Unlocking Potential

Abstract

ARBITRATION FINANCE By now, in spring 2017, we can all agree that third party litigation and arbitration finance is firmly established globally and recognised as an accepted and valuable tool for facilitating litigation risk sharing and providing better access to justice. Recent, and very welcome, developments in the world of international arbitration are further evidence of litigation funding’s move into the global legal mainstream. In recent months, Singapore has passed legislation to permit third party funding in arbitration, with Hong Kong likely to follow suit shortly. Each of these jurisdictions believes that it would be at a significant competitive disadvantage in the international dispute resolution market if it did not. Indeed, arbitral bodies – including the ICC’s International Court of Arbitration – have clearly signalled that third-party funding is a positive force in dispute resolution. These unambiguous endorsements have been applauded by the entire funding community. The litigation and arbitration finance market has matured, and begun to expand its investor base beyond its historical reliance on high-net-worth individuals and one or two funds. Today, banks and hedge funds are far more willing to invest in litigation than previously. Many now regard litigation funding as a relatively low-risk asset class, given its potentially impressive, non-correlated headline returns. The growing willingness of additional sources of finance to enter the market is, in turn, enabling the litigation funding market to expand. Given that litigation funding allows both firms and their clients to effectively manage and mitigate risk, there is now growing evidence that at least some managing partners, corporate chief financial officers and general counsel ‘get it’. Law firms benefit from the finance, which enables them to take on more contingency fee work. In the corporate sector, litigation funding allows businesses to run claims that they otherwise would not, because they lack either the legal budget or the risk appetite. For corporates, litigation funding also has an advantage over selffinancing from an accounting perspective. Under standard accounting rules, any additional legal expense will be clearly recognised, while the proceeds of any successful claims may well be treated as ‘exceptional items’. Litigation funding can remove significant costs from the balance sheet while delivering a steady stream of risk-free returns, explaining why it is increasingly viewed as corporate finance for law. Litigation funding clearly has much to offer the legal and corporate sector. But we should not lose sight of the important role that litigation funding plays in improving access to justice, ensuring that claimants who may not otherwise have the resources for litigation are able to pursue their case. Litigation and arbitration should not just be the preserve of the wealthy and well-resourced. In fact, litigation and L IT IG A T IO N F U N D IN G A P R IL 2 01 7