By: Guillermo Madrigal
Arbitration is an alternative dispute resolution mechanism through which the parties to a contract will appoint, as agreed in the arbitration clause, a single arbitrator or an arbitral tribunal to resolve their dispute. The purpose of such proceedings is to settle disputes between two parties with a swift, efficient, and binding resolution.
In recent years, according to specialized surveys in the field, arbitration continues to be the preferred choice of parties over other dispute resolution mechanisms such as mediation, negotiation, conciliation, etc. However, it is not unknown that there can be various scenarios in an arbitration procedure that may impact the costs and expenses involved.
Nevertheless, parties continue to resort to arbitration due to many other advantages it offers, including flexibility, privacy, confidentiality, concentration, expeditiousness, and effectiveness.
In addition to these advantages, the figure of the Third-Party Funder or Third-Party Funding (TPF) has become a significant factor in these proceedings. A Litigation and Arbitration Funder is dedicated to providing the necessary resources to a party involved in a legal dispute, whether before the judicial forum, i.e., state courts or tribunals, or in arbitration. Its purpose is to provide financial support to a party lacking the financial resources to present its case and pursue it to a judgment. In return, they receive a percentage of the assets claimed, which depends on the risks of asset recovery in the event of success.
Some of the advantages of using these dispute funders, whether in arbitration or litigation, include:
- Risk Reduction: The funder reduces the financial risk for the claimant by assuming the expenses and costs of the case. Moreover, in the event of a loss, the funder bears the risk of its investment without charging the claimant or funded party.
- Litigation Incentive: Parties involved in a dispute may be more inclined to take legal action if they have financial backing.
- Double-check legal. A detailed case analysis involves two independent assessment processes – one conducted by the law firm representing the claimant and the other independently by the third-party funder. In both analyses, if there is a reasonable likelihood of success in the merits of the dispute, there is a reasonable certainty about the outcome of the proceedings.
- Industry Expertise: Litigation and arbitration funders specialize in various sectors, allowing them to understand the specific needs of the disputes they fund.
In summary, TPF serves as an effective tool for directing disputes to a specialized and neutral forum like arbitration to resolve claims, and it can be used in various scenarios. Its utilization is not solely determined by one party’s economic advantage over the other but can be influenced by particular projects or sectors, such as the energy or mining industry, where arbitration procedures may take longer or where parties in dispute may not want to allocate financial resources to such contingencies, especially in politically, socially, or environmentally unstable contexts.
At Vega, Guerrero & Asociados, our dispute resolution team is available to provide guidance and representation in arbitration and litigation proceedings. If you have any questions or concerns regarding this article, please do not hesitate to reach out for assistance.
