Essar funder builds on ruling with products to cope with unreasonable arbitral parties

Friel: increased demand

The third-party funder that was at the centre of the landmark High Court ruling last year that saw a claimant recover the cost of his funding, has now launched two products to aid parties involved in international arbitration against an opponent who is behaving unreasonably.

In Essar v Norscot, a defendant whose conduct forced the claimant to seek third-party funding from Woodsford Litigation Funding so that it could take its case to arbitration was ordered to pay the £2m owed to the funder following the claim’s success.

As a result, Woodsford has developed two funding products: one provides funding for the claimant when the respondent fails to pay institutional and arbitral fees, and the other is respondent funding.

The company said that upfront fees payable to arbitral institutions are, in most international arbitrations, shared by the parties. But the respondent often fails to pay its share, which can be more than $100,000, leaving the claimant to cover it instead.

Woodsford CEO Steven Friel said: “Seeking third-party funding will in many cases be a reasonable option. As the respondent’s conduct in such circumstances is demonstrably unreasonable, the claimant will, based on the finding in Essar v Norscot, have a good argument that the respondent should be held liable for the third-party funding costs.”

He said there is a ‘sliding scale’ that allows claimants in this situation “to turn the tables on the respondent, and to ratchet up the pressure through the threat of costs sanctions”.

Mr Friel added there was no reason why it would not be reasonable for a respondent to seek funding when faced by an unmeritorious claim from a well-resourced claimant and difficulties in paying for a defence from its own resources, hence the respondent funding.

“Globally, regulatory reform is helping to expand the market for arbitration finance in specific markets. However, given our involvement in the Essar v Norscot case, we are better placed than other funders to work with parties in international arbitration and their lawyers to help them gain a tactical advantage.

“We are already in discussions with a number of international law firms about our new products and we expect there to be an increased demand for specialised arbitration funding.”

Meanwhile, an analysis by City law firm RPC has shown that the balance sheets of the 20 biggest independent litigation funders in the UK rose 25% to £723m in 2016.

Geraldine Elliott, partner and head of commercial litigation at RPC, said third-party funding has become “an increasingly vital component of the justice system”.

She added: “Increased litigation funding may lead to better deals for businesses looking for this third-party funding and funders becoming more willing to look at funding smaller claims. At the moment, generally the funding model only suits the very largest cases.”

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