Companies, both in the UK and internationally, often opt for commercial arbitration as an alternative to costly litigation and court proceedings when resolving disputes. To successfully navigate such arbitration, it is crucial for the involved parties to possess the necessary financial resources, regardless of the case’s eventual outcome.

However, some businesses may lack the financial means required for this process, potentially causing difficulties, or they not wish to invest their funds in dispute resolution. In such situations, the party engaged in the dispute may be responsible for covering all associated expenses, unless an alternative approach to financing arbitration and litigation is established.

Annecto Legal steps in to address these gaps by providing clients with access insurance and funding options for any business-related matters. Our services aim to eliminate financial uncertainties and the need for safeguarding balance sheets against unexpected legal costs, all whilst maintaining affordability.

We acknowledge that legal disputes can be disruptive and inconvenient, and we recognise the challenges associated with covering the expenses of necessary legal support.

What is commercial arbitration?

Disputes can find resolution through arbitration outside of the traditional courtroom setting. An arbitrator that is mutually selected by both parties is designated to listen to both sides of the dispute and formulate a resolution. These arbitrators are obliged to reveal any circumstances that might suggest bias or potential conflicts of interest before the arbitration proceedings commence. These obligations are also outlined in the guidelines on conflicts of interest in international arbitration.

Arbitration can be either compulsory, stipulated in a contract to which the parties have already agreed, or it can be entered into voluntarily. The ultimate decision rendered by an arbitrator can be either legally binding or non-binding, contingent upon pre-established agreements. A binding decision typically lacks the option for an appeal and, if necessary, can be enforced by the High Court.

If arbitration is not specified as the preferred method of dispute resolution in a contract, parties can still opt for it once a dispute arises. In any case, turning to an impartial specialist makes arbitration an appealing choice for commercial dispute resolution, particularly for intricate and technically complex disputes. Various forms of arbitration exist, including ICC arbitration and investment treaty arbitration.

What is the Arbitration Act 1996?

The Arbitration Act 1996 is a piece of legislation that governs arbitration proceedings in England, Wales, and Northern Ireland. It provides a comprehensive legal framework for conducting arbitration and resolving disputes through arbitration in these jurisdictions. Some of the key points and provisions of the Arbitration Act 1996 include:

• Arbitration agreement: The Act recognises and enforces arbitration agreements between parties. It sets out the legal requirements for a valid arbitration agreement, including the need for it to be in writing.
• Appointment of arbitrators: The Act outlines procedures for the appointment of arbitrators, including the default procedure if the parties do not have an agreed-upon method.
• Conduct of arbitral proceedings: It provides guidance on how arbitral proceedings should be conducted, including rules on evidence, witness statements, and the tribunal’s authority.
• Awards: The Act sets out rules regarding the making of arbitral awards, including the form and content of awards, as well as the time limits for making them.
• Challenging awards: It establishes grounds on which an arbitral award can be challenged, such as fraud or a serious irregularity in the arbitral process. However, the Act also limits the extent to which court intervention is allowed in arbitration proceedings.
• Enforcement of awards: The Act provides mechanisms for enforcing arbitral awards, treating them similarly to court judgments in terms of their enforceability.
• Interim measures: It allows for interim measures to be granted by the arbitral tribunal or, in certain cases, by the courts.
• Appeals: The Act restricts the right to appeal arbitral awards, making them generally final and binding. Appeals can only be made on questions of law with the agreement of all parties or with the leave of the court.
• International arbitration: It incorporates the UNCITRAL Model Law on International Commercial Arbitration, making the Act compliant with international arbitration standards for cross-border disputes.
• Confidentiality: The Act emphasises the confidentiality of arbitration proceedings and awards unless the parties agree otherwise.

The Arbitration Act 1996 is a significant piece of legislation that has played a crucial role in promoting arbitration as an effective and preferred method for resolving disputes in the United Kingdom. It provides a flexible and modern framework for arbitration proceedings, helping parties to resolve their disputes in a more efficient and cost-effective manner compared to traditional court litigation.

Methods of arbitration funding

Third Party Funding

Non-recourse Third-party funding, also known as TPF, is a financial arrangement wherein an independent funder with no prior involvement in the dispute agrees to finance some or all of the legal expenses associated with arbitration. In return, the funder receives a fee that is payable from the arbitration awards.

By utilising third-party funding in arbitration, litigants can mitigate any financial risks, as the funder covers all expenses in exchange for a portion of the damages awarded. In the event of case failure, the funder assumes all costs, and you are not required to make any payments.

In exchange for taking on the risk, the funder typically seeks a share of the damages, ranging from around a fifth to a third. This means you retain up to 80% of the awarded compensation, having borne none of the financial burden. In larger cases, the funding costs might be structured in a way that allows you to retain well over 90% of the proceeds.

Furthermore, third-party funding can be combined with other available funding arrangements, such as After the Event (ATE) legal expenses insurance, conditional fee agreements, and damages-based agreements.

Third-party funding is a commonly employed financing method in international arbitration proceedings.

Legal Expenses (ATE) Insurance

After-the-Event insurance (ATE insurance) is a form of financial coverage against the expenses associated with initiating or defending legal or arbitration proceedings. It shields the insured party from the risk of having to cover adverse costs.

ATE insurance can be used to cover the opposing party’s costs if you lose your case, and it can also serve as security for costs in some circumstances. In situations where freezing injunctions are necessary, this insurance can also extend to cover cross-undertakings for damages and the risks associated with the injunction hearing itself.

ATE insurance can be secured irrespective of the funding method for a case. It applies whether the party is self-financing, involving a third-party funder, or engaging solicitors under the expectation that their fees will be covered from the case’s recoveries through a damages-based agreement or a conditional fee agreement.

What are the benefits of using arbitration funding and/or insurance?

Commercial arbitration funding and insurance can provide several benefits for parties involved in arbitration proceedings. Listed below are the key advantages of using commercial arbitration funding and insurance:

Risk mitigation: Perhaps the most significant benefit is that commercial arbitration funding, such as TPF, allows parties to mitigate the financial risks associated with arbitration. Instead of bearing the full cost of legal expenses, parties can secure funding from a third party, shifting the financial burden to the funder. ATE insurance can be used alongside third party funding to mitigate all risk of own and adverse costs in the event that the case is unsuccessful.  

Access to legal resources: Funding enables parties, especially those with limited financial resources, to access top-quality legal representation and resources, such as counsel and expert witnesses. This can level the playing field in disputes where one party may be financially stronger than the other.

Enhanced negotiating power: Parties with funding often have greater leverage during settlement negotiations. Knowing that they have the financial backing to pursue the case to its conclusion, they may be in a better position to negotiate favourable settlement terms.

Cost efficiency: Commercial arbitration funding can make the arbitration process more cost-effective for the funded party. This is because funding providers may have experience in assessing the value and merits of arbitration cases, providing budget management and also reducing the risk of pursuing weak claims.

Improved cash flow: Funding can alleviate the cash flow strain that legal expenses can place on businesses. Instead of paying legal fees upfront, the party to the arbitration can defer these costs until the conclusion of the case.

Confidentiality: Funding arrangements are often kept confidential, allowing parties to maintain their privacy and protect sensitive business information.

Focused resources: Parties can focus their resources on the arbitration itself, rather than diverting capital and personnel to cover legal costs. This allows them to allocate their funds strategically.

It is important to note that whilst commercial arbitration funding offers many advantages, parties should carefully consider the terms and conditions of funding agreements and assess whether the benefits outweigh the costs and potential risks associated with the funding arrangement. Annecto Legal can assist clients by helping them to identify which arbitration funding method will be most beneficial for their case.

How can Annecto Legal assist?

Annecto Legal accesses a wide range of providers of commercial litigation and arbitration funding and can help you get the access to justice you need for your case. If necessary, we can also recommend specialists in the particular area of law that you need, including UK and international commercial arbitration.

Securing arbitration funding is not always simple, so having a partner that understands the concerns of financiers that can assist in how your case is presented, as well as negotiate the correct deal for you is crucial.

Get in touch with a member of our team to find out which arbitration and litigation funding method is the right funding choice for you.

Call us today 0800 612 6587, or our director, Mark Beaumont, can be contacted by email mark.beaumont@annectolegal.co.uk.