This blog post is based on Balance Legal Capital’s submission to the Practical Law Arbitration blog on 29 January 2016.
From its inception in 2015, Balance Legal Capital has comprised a specialist team devoted to assessing applications for arbitration funding. With case evaluators drawn from Herbert Smith Freehills and Freshfields Bruckhaus Deringer, two of the world’s pre-eminent arbitration practices, we are well placed to reach rapid arbitration funding decisions. Wherever welcome, we can also offer our expertise to the development of effective case strategies.
The unique nature and form of the arbitral process sets international arbitration funding apart as a distinct category of third party funding. It may further be subdivided into investment treaty arbitration funding and commercial arbitration funding, both of which we are well versed in. Until recently, arbitration funding carried specific challenges distinct from traditional litigation funding. However, recent developments now leave us approaching arbitration funding opportunities with ever-greater aplomb.
The international arbitration community was treated to insightful data and a call to action in the latter half of 2015 in the form of the Queen Mary/White & Case International Arbitration Survey 2015: Improvements and Innovations in International Arbitration (“QMWC 2015”). The survey showed that international arbitration is as popular as ever for cross-border dispute resolution but highlighted its users’ concerns:
- It costs too much.
- It takes too long.
- Arbitrators are slow to issue their awards.
The survey challenged institutions to improve this by publishing data on duration, costs, and arbitrator efficiency, and called on arbitration counsel to do more to narrow the issues and encourage settlement of disputes in the course of arbitration – all of which are, unsurprisingly, met with great support from providers of arbitration funding.
This blog by Robert Rothkopf, Managing Partner of Balance Legal Capital LLP, argues that recent initiatives of the LCIA and the ICC after the QMWC 2015 survey should be welcomed as they not only increase certainty and efficiency for users of arbitration, but will also increase the number of meritorious arbitrations suitable for financial support from third-party funders.
On 3 November 2015, shortly after the QMWC 2015 survey identified cost and lack of speed as the worst characteristics of arbitration, the LCIA published data on the costs and duration of its arbitration proceedings, throwing down the gauntlet for other institutions to do the same. It showed that the median and mean costs of an LCIA arbitration (in terms of LCIA administrative fees and arbitrator fees) are US$99,000 and US$192,000, respectively, and that the median and mean durations are 16 and 20 months, respectively (being the period between the date that the Request for Arbitration is received by the Registrar, and the date of the final award). While some cases will lie outside of this distribution, the data is a helpful indication of what parties to LCIA proceedings can expect. Other institutions should publish their data too. With arbitration costs particularly prone to surpassing forecasted budgets, this data will assist third party funders in modelling our arbitration funding more accurately.
On 5 January 2016, the ICC went one better, and announced plans to publish lists of arbitrators currently sitting at the ICC, and to impose fee reductions for delays by arbitrators in submitting their awards to the ICC. Funders considering whether to support an international arbitration will always be interested in the identity of the tribunal, not only in order to decide whether the funded party’s case and witnesses are likely to appeal to the decision makers, but also in order to assess whether certain members of the tribunal have the diary capacity to give the arbitration sufficient procedural management and to issue an award quickly. This intelligence usually comes through word of mouth from lawyers in the close-knit world of international arbitration, whereas the ICC’s lists will help to complete the due diligence picture with transparent information open to all. Arbitration funders will also be pleased to see that ICC arbitrators will have a direct financial incentive to focus on issuing the award in a timely manner. Other institutions should follow suit.
International arbitration is expensive: it requires specialist counsel, arbitrator fees and disbursements can accumulate, timetables slip and budgets expand. This is why many companies look to third party funding to pay part or all of the costs to pursue a valuable claim.
The main points identified by the QMWC 2015 survey regarding costs and duration mirror the factors considered by us in our arbitration funding decisions. A third party funder can spread the financial and litigation risk across a portfolio of claims whereas the one-time claimant in an international arbitration cannot. However, there is only so much risk that an arbitration funder can take. The funder has to pick meritorious cases that are managed by able (and available) arbitrators and counsel, and administered by the best institutions. Initiatives designed to reduce costs and bolster certainty around the duration of proceedings, such as those by the ICC and LCIA, should, if properly implemented, boost the numbers of meritorious arbitrations that can be supported by third-party arbitration funding, by reducing the risks associated with unforeseen costs and delays. Arbitration counsel seeking funding on behalf of their clients, or companies applying to third-party funders directly, will be able to present funders with more accurate budgets and more robust estimates as to how long the funders’ capital will be committed to the case. In so doing, more claimants’ cases will fall within the criteria required by third party funders, helping more companies and law firms to realise the benefits of arbitration funding.