Litigation Finance and Arbitration: Part II

Just as litigation finance is becoming a great alternative for all kinds of cases and clients involved in litigation, it can be a great asset in arbitration settings as well. The previous blog post answered the question of, what is arbitration? But now let’s consider, how does litigation finance work with arbitration?

The name litigation finance, litigation funding, or alternative litigation finance may be confusing to some as it seems to suggest that this type of capital can serve one purpose only, fund litigation.  But that is not necessarily the case, as now many “litigation” financiers are also funding arbitrations.  Financing arbitration is not all that different than funding litigation.

The capital is still provided on a non-recourse basis, meaning that the funder only receives payment if there is a successful outcome.  The claimant does not pay any upfront costs for the capital.  The capital may be used to cover all or just some of the fees associated with the arbitration and the funder will likely consider the cost v. benefit of the arbitration before agreeing to fund it.

I think some of the confusion around arbitration finance may stem from the fact that arbitration by nature is meant to be a quicker and often cheaper form of dispute resolution.  Therefore, why would anyone need capital for it, as opposed to litigation, which is known to be a long, drawn out, and expensive process?

However, even if the expenses may add up to be less, shifting the cost and risks off of your balance sheet may make good business sense.  It can serve to alleviate budget pressures and allow businesses or individuals to put their money into other things that they may need to be focusing on at the time.  Additionally, sometimes the quicker and less expensive plan does not always pan out that way.  At times there has been arbitration that lasts as long or almost as long as litigation would have.

Lastly, arbitration can work for law firms or clients in a finance portfolio way.  This means that the capital would not be put towards a single case but rather a portfolio of cases, which serves to diversify risk, and can lead to better prices.

Topics:  litigation finance, alternative litigation finance, third-party funding, arbitration, alternative dispute resolution

 Works Cited:  Arbitration Litigation Finance, BurdFord Capital.