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

PREVIEW PAGE

The way in which third party funders (“funders”) evaluate a case when it comes in is fundamentally different to the way in which lawyers have historically evaluated cases. We say ‘historically’ because the significant growth of the funding market, and the use of funding in international arbitration, has in some ways changed the way lawyers look at cases now too.

As lawyers, when we receive the file for a new dispute, we task ourselves with analysing the merits of the claim. We consider the issues in dispute, the basis on which we could win, and also how we might lose. Often the focus is on the applicable legal arguments to the merits of the claim. Importantly, this evaluation continues throughout the lifetime of the dispute; lawyers focus on the most pressing issues at the outset of the case first and tackle each stage of a proceeding as it comes. Clients hope and expect that commercial lawyers are also somewhat alive to the commercial factors that influence the approach to a case; understanding that a dispute must be run within a certain budget, considering settlement to mitigate the risks and costs of the claim, considering that a client may have reputational concerns influencing its decision-making, and considering and investigating the assets of the counterparty should enforcement become an issue. However, lawyers are trained to focus on winning an argument (from an academic perspective) and many will do so without also understanding the full commercial impact. Lawyers do not always grasp that winning a claim in court or arbitration proceedings
may not constitute a win to a business (for example, where business operations are interrupted, or the legal cost outweighs the commercial benefit).

A funder is also concerned with merits – a claim with low chances of success is not likely to be profitable – but the primary focus of a funder is profit, and the decision to take on a case is a commercial one. The funder is looking to maximise the returns on its investments. So, a funder will focus on the end game – how will it recover any sums awarded in the claim? An award for even a large sum of money may not be worth the paper it is written on if there are no prospects of recovering those sums from the counterparty. A significant part of that is enforcement risk.  In an ideal world, the funder will find a claim with good prospects of success and a counterparty with valuable assets in easy-to- reach jurisdictions.

Funding is a business, and is therefore likely to have some other focusses, values, and goals when deciding to fund a dispute in addition to profit. This will differ from funder to funder, but just like any client, these could include risk profile, other cases in its portfolio, reputational concerns, ESG obligations, and even political principles which impact its decision-making.

This chapter aims to consider the process that a funder will follow when evaluating a case, and the factors that lawyers should consider when putting forward a dispute for funding.   It is important for lawyers preparing a case for funding to understand the funder’s drivers/objectives. Arguably, such considerations also make lawyers better at lawyering; commercial considerations are also our clients’ key concern.