Third Party Funding in Arbitrations and Litigation: Advantages and Disadvantages

Even access to justice in most cases involves the use of economic resources. Which are not always available to the plaintiff. In order to start any process, it is necessary to provide for the payment of professional fees to lawyers, cancellation of the request or legalization of documents or other expenses. Cases in the field of international justice are usually more expensive due to the number of people involved and the situations that can be faced.

In recent years, solutions have emerged to overcome these limitations. Through third-party funding called litigation funds. This practice has spread to the United States and some European countries such as England, Germany and more recently Spain.

Faced with the need for justice felt in cases of international jurisdiction, the infusion of resources to cover legal costs is, first and foremost, to support access to justice. These litigation funds are specifically investment groups specializing in the financing of various legal processes, especially in cases of international arbitration and commercial competition.

These funds have no interest in material aspects of the arbitration. Therefore, they invest with the intention of receiving a certain percentage of profit when the case is closed. If one of them evaluates the litigation and agrees to finance it, it means that the case has a high probability of winning, since the financial company is investing resources in it.

In third-party funding of international arbitration, also known in English as Third Party Funding, the variety of procedural costs covered by the agreement is very diverse and even includes the future judgment, if it was a court decision.

Funding for third parties in international arbitration is a lifeline for litigants who may not have the means to support protracted and expensive legal battles, thereby increasing access to justice. This practice benefits the litigation process by potentially shortening the length of cases and thus reducing the associated costs. However, such financial support is not without controversy, including potential ethical dilemmas and the risk of increased litigation in arbitration proceedings. The skills of ofac sanctions lawyers are indispensable for clearly addressing the associated legal and ethical issues, ensuring compliance and advising on the complex intersection of financial and international law.

The benefits of outside funding for equity

The main advantage of this figure is the possibility of increasing access to justice for individuals or groups of people who cannot finance legal processes, and which, especially in the case of international jurisdiction, usually require a large investment of economic resources.

For those who finance legal processes, it is important to reduce the time of the process. Preventing an increase in time and, therefore, economic costs. In this sense, the interest is to obtain a legal result without a trial, which goes beyond the prescribed limits, which of course means faster and more efficient access to justice.

Similarly, obtaining funding for litigation opens up the possibility that other just causes will be heard, and that various cases of international jurisdiction may find the light of law. See also: Legal translation: terms in the Spanish and English legal systems

Some risks to watch out for

The presence of a figure of third-party financing also creates certain risks in legal practice. One that was quickly visualized is the possible generation of a significant increase in litigation in the field of international arbitration. To reduce this possibility, financial companies should conduct an in-depth assessment of the case regarding the safety of the investment.

Perhaps of greatest concern, however, are the important ethical dilemmas involved in involving a third-party funder in litigation and the impact this may have on the client-lawyer relationship. In this sense, the risk that this relationship may influence decision-making during the procedure or violate the rules of confidentiality established between the lawyer and the client is discussed.

The financier figure can also lead to a possible conflict of interest with respect to the arbitrators. Undermining their impartiality, integrity and independence, qualities that cannot be ignored in the arbitration process.

The possibility of these actions requires a review and study of financing within the framework of the law. Even to propose legal instruments that help in some way to regulate this figure, which is certainly also an advantage for access to justice.