What Is Third Party Funding? How Is It Used In International Arbitration?

What Is Third Party Funding?

International arbitration can be a costly endeavor. Third Party Funding (TPF) – also known as litigation funding or litigation finance – is a way for a claim holder or claimant in an international arbitration to finance the costs associated with pursuing that arbitration. In exchange for providing capital to cover arbitration costs, the funder will stand to receive a portion of the final arbitral award if the dispute is decided in the claimant's favor.

TPF is typically provided on a non-recourse basis: if the claim is unsuccessful, the claimant is not liable to pay back the funder's investment. As a part of TPF, claimants can often insulate themselves further by acquiring after the event (ATE) insurance, which insures against the risk that a claimant will be ordered to pay an opposing party's costs by an arbitral tribunal.