Originally from Handbook on Third-Party Funding in International Arbitration, Second Edition

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Third-party funding (“TPF”) is now a part of the landscape of international arbitration—both commercial and investor-state arbitration. Consistent with this, the widespread acceptance and use of funding is now reflected in the rules of arbitral institutions, state treaty practice and data provided by parties and counsel in funded arbitrations.  

This chapter provides an overview of what funders look for in a case, how the financing of arbitration cases works, and the typical non-recourse terms in funding agreements.

A. Case Selection

How do funders decide which arbitration claims to fund? Funders typically consider numerous factors when evaluating cases. Funders must evaluate cases with a close eye on the likelihood of a successful and enforceable outcome because, as we explore below, TPF is almost always provided on a non-recourse basis, meaning that a funder recoups its investment and a return only upon recovery.

Below are key criteria funders consider when assessing the suitability of arbitration claims for financing.