Arbitration Finance

Arbitration has become increasingly popular and is now commonplace in many legal agreements. It is seen as a viable alternative to litigation and has become the preferred method of solving commercial disputes. Arbitration has a number of advantages over litigation including:

  • Increased confidentiality.
  • Limited scope of appeal by either party.
  • Speed of process from commencement to completion.
  • Neutral forum.
  • Enforcement of dispute resolution through contract creation.
  • Proceedings are unencumbered by the formalities of legal systems.
  • Expenses are significantly less than those for legal representation in parallel or multiple proceedings in national courts.
  • Sources of financing do not need to be disclosed.

An Overview of Arbitration Funding

Arbitration funding is quite similar to litigation funding. The arbitration process is generally less time consuming and is certainly less formal than litigation, but the basic elements between the two are the same.

A major difference is that the arbitration panel (usually one to three retired judges or experienced mediators) act as judge and jury.

In arbitration we fund the attorney’s and arbitrator’s fees and the outside costs including depositions, expert witnesses, and other related items.

The Benefits of Arbitration Financing

Undertaking arbitration proceedings involves, at a minimum, incurring expenses for the arbitrator (usually an arbitral institution), expert reports, hearing rooms, travel, lodging and lawyer fees. Arbitration funding can help relieve the burden of these expenses, ensuring that they are covered as needed so that proceedings can move quickly and disputes can be resolved in a timely manner.

In high-value claims, arbitration funding may be used to reimburse the client whatever monies they have previously spent on the subject claim so that normal business expenses can be paid. This is particularly crucial for companies in the midst of arbitration proceedings who face the prospect of insolvency before their dispute can be resolved.

Furthermore, arbitration funding:

  • Alleviates any imbalance of capital between the parties.
  • Removes the costs of arbitration from the balance sheet of the funded party.
  • Partially or fully reduces the financial risks inherent in the arbitration.

The Expenses That an Arbitration Funder Covers

The typical expenses that arbitration funding will cover include all attorney’s fees and expenses directly associated with the arbitration, such as travel, case related office expenses such as copying and research services.

Expenses would also include the cost of the arbitration and the arbitrator’s fees. This would include all of the costs of discovery and all costs for expert witnesses and consultants. Basically arbitration financing covers all of the costs related to the litigation.

What is not funded is working capital for the company or personal expenses.

The Cost of Arbitration Funding

The cost for arbitration funding is generally based on a number of factors.

The first factor is the risk of the case, which is to say, the likelihood of it winning.

The second factor that impacts the costs of arbitration funding is the amount of funding being requested and the ratio of that funding to the expected award or settlement.

The third factor would be the expected time it will take to resolve the dispute, and arbitration has an advantage here over a trial situation, because arbitration is generally done in a shorter time frame and is often not appealable.

The return to the funder is often based on a percentage of the recovery, a multiple of the amount of funding or a combination of the two.

The Types of Cases That are Well Suited for Arbitration Funding

The types of cases that are well suited for arbitration funding vary from those well suited for litigation funding.

Usually, an arbitration case arises out of provisions in a contract or agreement that provides for resolution by arbitration as opposed to a trial. However, without those provisions the parties can agree to arbitration.

Arbitration can be appropriate for breach of contract and it can be appropriate for international agreements that are breached. Typically, under a breach of contract case, the provision for arbitration and the issues that can be arbitrated go from simple breach of contract to bad faith and breach of fiduciary duties.

On the international level, arbitration remedies are often covered under treaty agreements between the United States and other countries. Those treaties provide for an international arbitration board to resolve disputes between private companies and foreign governments or government agencies.

One set of the rules for arbitration on international disputes is under the International Chamber of Commerce, or ICC. The ICC has a facility where they oversee the arbitration of disputes. We have seen international arbitrations, primarily, in breach of contract cases and wrongful seizures of property cases.

VLF is currently looking at one case that involves an American company that entered into a joint venture for marketing and manufacturing of a product where the other joint venture partner is an international company. That arbitration is in the United States per the provisions of the underlying contract between the two parties.

Generally speaking any issue that may be tried in a court may be the subject of arbitration between private parties.

Arbitration Funding Through VLF

VLF can provide arbitration finance for domestic and international disputes. As with all types of legal disputes, arbitration can still be complex and multi-faceted. Which means that the costs of pursuing arbitration can quickly become burdensome, leading to the need for external capital.

Our firm typically provides funding for arbitrations wherein damages exceed $10 million (although we will not rule out smaller cases). Additionally, we provide:

  • Fee arrangements that are structured on a contingency, multiples of fees invested or committed capital, or hybrid basis.
  • Flexible arbitration financing based on the client's needs and the type of claim being pursued.
  • Arbitration finance that is non-recourse.

To arrange a confidential discussion on the arbitration funding opportunities that are suitable for your individual case, please contact us at 310-531-1700.