Founding Attorney
Imagine spending years in legal battles and having to bear all the costs only to emerge with nothing but mounting debt. It’s a nightmare for anyone who’s been through it, but third-party funding has come in to ease the burden for those who can’t afford it. With a third party funding your litigation or your international dispute, you can pursue your claim without having to worry about finding the money. But who really owns the claims? This blog post gives you an in-depth understanding of third-party funding and how claim ownership works.
What is third-party funding?
Third-party funding is an arrangement between a third party funder and a party involved in arbitration or litigation. The funder provides financial assistance to the claimant in exchange for a portion of the amount recovered. This financial assistance covers the cost of litigation, such as legal fees, administrative costs, and expert witness fees.
Funding does not change claim ownership. Instead, the funder buys a stake in the outcome, not the claim itself.
How does it work?
After executing an agreement with the funder, you’ll receive funding in return for a percentage of the recovered amount should your claim succeed. The funding covers your litigation and arbitration fees and expenses until settlement or judgment. The percentage that will be payable to the funder will depend on the agreement terms you sign. Typically, the amount payable to the funder ranges between 20% and 40% of the amount recovered.
Throughout the case, claim ownership normally stays with you.
Claim Ownership: Who Owns the Claims?
In a third-party funding agreement, the funder does not own the claims. The claimant continues to have full control over the claim and continues to be the legal owner of the action. The funding is usually provided on a non-recourse basis which means the funder will only recover the amount advanced plus charges if the claim is successful. If the claim fails, the funder bears the loss.
What are the benefits of third-party funding?
The main benefit of third-party funding is that it enables claimants to pursue their claims without raising the cash to pay for litigation. This allows parties, who would not have taken legal action or arbitration because of the expense, to pursue and recover compensation. Furthermore, the funder is motivated to assist the claimant in every way possible to ensure that the claim is successful. This is because the funder has a vested interest in the outcome of the case. To learn more about third party funding, please visit Third-party funding | United Nations Commission On International Trade Law
Because claim ownership stays with the claimant, the business keeps its legal rights while sharing the financial risk.
What can go wrong with third-party funding?
Third-party funding isn’t a guaranteed victory but it has a higher percentage of success than not having funding at all. However, there are cases where things can go wrong. If the agreement with the funder has not been reviewed carefully, some of the details may be lost, and misunderstandings are bound to happen. There are possibilities that the funder may interfere with the claim’s handling or even put too much pressure on the claimant to accept settlement offers.
Problems also arise when the agreement is vague about claim ownership, control or settlement approval.
What Funders Look For
Funders only invest in cases they expect to win and collect. So before they commit, they usually review:
- the strength of the claim on both liability and damages;
- the likely recovery compared with the budget, because funders want a wide gap between the two;
- the respondent’s ability to pay, and where its assets sit;
- the forum, the governing law and the expected timeline;
- the legal team and its plan for the case.
Funders are usually paid only if the case succeeds. Their return typically comes from a share of the recovery or a multiple of the money they invest. Meanwhile, clear terms on claim ownership and control matter. In most funding deals, the claimant keeps ownership of the claim, and the funder takes a financial interest in the outcome.
Disclosure, Costs and Claim Ownership in Funded Cases
Funding is lawful in many places, but the rules differ from one jurisdiction to the next. Therefore, check the law of the seat, the institution’s rules and any professional conduct rules before you sign.
In addition, more arbitral rules now require disclosure. For example, the ICSID Arbitration Rules adopted in 2022 require each party to name any third-party funder. Tribunals may also weigh funding when they decide requests for security for costs.
Funding also changes the cost picture. Arbitration costs include institution fees, arbitrator fees, lawyers, experts and travel. A funder can carry those costs, and some funders also cover adverse costs if the claim fails.
Conclusion: Funding and Claim Ownership
Third-party funding is an excellent way to ease the financial burden of litigation for those who can’t afford it. It enables a claimant to pursue a claim without having to worry about finding the money to cover the cost of litigation. Moreover, it does not affect the claimant’s ownership of the claim, allowing the claimant to pursue claims with the assistance of an experienced funder. However, there are possible problems that may need proper attention, making it crucial to review the agreement contents before entering into such an arrangement. Understanding third-party funding and claim ownership keeps the claimant well-informed and well-protected for any decisions that they may make.
Our team of attorneys are known into the world of third party funding. Contact Our Office – Transnational Matters
If outside financing is affecting who controls the direction of your case, our team is ready to help. Contact our team to review how a funding arrangement could affect your matter.
Related reading: our international arbitration practice.
