms have entered the market. However, arbitration is the more efficient and time-saving procedure (compared to litigation in domestic jurisdictions), the excessive costs attached with it can't be ignored. The concept of third-party funding agreements has helped financially weaker claimants successfully achieve their interests without putting their businesses at economic risk. Third-party funding has evolved. In addition to one-off funding cases, litigation finance is getting used for a broader range of purposes, with the proceeds of the litigation or arbitration being employed as collateral.
Advantages of third-party funding
- Need: Arbitration is pricey. If a claimant does not have the means to pursue a meritorious claim, funding could be its only option.
- Risk reduction: Claimants with the funds to arbitrate might want to get off some of the danger related to costly arbitration, and therefore the inherent unpredictability of costs, and be prepared to offer up a proportion of any recoveries to do so. It also enables a corporation to invest that cash elsewhere. Additionally, the funded party is relieved of costs pressures and cash-flow issues related to the legal costs of the arbitration.
- Validation: Funders are only curious about good claims. Therefore, they will conduct extensive due diligence and analyse the merits before agreeing to supply funding. This objective analysis may assist the claimant to shape its case strategy and encourage early settlement once the opposite party is made aware that the claim has the backing of a funder.
In conclusion, unlike in litigation, where disputes are decided by court-appointed judges, the utilisation of third-party funding privately arbitration with party-appointed arbitrators is increasing with each passing day.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, or Religion, Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts made to ensure the accuracy and correctness of the information published, White Code VIA Mediation and Arbitration Centre Foundation shall not be responsible for any errors caused due to human error or otherwise.